Entatech owner taking HMRC fight to Supreme Court

Jason Tsai says reports carried out by BDO and RSM Tenon exonerate Changtel, formerly Enta Technologies, of any wrongdoing

The owner of distributor Entatech has told CRN he will take former subsidiary Changtel Solutions' VAT battle with HM Revenue & Customers (HMRC) to the Supreme Court.

HMRC has resumed its efforts to wind up Changtel - a dormant export company Enta UK offloaded in January 2014 - after winning a case at the Court of Appeal.

HMRC's beef with Changtel dates back to eight purchase invoices it alleges the firm duplicated in its Sage 500 accounting system in 2012, when it was still part of Enta UK. It alleges this led it to reclaim £1.1m too much in input VAT.

Although Changtel conceded it made errors at the time, it continues to strenuously deny any VAT is owed, a position supported by two accounting firms - BDO and RSM Tenon (now Baker Tilly) - it invited in last year to examine its books.

Changtel has until 5 March to appeal to the Supreme Court, something Enta UK founder and owner Jason Tsai intends to do.

Tsai said he sold export-focused Changtel, which was formerly known as Enta Technologies, to a private investor in January 2014 to insulate Enta's staff, suppliers and customers from the HMRC issue.

He is Changtel's only director and employee and stressed the dormant business is now entirely separate from the rest of the group.

"It was better to hold [Changtel] outside the group because we had legal actions we couldn't control," he said.

"I'm trying to protect the employees. [One day] I will retire and the staff will have the company. Some of the senior staff have been at Enta for 22 years and they deserve the company for their achievements - that is my ultimate goal.

"One thing is for sure, no matter whether Changtel wins or loses the court case, it won't affect the operation of Entatech."

HMRC says Changtel over-declared £1.099m in input VAT on eight duplicate invoices from iForce Technologies between January and March 2012. It also claims that Changtel under-declared £1.15m in output tax in 2010 and 2011, mainly in relation to transactions with a Danish and Estonian company.

Fighting back

However, forensic investigations carried out last year by BDO and RSM Tenon on Tsai's behest, seen by CRN, both reject HMRC's findings.

BDO said in its conclusion: "...from the information supplied to us, we can see no evidence of the invoices in dispute being duplicated, and therefore the assessment of £1,099.140 for over-declared input VAT would appear to be incorrect."

RSM Tenon said in its conclusion: "I conclude that the eight invoices identified by HMRC were not duplicated on these VAT returns and assessment in this regard is not valid."

Changtel originally won support in the case from the Companies Court last March but that ruling has been overturned in HMRC's favour by the Court of Appeals.

Tsai hit out at what he claimed were HMRC's bully-boy tactics.

"HMRC are so powerful, they just don't care. They spend taxpayers' money on legal issues that just go on and on. They think they have a case but they've never sent a professional [accountant] to look at our system, which is why we spent the money [on BDO and RSM]. Those two reports are from reputable companies and I've even said to HMRC to ask Deloitte or PwC to come in. But they don't do that, they just use their officer - who is not an accountant - to argue with us. This is the reason we are going to the Supreme Court (pictured, right)."

Boosted by the £600,000 sale of Changtel, for its most recent financial year ending 28 February 2014, Enta UK posted pre-tax profits of £1.1m on revenues of £125.7m. Operating profit was a more modest £427,000 while retained profit was £29,000 after a £1m dividend was awarded.

Tsai said the distributor is poised for growth.

"Entatech has done a warehouse extension to about 15,000 sq ft. We have nearly 150 staff, are doing 900 orders a day and are having to employ more people," he said.

"It is immune from the issues [Changtel has experienced] as it has nothing to do with the kind of business HMRC is scrutinising."

HMRC said it does not comment on the affairs of individual businesses, citing taxpayer confidentiality.