An Internet trading company, which was placed in provisional liquidation after being accused of involvement in tax fraud on an enormous scale, has failed to convince the High Court that it was engaged in nothing more than honest business.
HM Revenue and Customs (HMRC) claimed that the company owed more than £7.7 million in unpaid VAT in respect of three quarters of trading. A provisional liquidator was put in place on the basis that the company had failed to explain an explosion in the level of supplies it had received. Those had risen from less than £60,000 in one quarter to more than £23 million in the equivalent quarter in the following year.
HMRC argued that the company’s management knew, or should have known, that a large number of transactions were connected with fraud. That was hotly disputed by the company, which insisted that it was far from being a shell, having a number of employees and having invested substantial sums in the development of its business.
In refusing to overturn the liquidator’s appointment, the Court rejected arguments that it had no power to intervene at a time when the company was in the process of challenging the tax assessments before the First-tier Tribunal.
Finding that it was likely that the company would ultimately be wound up, the Court was persuaded not only that its dealings were connected with fraudulent evasion of VAT but that its directors ‘either knew or had the means of knowing that this was the only reasonable explanation for the transactions’.
The Court pointed to the ‘extraordinary volume of trading’, achieved over such a short period. What little due diligence the company had undertaken to check the legitimacy of its suppliers was at best perfunctory and had fallen far short of what would ordinarily be expected of an honest trader.