Thursday, April 20, 2006



How’s this for a non sequitur? Mr Rahman is the sole director of New Fashion (London) Ltd. He drew cash from the company’s bank account, purportedly in order to settle legitimate trading invoices from two other companies; Golden Tower Clothing Ltd and Dexan Fashions Ltd. HMRC had doubts about the authenticity of the invoices and had asked Mr Rahman for further corroborative evidence, which he had not provided.

The General Commissioners noted that “the question for determination was whether certain money’s drawn in cash …had been paid to Golden Tower Clothing Ltd or Dexan Fashion Ltd in settlement of legitimate trading invoices”. They said that they were not satisfied that the invoices had been issued by the two companies or that Mr Rahman had paid the money over to them.

On appeal Mr Justice Leighton held that the Commissioners applied the correct burden of proof and reached a conclusion that was clearly open to them on the facts as found by them.

Fair enough? Or is it? The only facts they seem to have found were that Mr Rahman had drawn out the money and that there was no convincing evidence that services had been provided to New Fashion (London ) Ltd by the other two companies.

So what was the conclusion that they reached on these facts? The obvious one is that Mr Rahman had wrongly diverted the money from the company and was under a duty to repay it to the company. That was the decision reached in Rose v Humbles, a decision on which HMRC have consistently relied since it was decided in 1970 to assert that such sums cannot be regarded as remuneration but should be treated as a debt due to the company.

In fact the Commissioners reached the conclusion that the money drawn by Mr Rahman was remuneration from New Fashions (London) Ltd. They do not refer to Rose v Humbles, although one assumes that HMRC drew it to their attention as it was clearly so relevant that not to have done so would have been verging on dishonesty. Nor do they refer to anything else. It is an enormous leap to assume that if a payment is not shown to be what it purports to be it must be remuneration. Surely some evidence of its nature is needed to displace the more natural explanation of diversion of funds by the odd assumption that it must be remuneration?

Robert W Maas


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