Liability in mismanagement scenario

The Tax and Customs Administration held the former executive director of a private limited-liability company liable for outstanding additional value-added tax assessments inclusive of interest on underpaid tax and default surcharges, which additional tax assessments had been imposed in adjustment of fake invoices having been put through the company’s books resulting in understatement of the value-added tax due and payable. The former director challenged both the additional tax assessments and the liability claim.

The additional tax assessments pertained to the years 2008 and 2009. On 3 March 2009 the company had advised the Tax and Customs Administration of its inability to pay. This had been too late where the 2008 tax periods were concerned, but in good time for the tax periods from 1 January 2009 onwards. The Court of Appeal ruled that the director had rightly been held liable in respect of the year 2008 as no facts or circumstances had been presented warranting the conclusion that the director had not been to blame for the failure (in good time) to advise the tax authorities of the company’s inability to pay. The director had moreover been rightly held liable in respect of the year 2009 as there had evidently been a question of mismanagement. The Court of Appeal considered it plausible that the company had deliberately put fake invoices through its books and as a result had got away with paying too little value-added tax, as something in which the former director by virtue of his executive position had been involved. The Court accepted this as an example of evident mismanagement and ruled that the director’s liability had rightly been extended to include the interest on underpaid tax and to the penalties owing to the director having been involved.

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