Group action could cost UK government billions
Public conference between potential claimants set to spark massive VAT repayments after Bond House verdict
A public conference is being held today to discuss the possibility of a group action against HM Revenue and Customs (HMRC) following its dramatic defeat at the European Courts of Justice (ECJ) last week.
In a move that could cost the government billions in VAT repayments and damages, the ECJ ruled in favour of components wholesaler Bond House Systems last week after a three-year battle.
The case started in April 2003, when Bond House lost a tribunal case against HMRC after it unwittingly became involved in carousel fraud. As a result, the firm had its multi-million-pound VAT rebate withheld. Four weeks later, two other firms, Optigen Ltd and Fulcrum Electronics Ltd, suffered the same fate. All three companies appealed to the ECJ.
In a statement the ECJ said: “The right to deduct input VAT of a taxable person who carries out such transactions cannot be affected by the fact that in the chain of supply of which those transactions form part, another prior or subsequent transaction is vitiated by VAT fraud, without that taxable person knowing or having any means of knowing”.
Ian Prescott, director of Bond House, said:“We believe this was the correct outcome and it’s a huge relief to have this verdict. It means HMRC acted illegally in taking money from us.”
However, the ECJ decision now has to be brought back to the UK and debated through the High Court before it becomes final law.
In total around 400 UK companies are believed to be affected by this ruling. Alias Dass, partner at Birmingham-based Dass Solicitors, has organised the conference to assess the ruling and discuss possible group actions. He said over 250 firms are expected to attend.
“We will be covering several issues including the Bond House result, but also the Joint and Several Liability clause (CRN, 28 February) which it is widely believed HMRC will use as an alternative. HMRC will not take this lying down, but 90 per cent of the action we have taken against them in the past, we have won,” he said.
However, in a statement to CRN HMRC seemed resolute. Paymaster General, Dawn Primarolo, said: “Missing trader fraud (MTIC) is an EU-wide organised criminal attack on the VAT system and cost the UK’s economy over £1bn in 2004/5. Several steps have already been taken to strengthen HMRC’s strategy to tackle MTIC fraud and the government will certainly not hesitate to bring forward further legislation if this is necessary.”