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Just doing their job? The bullying tax authorities

A couple of years ago HMRC wrongfully accused a successful drinks company of fraud, bringing one of its directors to the brink of bankruptcy and suicide. Most of us are aware of HMRC’s power, but a recent story in the Daily Telegraph gives a shocking snapshot of HMRC’s misuse of its power and tells the story of what happens when a bullying and heavy handed liquidator and her team blindly accuses a business of fraud.

Rick Hone had been a director of Abbey Forwarding for five years. It was a successful company, turning over several million pounds a year managing the storage and arranging the transport of beer, wines and spirits. This sort of business, where taxes on alcohol are a large part of the retail price can make millions in tax avoidance. This is exactly what Abbey Forwarding was accused of.

One morning Mr Hone arrived at his company premises to find "there were about 20 officers from HMRC" already busy removing computers and files. One of the officers approached Mr Hone and said: "You owe over £5 million in taxes. You can’t pay it. The company will be closed down to protect the creditors." Meanwhile the liquidator told Mr Hone that he, his co-directors and 32 of his staff were no longer employed by the company; a handful of staff would be kept on to help HMRC "with their enquiries" before being handed their P45s. The director’s personal bank accounts were frozen.

All this happened out of the blue. The company’s accounts had only recently been given a thorough audit by HMRC and the company had had no cause for concern from the feedback, which said that some inaccurate records had been identified, but that "no inaccuracies were identified."

Then the nightmare began:

First, HMRC alleged that the company owed more than £5 million in unpaid taxes, which meant that the company had no right to defend themselves: "HMRC can apply to a judge at an ex-parte hearing, which means that the company it wants to liquidate is not represented, and so cannot defend itself".

However, an ex-parte case does depend on a judge reviewing the evidence, but the first judge in this case awarded HMRC the liquidation order even though he had not had the time to review the case notes, instead he just took HMRC’s word for it that "Abbey Forwarding and its directors had systematically aided and abetted the evasion of the duty on the drink they stored and transported."

Now the directors were all ex-directors; they no longer had any legal control over their business.

The liquidator decided to sue the former directors of Abbey Forwarding for malfeasance that is, "failing in their duty to operate the company honestly". It was eighteen months and not before Mr Hone had lost pretty well everything, before a second judge reviewed the case.

This judge asked HMRC to provide evidence of malfeasance.

Accusation based on suspicion: HMRC alleged that on 301 occasions HMRC had stopped transport that had been recorded as picking up cans of beer from Abbey’s warehouse but, when searched, each lorry was empty.

The evidence based on fact: the evidence revealed that HMRC had stopped an Abbey lorry on only three occasions, in fact, and that there were perfectly reasonable reasons given on all three occasions.

What’s more suspicion, it could be said, had bred a personal vendetta: An HMRC employee admitted that he had no evidence: ‘HMRC had no actual evidence that Abbey had been involved in fraud, but had no proof that it was not involved in criminal activity."

A different judge was now given the opportunity to assess the evidence in detail.

 He found that there was not a single item that would suggest Abbey had been guilty of fraud, and dismissed the case. But the damage had already been done:

"My son felt he couldn’t go to university: he had to start earning. My mother’s pension was tied up in the business. The legal bills were huge. We had to mortgage everything, and borrow as much money as we could. …The liquidator took possession of my mobile and called every single person in my address book, including my mother and godson, and asked them how much money I owed them. … HMRC and their lawyers were ruthless."

David and Goliath: the tax office with unlimited funds against individuals who do not.

Abbey Forwarding won the case. They are now in the process of suing the liquidator and HMRC for damages for the many millions they are owed. HMRC argues it needs the power in order "to catch the bad guys" but a QC who’s been involved in many high-profile tax cases notes that "as it stands, the law allows HMRC to be "judge, jury and executioner".

We should all beware, but let’s give Mr Hone the last word:

"When a judge was able to test HMRC’s evidence properly he found it was all rubbish. If there had been a proper test at the ex-parte hearing the liquidation order would never have been granted in the first place."

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