The dangers of drawing first blood
Although victory is sweet, the wider implications of beating a giant such as HMRC could have a nasty aftertaste, writes Sara Driscoll
The problem with the David and Goliath fable is that it ends after their first fight, and in this ASBO-addled world, no fight ends after just one round.
The triumph last week of SME Bond House Systems over the leviathan that is HM Revenue and Customs’ (HMRC) may yet become a hollow victory for the channel. The Bond House case has been ongoing since 2003, after the firm was caught up in a missing trader VAT fraud chain. Bond House then lost a tribunal case against HMRC which meant the government was able to withhold a multimillion pound VAT rebate. Bond House subsequently took the case to the European Court of Justice (ECJ) which last week ruled that Bond House should be allowed to receive its tax rebate.
However, before we charge our champagne-filled glasses, it is worth considering the wider implications of this case. Firstly the ECJ ruling has yet to become law in the UK, and undoubtedly there will be an abundance of red tape to go through before this finally happens. The case could also cost the HMRC in excess of £1bn in VAT rebates and further billions in possible compensation and this will not be taken lying down; HMRC could still appeal the ruling, which would further draw out the legislative process.
But more worrying for the channel is that HMRC will be hunting for new and varied ways to ensure that it recoups some of its losses. One way the governement could choose would be to go to the High Court for an order to appoint a provisional liquidator to run a firm that HMRC suspects of not paying VAT on a transaction, while it uses company assets to cover costs. This could effectively force VARs into liquidation without prior notice, and again innocent or unwitting companies could be caught up.
This is simply round one in corporate UK’s fight against the heavy handedness that the government has sometimes been accusd of displaying, and as the saying goes: we may have won this battle, but the war certainly isn’t over yet.