When HMRC denies a supplier the benefit of zero-rating because it knew or should have known its transactions were connected to fraud, what happens to the VAT? Does the supply simply become standard-rated — opening the door to the reverse charge, and to the argument that the liability belongs to the customer rather than the supplier? On 9 June 2026 the Upper Tribunal answered no. In RS Global Limited and Akshay Agarwal v The Commissioners for His Majesty's Revenue and Customs [2026] UKUT 216 (TCC), Meade J and Judge Amanda Brown KC held that zero-rating is an advantage, not a right — and that removing it does not denature the supply. A £5.9m assessment stays where it landed.
What the case was about
RS Global Limited is predominantly a wholesaler of mobile phones, VAT-registered since 26 March 2007. Its model was to buy handsets in bulk from Europe, Asia and the UK, ship them to a warehouse in Wembley, and sell them on to resellers, online retailers and physical shops established in Europe (para 2). It claimed the VAT on the purchases as input tax and accounted for no output tax on the resales, on the basis that these were intracommunity supplies to businesses VAT-registered in other member states (para 3).
HMRC identified that eight of RS Global's customers had participated directly in VAT fraud, by failing to register or failing to account for VAT as the counterparty to an intracommunity transaction. HMRC took the view that RS Global knew or should have known of the fraud and had failed to take every reasonable step to prevent its own participation — and so denied zero-rating on the supplies under the CJEU's decision in Mecsek-Gabona Kft (C-273/11), a "Mecsek denial", notified on 27 October 2020 (para 4). On 5 November 2020 HMRC assessed output tax of £5,922,899.67 on supplies totalling £35,537,398 for the periods March 2017 to November 2019. Penalties followed, with a personal liability notice against Mr Agarwal, a director (para 5).
Rather than meet the evidence first, the appellants applied under rules 8(3)(c) and (6) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to bar HMRC from further participation and have the appeal summarily determined, on the ground that HMRC's case had no reasonable prospect of success. The application rested on two alternative bases: that there was insufficient evidence to establish the requirements for denying zero-rating, and that on the proper interpretation of Mecsek and section 55A of the Value Added Tax Act 1994, any VAT arising from a Mecsek denial was not the appellants' liability at all — the "Reverse Charge Issue" (para 6). The First-tier Tribunal refused to bar HMRC and rejected both bases, holding on the second that section 55A did not operate to shift the liability to the customer (para 7). Permission to appeal was granted on that ground alone (para 8).
The argument, and why the wording of section 55A mattered
Section 55A is headed "Customers to account for tax on supplies of goods or services of a kind used in missing trader fraud". Its opening condition is precise: subsection (1)(a) applies where "a taxable (but not a zero-rated) supply of goods" is made to a recipient (para 13). That parenthesis is the hinge of the whole appeal.
The appellants' case followed from it. If a Mecsek denial strips a supply of its zero-rated status, the supply must become taxable at the standard rate. Once it is a standard-rated supply of goods of the specified kind, section 55A can bite, and subsection (6) makes it "for the recipient, on the supplier's behalf, to account for and pay tax on the supply and not for the supplier". On that reading, the £5.9m was never RS Global's to pay.
What the Upper Tribunal decided
The Tribunal stepped back to the source and development of the Mecsek principle, distilling ten propositions from the CJEU and domestic authorities (para 49). Among them: the prevention of evasion, avoidance and abuse is a general principle of EU law, before which even fiscal neutrality — "the bedrock of the VAT system" — may need to give way; the Halifax, Kittel and Mecsek principles require no domestic implementing legislation and operate as free-standing principles; knowledge and means of knowledge of fraud are equated with actual fraudulent conduct; it is the objective features of a transaction that determine fiscal competence, and those features are not altered by applying the principle — what changes is the tax consequence attributed to them; and the denial of a VAT advantage is not a penalty but a consequence of applying the principle.
Applying that framework, the Tribunal held that where the objective criteria for zero-rating are established but the transaction is connected to fraud of which the supplier knew or should have known, a notional "redefinition" is required to deprive the complicit taxpayer of the advantage of not accounting for output tax. Critically: "The obligation to account for output tax does not arise by virtue of a statutory charging provision but as a consequence of the freestanding principle to prevent evasion, abuse and avoidance" (para 50).
That disposes of the appellants' premise. The Tribunal expressly rejected the submission that a Mecsek denial causes the supply to become taxable at the standard rate, holding that "zero-rating is [not] a right under EU or domestic law" at all (para 51). Zero-rating applies, or does not, by reference to the objective features of the transaction; a taxpayer cannot choose whether to zero-rate a supply meeting the conditions. It is a right only in the loose sense that it produces an advantageous result.
The Tribunal drew a deliberate contrast with input tax. The right to deduct is a right, founded on neutrality and exercised under carefully prescribed conditions — and it is a matter of choice, since no taxpayer is required to make a claim to which they are entitled. Where the claim arises in connection with fraudulent or abusive transactions, that right is removed, and the element of choice goes with it (para 52). This is the doctrinal difference between a Kittel denial, which strips a buyer of input tax recovery, and a Mecsek denial, which strips a seller of the benefit of zero-rating.
Reliance on Twoh (paras 26–27) and CCET (paras 18 and 40) was rejected: the Tribunal saw no particular significance in the CJEU's use of "right" in preference to "advantage", and read CCET as supporting its own conclusion (para 53). It went further, noting that the CJEU has not been asked to consider this specific issue and that its primary language is not English, and setting out a table of the formulations used in Kittel, Mecsek, Italmoda, Halifax and Cussens in which it could "discern no consistent pattern" (para 54). An argument from Dobre (paras 35–36) that a denial for failure to evidence the objective criteria and a Mecsek denial should be treated equivalently was rejected as overstating what that case says and as inapposite in any event: Dobre says nothing about the consequences of denial (para 55).
The conclusion came with "little hesitation": the effect of a Mecsek denial is to deprive the supplier of the advantage of treating supplies it knew or should have known were connected to fraud as zero-rated (para 56). It "does not denature the supply of goods as an intracommunity supply as a zero-rated supply" (para 57).
Section 55A: left open
Because the supplies retained their zero-rated character, the section 55A question largely fell away. HMRC argued the point was academic, none of the eight counterparties being UK VAT-registered (para 58). The appellants argued that subsection (6) applies a reverse charge to any counterparty registered or required to be registered in the UK whether or not the supply is zero-rated, on the footing that the words "to which this section applies" in subsection (6)(b) import only the description of goods in subsection (9), and not the limitations in subsection (1)(a) (para 59).
The Tribunal declined to resolve it. The First-tier Tribunal had taken no decision on the meaning or scope of subsection (6)(b); what it decided was that recipients of zero-rated supplies subject to a Mecsek denial were not thereby taxable persons within subsection (6)(c). The Upper Tribunal agreed with that, and held that without evidence the counterparties were otherwise taxable persons for reasons unconnected with the relevant supplies, the construction of subsection (6)(b) "is academic at present" (para 60). The appeal was dismissed, the First-tier Tribunal having "reached the correct conclusion and though its explanation was brief it appears that it did so for the right reasons" (para 61).
Why it matters
For anyone advising on MTIC and supply-chain fraud, this closes a route that had looked worth testing. The reverse-charge argument depended entirely on characterising a Mecsek denial as converting a zero-rated supply into a standard-rated one, so as to satisfy the "taxable (but not a zero-rated)" gateway in section 55A(1)(a). The Upper Tribunal has now held that it does no such thing. The liability to account arises from the anti-abuse principle itself, not from a charging provision, and it stays with the complicit supplier.
The judgment is also a useful statement of the architecture. Practitioners frequently elide Kittel and Mecsek, and the distinction drawn at paragraph 52 — a right to deduct that a taxpayer may choose to exercise, against an advantage that attaches automatically by reference to objective features — explains why the two denials operate differently on the same underlying principle.
Two limits are worth noting. This was an appeal on a preliminary issue: the matter now returns to the First-tier Tribunal, which will determine on the evidence whether the requirements for a Mecsek denial are actually met (para 9). Nothing has yet been found against RS Global on knowledge or means of knowledge. And the construction of section 55A(6)(b) remains genuinely open for a case in which the counterparty is independently a taxable person.
RS Global Limited and Akshay Agarwal v HMRC [2026] UKUT 216 (TCC), Upper Tribunal (Tax and Chancery Chamber), Meade J and Judge Amanda Brown KC. Heard 1 May 2026, released 9 June 2026. Michael Firth KC (instructed by Morgan Rose Solicitors) for the appellants; Ben Hayhurst for HMRC. On appeal from the First-tier Tribunal (Tax Chamber) judgment of 12 March 2025, [2025] UKFTT 332 (TC).
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