Director banned for 12 years over VAT fraud

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Peninsula Team, Peninsula Team

(Last updated )

A director has been given a 12-year disqualification after causing his company to participate in transactions which were connected with the fraudulent evasion of VAT.

Mozmul Islam, from London, caused his company to fraudulently evade VAT transactions, on top of applying for the maximum amount of £50,000 available through the bounce-back loan scheme, which he was not entitled to.

Between 1 August and 31 October 2019, Islam caused his company to participate in transactions which were connected with the fraudulent evasion of VAT.

These connections are something with which Islam, either knew or should have known about, according to HMRC.

Islam was visited by HMRC officers on 30 July 2019 and was given information regarding missing trader intra-community fraud (MTIC) and explained the importance of due diligence to ensure the integrity of the supply chains.

He was handed a copy of a VAT notice 726, which explains how one could be made jointly and severally liable for the unpaid VAT of another VAT-registered business.

On 6 August 2019, an MTIC awareness letter was also sent and a decision was taken by HMRC to place the company on the MTIC monitoring project.

The trading in which his company was involved had many common features of the fraudulent evasion of VAT. For example, his supply chains were back to back with little or no delay between purchase and sales.

Friz operated a very low profit margin which was generally between 1-1.5% showing it added little to no value to the supply chain. In addition, goods were delivered directly to the customer from the supplier and it was the supplier who would arrange the transport.

Its turnover also increased dramatically in a very short time. The inputs and outputs declared by the business for the VAT quarters ended 01/17 to 10/18 totalled £144,701 and £144,699 respectively, and for the quarter ended 01/19 its turnover was over £1,000,000. For the quarter ended 10/19 its sales book showed total sales of £1,093,508.

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Despite being aware of the prevalence of fraud in the fast-moving consumer goods sector and engaging in transactions bearing the features of such fraud, Islam failed to ensure that he carried out effective steps, due diligence or other checks in respect of its trade and trading partners.

The business failed to apply to use the HMRC VAT validation services for its trading partners, despite being invited to do so and also failed to conduct any credit checks on its trading partners.

In the VAT period that ended 10/2019, Friz completed 24 purchases of soft drinks, confectionary and toiletries from a defaulting trader. Its declared input VAT on the purchases for the quarter was £180,557.

On 19 February 2020, HMRC identified that the purchases commenced with a defaulting trader and issued a letter denying the right to deduct input VAT for the quarter resulting in a loss to the public revenue of £180,557.

It then advised Friz that it had been deregistered for VAT with immediate effect because HMRC believed that the company was using its VAT registration solely for fraudulent purposes.

On 15 May 2020, in the knowledge that the company had ceased to trade and was insolvent, Islam applied for a bounce-back loan of £50,000, to which it was not entitled.

According to banking activity, the company had ceased to trade by December 2019 at the latest. As of the date the application was made, Islam was aware of a tax assessment of £686,671 issued by HMRC to Friz, this being informed to him by HMRC in February 2020.

The tax liability remains due at liquidation. The bounce back funds were dispersed on 20 May 2020 and the entire £50,000 remains outstanding at liquidation.

Islam has since been handed a director disqualification order for 12 years.

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