Taxation recently published a rather sorry tale about HMRC failing to take action to stop a VAT fraud which in the end caused a company to go bust.
The case is Green v Walkling [2007] EWHC 2046 (Ch).
One of the defendants was Mr Walkling. From 1997 to 2001 he was responsible for the sales at Mobility Now Ltd, which specialised in bathing products for people with mobility problems.
In 2001 he was contacted by Mr Moate who had purchased the assets of Mobility Now from the administrator, and he asked Mr Walkling if he would run the business through a company called Ortega Ltd. The shares of Ortega were owned by an American company.
In August 2002 Mr Moate asked Mr Walkling if he would become a director of Ortega, Mr Walkling accepted.
Towards the end of 2003 Mr Walkling became suspicious that Ortega might be involved in a VAT fraud. So he investigated and discovered that Mr Moate was involved in a dishonest scheme.
Ortega was inflating the inputs on the company's VAT return so that claims for repayment of VAT were being presented for some £30,000 to £80,000 a quarter, instead of the normal level which was in region of only £6,000 to £9,000 a quarter.
The repayments received were credited directly to Ortega's bank account. However, as soon as the credit appeared in Ortega's bank account the amount of the credit was withdrawn by cheque. The bank statements then were "doctored" to conceal both transactions.
Mr Walkling estimated that the total amount of money obtained in this way was in the region of £1.3 million.
Mr Walkling's solicitor advised on the money laundering implications and recommended that he, the solicitor, report it. On 13 January HMRC were informed.
Two officers went to Ortega's offices the following day and took copies of documents.
Problem solved???
Not quite!
Read what the judge said:
"
Despite repeated approaches the cavalry never did arrive.
Despite being reminded of the increasing urgency of an intervention by them, it became apparent in March that no one at HMRC had yet read the file and the matter was being transferred to Ipswich; in late March it was reported that someone had read the file and was now 'very interested'; and in May that the HMRC 'wanted to make an arrest, but would like to do it in a subtle manner'.
By June they indicated that they were 'under resourced' and there was some doubt whether they would in fact undertake an arrest but wanted to meet Mr Walkling.
Although Mr Walkling agreed to a meeting it seems that HMRC did not commit to a date for the meeting. In the result, HMRC never managed to take any active step at all and Mr Moate and his wife took the opportunity to disappear along with the whole of the proceeds of the fraud."
Well done HMRC!
Here's what the judge thinks about HMRC:
"
The latter had the whole case put to them on a plate together with all relevant documentary proof by Mr Walkling; they could have arrived and arrested the villain with minimal additional investigation and, had they done so, probably would have recovered a substantial amount of the money of which they had been defrauded.
Had they arrived in good time prior to completion of the sale of Ortega's business, Mr Moate would also have been prevented from misappropriating the sum of £443,000, the subject of this litigation. Instead, he and his wife have been allowed to evade justice and live comfortably probably in another jurisdiction on the proceeds of their crime.
Mr Walkling got not a penny piece by way of advantage out of the affair and never expected to. Instead he suffered the anguish of waiting in vain, while the problems unfolded and developed, for the arrival of the HMRC who never came; he has also suffered ill health, redundancy and unemployment, much of which might have been avoided, had there been an earlier intervention; he has also, as a result of these proceedings hanging over him, suffered the worry over the last couple of years at the potential prospect of financial ruin.
If an order were made against him, the most likely financial consequence is that he would enter into retirement with the loss of his home. On the other hand, were an order to be made against him, there would be substantial financial benefit to the creditors – the most substantial of whom, I note, is the self-same HMRC whose default made a highly significant contribution to the adverse consequences set out above.
I will not make an order which would permit such a grossly unjust result to occur. The application by the liquidator herein must therefore fail."
Mr Walkling faced possible financial ruin for being honest with HMRC, and trying to do his best.
The real irony here is that HMRC claimed that it didn't have the resources to catch the crook, even though the evidence was given to them on a plate. However, HMRC did manage to find the resources to fund the liquidator to pursue Mr Walkling through the courts.
There's justice for you, the HMRC way!
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