The Upper Tribunal’s decision in Ashley Charles Trees v HMRC [2026] UKUT 00092 (TCC), handed down on 26 February 2026, is one of the most important VAT enforcement decisions of the year. It does not let directors off the hook. What it does is force HMRC to play fair — and it establishes, with clarity, that a written assurance from HMRC cannot be quietly discarded when it becomes inconvenient.
Every CFO, every finance director, and every non-executive who has sat on the board of a company that dealt in high-value goods, cross-border transactions, or supply chains with opaque counterparties needs to understand this case. Director’s Liability Notices under sections 60 and 61 of the Value Added Tax Act 1994 make VAT penalties a personal matter — and the numbers are not trivial.
What Happened in Trees v HMRC
Ashley Trees was the sole director and shareholder of CCA Distribution Ltd, a company trading in mobile phones. HMRC alleged the company’s transactions were connected to Missing Trader Intra-Community (MTIC) VAT fraud — the mechanism by which fraudsters exploit the zero-rating of cross-border EU supplies to claim VAT repayments on goods that were never intended to enter legitimate commerce. The Kittel principle, established by the Court of Justice of the EU, provides that a business loses its right to deduct input VAT if it knew, or should have known, that its transactions were connected to such fraud.
In January 2019, HMRC confirmed in writing that it was not alleging dishonesty against Mr Trees or CCA. Those proceedings concluded in 2020 with the First-tier Tribunal finding that CCA — through Mr Trees — knew its transactions were connected to fraudulent VAT evasion. That is the Kittel finding. Dishonesty was not in issue. The written assurance had been given. The case was concluded on that basis.
Then, in July 2021, HMRC issued a Director’s Liability Notice against Mr Trees personally, seeking £1,974,850 — nearly £2 million — on the basis that CCA’s penalty was attributable to his dishonesty. The evidence HMRC relied on in the 2024 DLN proceedings? The very same factual findings from the 2020 Kittel proceedings — conducted on the explicit understanding that dishonesty was not alleged.
The Upper Tribunal allowed the appeal. Mr Justice Rajah and Judge Brannan set aside the DLN entirely.
Three Core Findings That Every Director Needs to Know
First: Kittel does not equal dishonesty. This is legally critical and practically important. The Kittel test — knowing or ought to have known of a connection to VAT fraud — is not the same as acting dishonestly. The Court of Appeal confirmed in HMRC v Citibank/E Buyer [2017] that HMRC does not need to plead dishonesty to deny input tax recovery under Kittel. What HMRC cannot do is exploit that distinction to build a dishonesty case for personal liability from findings made in proceedings where dishonesty was expressly disclaimed. The Tribunal called this inherently unjust.
Second: abuse of process is a real and effective weapon. The Upper Tribunal found HMRC’s conduct constituted an abuse of process. If HMRC intended to pursue a dishonesty case against Mr Trees personally, it should have pleaded that case — with proper particulars — in the original proceedings. Mr Trees gave evidence in 2020 knowing dishonesty was not in issue. The procedural protections that apply when fraud is alleged — the right to know the case against you, to respond with appropriate evidence, to receive a fair hearing — were denied to him. That is not a technical point. That is a fundamental principle of justice.
Third: Article 6 ECHR applies to Director’s Liability Notices. The Tribunal confirmed that a DLN constitutes a criminal charge for the purposes of Article 6 of the European Convention on Human Rights. This means directors facing DLNs are entitled to the full protections of a fair trial: adequate time to prepare, proper notice of the allegations, and protection against procedural unfairness. This is not merely academic. It gives directors a substantive basis on which to challenge enforcement that falls short of those standards.
The Personal Exposure That Has Not Gone Away
This decision does not reduce director risk. It clarifies it. The machinery for personal liability remains fully intact, and HMRC continues to use it aggressively. Under sections 60 and 61 VATA 1994, where a company is found liable for dishonest VAT evasion, HMRC can issue a parallel DLN making the individual director personally liable for the full penalty amount. The company does not need to be solvent. It does not even need to exist. If the company has been dissolved, the personal liability follows the director.
HMRC also has a two-year window from the final determination of the company’s tax liability to issue the civil evasion penalty and the DLN. What this means in practice is that a director can conclude a Kittel appeal — believing the litigation is over — and then face a fresh personal action years later. The litigation does not end when the company’s case ends.
Personal Liability Notices in the insolvency context operate similarly. As Lexlaw’s 2026 guide to PLNs sets out, HMRC’s use of personal liability mechanisms has intensified significantly in recent years, and the trend is towards more enforcement, not less. Howard Kennedy have noted that HMRC is expanding AI-led fraud detection to identify personal liability targets, including former directors of dissolved companies.
The Controlling Mind Problem
One aspect of Trees v HMRC that deserves more attention than it typically receives is the Tribunal’s treatment of the relationship between the sole director and the company. The Tribunal treated Mr Trees as the corporate embodiment of CCA — the controlling mind through whom all acts of the company were channelled. Findings against CCA were, in substance, findings against him.
For sole directors and majority shareholders of owner-managed businesses, this is not a theoretical risk. If your company trades in a sector — mobile phones, pharmaceuticals, electronic components, commodity goods — that is known to attract MTIC fraud, and HMRC succeeds in a Kittel claim against the company, the personal trajectory is not separate from the corporate one. It flows from it. The gap between the company’s tax outcome and your personal liability may be narrower than you think.
CFOs in larger organisations face a related issue through the Senior Accounting Officer regime. Under the SAO rules, the designated senior accounting officer must certify that the company’s tax accounting arrangements are adequate and appropriate. Failure to do so carries a personal penalty of £5,000. More significantly, the SAO regime places the CFO on a personal footing in relation to tax compliance — creating a line of individual accountability that mirrors, in a different context, the personal exposure that DLNs create in a VAT fraud context.
What HMRC Must Now Do Differently
The Trees decision creates a clear obligation on HMRC. If it intends to pursue a director personally on the basis of dishonesty, it must say so — early, explicitly, and with proper particulars — in the original proceedings. It cannot reserve a dishonesty case for later, having given assurances to the contrary. And it cannot use findings made in proceedings where dishonesty was not alleged as the evidential foundation for a personal penalty based on dishonesty.
This has practical consequences for how HMRC must conduct Kittel appeals. Where the company’s case is being run alongside a potential personal liability claim, HMRC will need to be explicit about the relationship between the two — and directors will need to ensure that any written communications from HMRC about the scope of allegations are carefully preserved. As RPC Legal’s analysis of the decision notes, the Tribunal’s emphasis on particularisation and early disclosure of the dishonesty case changes the procedural map for any director facing dual-track HMRC enforcement.
Six CFO Actions Flowing from Trees v HMRC
1. Know your supply chain. MTIC fraud risk is not confined to small trading companies. Any business buying goods — particularly high-value, portable commodities — from chains involving intermediaries must be able to demonstrate what due diligence it carried out. The Kittel test asks what you knew or ought to have known. Ignorance is not a defence if the warning signs were there.
2. Treat HMRC assurances as documents. If HMRC writes to confirm that dishonesty is not alleged, or that a particular issue is not in dispute, preserve that correspondence. Do not allow it to be buried in a litigation file. It may be the most important document you have if HMRC changes its position years later.
3. Do not assume the litigation is over when the company’s case is over. The two-year window for DLN issuance means the personal exposure outlasts the corporate proceedings. Ensure your legal advisers are tracking the DLN deadline explicitly alongside the primary VAT appeal.
4. Challenge procedural unfairness early and aggressively. The Trees decision shows that abuse of process arguments have real force. If HMRC changes its position on dishonesty, if it relies on findings from earlier proceedings where the position was different, or if the procedural protections appropriate to a dishonesty case were not available to you, those grounds should be raised at the earliest opportunity — not saved for appeal.
5. Brief your board on DLN risk. Non-executive directors and audit committee members often assume personal liability is a concern for the trading entity, not for them. In practice, where a DLN can follow findings about any director through whom the company acted, this assumption needs testing. Gunner Cooke’s analysis of CFO personal accountability sets out the broader landscape clearly.
6. Take specialist advice at the first sign of HMRC interest in supply chain transactions. By the time HMRC issues a DLN, several years of proceedings have already shaped the evidential landscape. The time to instruct specialist VAT and tax litigation advisers is when HMRC first raises questions — not when it issues a personal penalty notice for £2 million.
The Wider Enforcement Direction of Travel
Trees v HMRC sits within a broader pattern. HMRC is increasingly focused on personal accountability — for VAT fraud through DLNs, for income tax compliance through the SAO regime, and more recently for corporate governance failures through the Failure to Prevent Fraud offence introduced by the Economic Crime and Corporate Transparency Act 2023, which came into force for large organisations from 1 September 2025. The direction is consistent: HMRC and the wider enforcement apparatus are putting individual finance leaders on the line, not just corporate entities.
The Trees decision is a corrective to one form of HMRC overreach. It does not reverse the trend. It tells HMRC to play by the rules — which is important — while making clear that the rules themselves give HMRC formidable powers to pursue directors personally for very large sums.