HMRC pursued ‘ill-judged litigation’

Posted: 20th February 2015

HMRCIn a deeply worrying case for the tax authorities, a company which ran a successful bonded warehouse has won the right to substantial compensation from HM Revenue and Customs (HMRC) after it was accused of fraud without justification, hit with a tax demand for almost £6 million and forced into liquidation.

The company had been operating for almost 40 years when HMRC formed the view that it was actively involved in the fraudulent evasion of excise duty on alcohol and raised tax assessments totalling £5,965,704. A judge appointed a liquidator at HMRC’s behest and the company was subsequently wound up.

The liquidator’s appointment was enough to destroy the foundations of the business and he later launched misfeasance proceedings against three of the company’s directors, also seeking to freeze their assets worldwide. However, in dismissing the liquidator’s claims after a 13-day hearing, a judge found that the allegations of wrongful evasion of duty had not been made out. HMRC subsequently withdrew the tax assessments and were ordered to pay substantial legal costs.

In opening the way for the company to pursue a damages claim against HMRC, the High Court described it as ‘a worrying case’. It had been shown that the liquidation and winding up of the company were unjustified, yet HMRC remained reluctant to recognise the consequences of those facts. HMRC had already spent £2.5 million on the ‘ill-judged litigation’ and the amount of the company’s damages had yet to be assessed. The Court urged that the future handling of the matter should be ‘considered at a very high level’ within HMRC.