Winding up Petition reveals £1.5m VAT Scam

The director of a recruitment company for the construction industry has been disqualified for 11 years for his part in an elaborate VAT scam. Ravinder Singh Mandair, the director of Worldwide Trading Services (UK) Limited, has been banned from acting as a director until 2026 for causing losses to HM Revenue and Customs estimated at £1.45million.

Following an Insolvency Service investigation, Mr Mandair (35), has given an undertaking to the Secretary of State for Business, Innovation and Skills, not to take part, directly or indirectly, in the promotion, formation or management of a company or a limited liability partnership from 16 March 2015.

Defrauding the public purse

Worldwide Trading Services operated as a labour provider in the construction industry, sourcing and supplying labour to a large number of third party companies.

The Insolvency Service’s investigating officers found that Mr Mandair, from Oldbury, West Midlands, had engineered a scheme in which it represented to HMRC that all the individuals it employed were subcontractors who were:

– Registered for VAT
– Eligible to be paid without income tax deductions under the Construction Industry Scheme (CIS)

The benefit of this scam to Worldwide Trading Services was two-fold, in that the company could reclaim VAT despite being not being entitled to do so, while paying its employees without making any of the necessary national insurance and income tax deductions, thereby defrauding HMRC and the public purse.

The walls came tumbling down

In his role as director of Worldwide Trading Services, Mr Mandair kept a record of all the payments that had been made in a number of handwritten ledgers. However, all these ‘black books’ were seized by the provisional liquidator from the company’s trading premises.

The ledgers revealed the way in which the scam had been perpetrated, and contained sufficient detail to reveal that HMRC had lost out on an estimated £469,000 of VAT payments as a result of the fraud.

Furthermore, the investigators were also able to discredit the records of all labour supplies ‘received’ by Worldwide Trading Service, which came to in excess of £9million. It was deemed to be completely unfeasible for the company’s suppliers to have provided such a high level of labour, for which Mr Mandair had claimed £1.45million in VAT repayments.

Mr Mandair also failed to maintain proper accounting records or present records to the liquidator when requested to do so. As a result, this made it impossible to determine the purpose of £2.9miilion of cash withdrawals made from the company’s bank account.

Winding-up petition and a creditors’ voluntary liquidation

On 12 November 2010, a provisional liquidator was appointed following the presentation of a winding-up petition by HM Revenue & Customs. The same insolvency practitioner was appointed as the liquidator in a creditors’ voluntary liquidation on 25 April 2012.

The creditors’ voluntary liquidation (CVL) realised just £141,570 of assets, leaving creditor liabilities of £2,841,752. The resulting creditor deficiency is £2,700,282.

A sophisticated attack on the public purse

Welcoming the court’s decision to hand Mr Mandair an 11-year disqualification, the official receiver of the Insolvency Service’s public interest unit, said: “This was a sophisticated and lucrative attack on the public purse which caused considerable losses to HM Revenue & Customs.

“Investigations showed evidence of collusion between Worldwide Trading Services, its suppliers and accountants, and Mr Mandair’s lengthy disqualification reflects the severity of the misconduct perpetrated.

Winding up petitions are a powerful tool and often used by HMRC as can be seen in this instance. The winding up petition forced the director to act as is often the case as you must never ignore a threat to wind up your company. In this instance the director was caught wrongful trading and prosecuted accordingly.

Written by: Mike Smith

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