In S D Raithatha (As Liquidators of Halal Monitoring Committee Limited) v M N A Baig & Ors [2017] EWCH 2059 (Ch), the High Court found the Directors were personally liable for VAT debts due to a failure to register for, and charge, VAT.

  • The company was established in 2004 to ensure meat and poultry consumed by the Muslim community was Halal.
  • Employees attended abattoirs to observe the process and endorse the carcass with the company seal of approval. Butchers would pay for this service.
  • HMRC enquired into the VAT status of the company in January 2011.
  • The company believed it was providing exempt supplies of welfare services by a charity and supplies of goods and services connected with spiritual welfare services.
  • HMRC concluded the supplies were subject to VAT:
    • The fees were based on the number of animals slaughtered and time spent at the butchers by the employee.
    • Fees were paid for the right to carry the company logo in their premises, which required acceptance of random visits and inspections.
  • Following this the company voluntarily Registered for VAT backdated to 2005.
  • HMRC issued an assessment of £637,893 to bring the company up to date. They did not issue any Penalties for failure to notify.

The assessment was not paid due to lack of funds and HMRC petitioned for the winding up of the company as insolvent.

The Liquidator claimed the Directors breached their duty of care, skill and diligence owed to the company and should be personally liable:

  • The Directors failed to register the company for VAT.
  • The Directors failed to charge VAT on services provided.

The Directors appealed:

  • They were non-specialist volunteers.
  • They were entitled to believe their accountants would advise if there was any positive action required, including registering for VAT.
  • They acted honestly and reasonably in all the circumstances.

The High Court agreed with the Liquidator, despite acknowledging that it seemed harsh on the incoming directors:

  • It is not sufficient to simply delegate tasks.
  • Nor is it sufficient to claim inexperience or lack of knowledge.
  • The Directors assumed there was nothing to do when they took over.
  • They did not ask the accountants whether VAT was payable on supplies and assumed the accountant would advise them of any issues.
  • They assumed the company had an exemption from VAT.

Whilst the Hight Court agreed the Directors were not required to obtain special knowledge of all matters, they should have asked if there was an exemption rather than assume and should not have relied on the silence of the accountant.

The Directors were found to have lacked care, skill and diligence. They may have acted honestly, but needed to act reasonably as well and they did not. The Directors were found to be liable for VAT arising after a meeting with the accountants in January 2010, but not before this date.


Registering for VAT

External link:  S D Raithatha (As Liquidators of Halal Monitoring Committee Limited) v M N A Baig & Ors [2017] EWCH 2059 (Ch)