Kittel VAT Fraud – A Liquidator's High Court Claim

Kittel VAT Fraud – A Liquidator’s High Court Claim

The High Court judgment in Hellard v Khan & Anor (May 2024) serves as a stark warning to directors involved in MTIC VAT fraud schemes. Directors who fail to appeal HMRC’s denial of input tax face serious consequences: personal HMRC penalties amounting to 30% of the denied input tax, and liquidator recovery actions with no time limits.

The Case

Kevin Hellard, acting as liquidator of Phoenix Tech Limited, pursued directors Nizakat Khan and Jasbinder Singh under insolvency law sections 212 and 213 for fraudulent trading connected to MTIC VAT schemes during the period 2005-2006.

Phoenix Tech Limited had claimed £4.5 million in input VAT. HMRC denied the claims and imposed a penalty of £607,387. The company was subsequently placed into liquidation.

The Judgment

Khan was ordered to pay £4,806,550. His attempt to re-challenge his knowledge of fraud was dismissed by the court as “an abuse of process”, since the 2014 tribunal findings on this point were binding. The tribunal had already established that Khan knew or should have known that the transactions were connected to fraud, and the High Court was not prepared to allow a second bite at the cherry.

Key Takeaways

This case demonstrates several critical points for directors of companies facing HMRC Kittel assessments:

• Personal liability is real. Directors cannot hide behind the corporate veil when fraudulent trading is established.
• Failure to appeal has permanent consequences. Once HMRC’s denial of input tax becomes final, the findings can be used against directors personally with no time limit.
• Tribunal findings are binding. Attempting to re-litigate issues already determined by a Tax Tribunal will be treated as an abuse of process.
• Liquidators have powerful tools. Sections 212 and 213 of the Insolvency Act give liquidators wide-ranging powers to pursue directors for the losses caused to the company.

How We Can Help

If you are a director facing HMRC Kittel assessments or investigations into MTIC VAT fraud, it is essential to take action immediately. The consequences of inaction, as this case demonstrates, can be devastating.

Contact Liban Ahmed, Tax Director, with over 17 years’ experience in Kittel appeals, for specialist advice on your position.