Failure to file correct VAT returns led to company liquidation

Blog Liquidation

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A company which understated its VAT liabilities has been placed into voluntary liquidation after being landed with a bill to pay the tax in full.

The disability access company, Kruz Developments, entered the market in 2000 and enjoyed many successful years installing disability access points for a number of commercial outlets across South Wales.

However, revenue dipped throughout the recession and external auditors were called in to inspect the company’s books later in 2015.

HM Revenue & Customs (HMRC) discovered that during this time, the company had “deliberately” filed 14 VAT returns which understated the amount of tax owed by a total of £521,814.

Kruz Developments was asked to pay these liabilities in full but was unable to do, leading to its liquidation in 2016.

Due to the director’s actions, the Insolvency Service was called in to investigate the circumstances surrounding the company’s unfortunate end.

It was concluded that the company ultimately failed because the director provided inaccurate VAT information to HMRC. For his failings, the director was also banned from acting as a company director for a period of seven years.

Wendy Jones, the Insolvency Service’s deputy head of Insolvent Investigations, said filing incorrect VAT returns gave the company a “significant financial advantage” compared to other companies filing correct returns.

“Unlike normal trade creditors, HMRC relies on the taxpayer to disclose the correct amount that is owed to them, so a failure to file accurate returns puts them at a disadvantage to other creditors,” she said.

“Deliberately understating sales in order to reduce the VAT to be paid to HMRC is dishonest. This can also result in understated company profits leading to underpayments of Corporation Tax. Both give a company an unfair advantage over competitors. Taking action against Mr Porretta is a warning to all directors to seriously consider and ensure they perform their duties and obligations.”