A Personal Liability Notice (PLN) against the sole director of a liquor selling company was upheld by the First Tier Tribunal (FTT) in a recent verdict. The director was held responsible for his involvement in VAT fraud totaling around £75,000. This outcome highlights HM Revenue and Customs’ resolute pursuit of individuals involved in tax evasion and serves as a warning to any director protected by a company that may be facing insolvency and may be inclined to evade their VAT obligations.
A VAT Fraud Case
The liquor trader has conducted approximately 179 transactions with an organized criminal group over the period of time. This was done by selling liquor in cash transactions to deliberately avoid tax. After the transactions the group carried out activities leading to VAT fraud. The Missing Trader Intra-Community was used to deliver the products also known as the Carousel fraud. In 2019, the full scope of the scam was revealed when eight members of the criminal group were found guilty and given sentences varying from six to nine years. The UK tax authorities, HMRC, calculated that a whopping £34.2 million in unpaid VAT had been lost overall as a result of this fraudulent scam.
HMRC Scrutinizes Liquor Company’s Transactions
The liquor company’s involvement was examined by HMRC in light of these developments. The organization had filed tax deductions worth £186,694.46, which HM Revenue and Customs (HMRC) had prohibited on 3 March 2017. An evaluation adding up to £182,455 starting around 17 July 2017 was given to the organization. Additionally, due to the company’s trading in transactions involving fraudulent VAT losses, which the company ought to or could have known about, a penalty notice for the amount of £83,019.70 was issued. Later the penalty was reduced to £74,823.63 as the judge of the tribunal concluded that the director had selective memory and the evidence was not constant.
Implications
The business appealed the tax assessments that were sent out in 2017 but ultimately decided not to pursue it in January 2024. Nonetheless, on June 22, 2017, HMRC sent a Personal Liability Notice (PLN) to the director directly, foreseeing the company’s impending collapse. As the only director in charge of the company’s tax matters, this PLN deemed the director personally liable for the underpaid VAT. After admitting that some of the transactions—45, to be exact—couldn’t be directly connected to illegal VAT losses, HMRC subsequently lowered the original PLN amount to £74,823.63.
Inconsistent Memory Raises Red Flags for Director
The director’s selective memory was questioned by the court, which alluded to a possible attempt at information concealment. The tribunal also found that the director did not properly do due diligence on his suppliers, which is an essential stage in confirming their validity. The tribunal concluded that this lack of inquiry suggested a more widespread knowledge of the fraudulent behavior.
Kittel Principle Applied: Director Found Liable
The Kittel principle, according to which traders are accountable for both what they know and should have known, was referenced in the decision. Using this guideline, the tribunal came to the conclusion that the director knew or ought to have known that the transactions were fraudulent, and as a result, his company did as well. Thus, the director was held accountable for his company’s false VAT returns, and the court upheld a reduced penalty that translated from the original PLN value to £74,823.63.
The fact that the FTT ruled against the only director of a liquor selling company demonstrates HMRC’s commitment to tackling tax fraud. To prevent similar consequences, directors must manage their companies’ tax affairs with vigilance and initiative. All directors should take a serious lesson from this case regarding the value of doing their due diligence and the catastrophic repercussions of skipping out on their tax obligations. Regardless of business arrangements, HMRC’s attempts to hold people accountable demonstrate their dedication to upholding the integrity of the tax system and safeguarding public funds.
