Historic MTIC VAT Fraud Directors Owe £4.8m (18 Years Later)

Two directors of a company involved in a complex and now historic MTIC missing trader VAT carousel fraud scheme have been ordered in a 2024 decision of the High Court to pay £4.8 million, nearly two decades after their fraudulent activity took place.

Directors Held Liable for Historic MTIC VAT Fraud

In a landmark 2024 decision of the High Court, two Directors of Phoenix Tech Ltd have been held liable to pay up around £4.8m for a £4.5 million VAT fraud committed in 2006. The High Court upheld HMRC‘s VAT repayment decision from 2006, finding the directors had knowledge of the fraudulent scheme and were not “innocent dupes” as first determined by the FTT. The case sets a precedent for holding company directors accountable for VAT fraud especially where there is a finding of director fraud already determined by the Tax Tribunal. Directors previously involved in MTIC Fraud with adverse Tribunal findings will no doubt be concerned.

High Court Upholds HMRC MTIC Fraud VAT Penalty

Phoenix Tech Ltd, a company now in liquidation, participated in a “missing trader intra-community” (MTIC) fraud, a sophisticated VAT evasion scheme. The company submitted a fraudulent VAT return claiming a £4.5 million repayment. HMRC rejected this claim and imposed a £607,387 penalty.

Directors Knowledge of VAT Fraud

A subsequent appeal by the company to the First-tier Tribunal (Tax Chamber) was dismissed, with the tribunal concluding that Phoenix Tech Ltd had engaged in an orchestrated scheme to evade VAT. There are many other such cases of finding of VAT Fraud against Directors. The company’s director, Mr Khan, was found to have both knowledge and intent in the fraudulent activities, despite his claims of innocence.

Phoenix Tech Ltd was subsequently liquidated following an HMRC petition based on the misdeclaration penalty. Unfortunately for the Directors the appointed Liquidator, Kevin Hellard, has a steel-like determination to succeed on behalf of creditors.

High Court Strikes Out Defence in VAT Fraud Case

In a recent High Court decision, Hellard v Khan & Anor (Re Phoenix Tech Ltd – Insolvency Act 1986), the liquidator pursued a claim against Mr Khan and another director, Mr Singh, for their involvement in the fraud. Mr Khan defended the claim, arguing that he lacked knowledge of the fraudulent activities.

The High Court struck out Mr Khan’s defence, finding that he was estopped from denying knowledge of the fraud based on the previous findings of the First-tier Tribunal. The court also determined that allowing Mr Khan to defend the claim would be an abuse of process, as it would involve relitigating issues already decided and cause undue delay and expense.

Directors Estopped from Denying Knowledge of Fraud

The court emphasised the importance of preventing individuals from benefiting from fraudulent activities and the need to protect the integrity of the legal system. The decision to strike out Mr Khan’s defence and grant summary judgment to the liquidator sends a strong message to those involved in VAT fraud that they will be held accountable for their actions, even after a significant period of time.

Kevin Hellard will now seek enforce the £4.8 million owed by the directors against their assets in order to pay themselves first then distribute the same to creditors, primarily HMRC.

Key Takeaway Points:

• Two directors of a company involved in a £4.5 million VAT fraud scheme in 2006 have been ordered to pay £4.8 million in 2024.
• The High Court upheld HMRC’s decision, finding the directors knew about the fraud.
• There was no need for a lengthy trial and the findings of the Tax Tribunal stood.
• This sets a precedent for holding directors of companies engaged in historic MTIC fraud accountable for VAT fraud.
• Directors that have Tribunal findings against them and have retained wealth are low-hanging fruit for liquidators who could restore companies to pursue claims.