Director Fined £75,000 for VAT Fraud

The First Tier Tribunal (FTT) has confirmed a Personal Liability Notice (PLN) against the sole director of a liquor trading company for his part in VAT fraud of almost £75,000.

This result again underlines HM Revenue and Customs' determination to go after those who engage in tax evasion and borders on a shot across the bow for any director under the protection of companies, which may be against insolvency, who will have the propensity to avoid their VAT liabilities.

How the Company Got Caught?

The liquor company conducted 179 transactions over that period, supplying goods to an organised criminal group. Following the transaction, they started carrying out activities resulting in massive amounts of VAT fraud. The goods were delivered and carried out using the Missing Trader Intra-Community, commonly known as carousel fraud.

In 2019, eight members of this group were convicted and sentenced to between six and nine years for the part they played in the fraud, with total losses from HMRC adding up to £34.2 million in lost VAT.

The company had filed an input tax deduction claim worth £186,694.46, which HMRC had disallowed on 3 March 2017. An assessment amounting to £182,455 as of 17 July 2017 was issued to the company. Additionally, a penalty notice amounting to £83,019.70 was issued because the company was trading in transactions involving fraudulent VAT losses, which the company should or could have known about.

What Was the Implication of the Tribunal Ruling?

Despite the company's appeal against the assessments in 2017, which was later withdrawn in January 2024, HMRC anticipated insolvency and issued a PLN to the director himself on 22 June 2017. This notice held the director personally liable for the VAT due to his role as the sole director responsible for the company’s tax affairs. The PLN was later reduced to £74,823.63 after HMRC conceded that 45 of the transaction chains could not be directly traced back to fraudulent VAT losses.

The judge decided that the evidence was inconsistent, stating that the director had a selective memory. The tribunal found that the director should have conducted proper due diligence on his suppliers for him to establish the legitimacy of their dealings. His failure to perform generalised the suppliers' fraud to his guilt as an accessory to the fraud.

Therefore, following the Kittel principle, where a trader shall be deemed liable not only if he knew but also if he should have known that the transactions were linked to fraud, the tribunal concluded that the director, and thus his company, knew or should have known that the transactions were fraudulent. The court, therefore, sustained the lesser amount of PLN to £74,823.63 and held the director responsible for the wrong VAT returns of his company.

Conclusion

The case involving a liquor trading company and the director was a typical show of zeal by HMRC in fighting against tax evasion and making it impossible for an individual to evade their tax liabilities by declaring their company insolvent.

This determines the fact that directors must be aware and proactive regarding their tax obligations so that they shield themselves from incurring such fines and legal actions.