Caviar or Porridge

David Riley

Caviar or Porridge?

When HM Customs and Excise was abolished last year and merged into the new HM Revenue and Customs super department for tax collection in April of this year, it became Britain’s most powerful law enforcement agency.

Supported by additional Government funding and a robust strategy, the agency has made a determined effort to increase the number of customs investigations into fraud, with particular emphasis on Missing Trader Intra-Community Fraud (MTIC) – the single biggest and costliest VAT fraud in the UK.

This is a Europe-wide problem orchestrated by sophisticated criminals whereby they obtain a UK VAT registration in order to acquire goods VAT free from other EU member states. They then sell the goods on at VAT inclusive prices and disappear without paying the VAT back to the Government.


This was at the heart of the now notorious Operation Venison – Britain’s costliest fraud case. The case, which centred on the importation of mobile phones, collapsed earlier this year at a cost of £65m.

In 2003/4, Customs and Excise estimated that the number of MTIC frauds was equivalent to almost £2bn. Twice as many people were prosecuted and sentenced for this particular offence, compared to the previous two years. The average sentence for MTIC related offences was almost three years. Last year the agency carried out a number of activities in a bid to keep on top of MITC fraud such as:

• 7,000 pre-registration visits to new traders

• Refusing more than 900 suspect registrations

• Cancelling nearly 500 missing trader registrations

• Identifying MTIC debts and raising assessments totalling £83m as a result of frauds detected

• Refusing over £200m incorrectly claimed as VAT in fraudulent supply chains

• Securing injunctions to a value of over £20m to meet VAT debts of missing traders

In the same time frame of 2003/4 Customs and Excise arrested and detained almost 3,000 people in total, of these, almost 2,000 were charged.

So how likely are you to receive a visit from HM Revenue and Customs? Well Customs select traders for a visit based on a number of factors such as complexity of the trader’s business, the results of previous visits by Custom’s officers and the trader’s payment history.

In many ways it is a lottery and the odds of you or someone you know receiving a visit are pretty high. It may sound dramatic, but you could pay the ultimate penalty and lose your freedom, if Customs decide to prosecute you as a result of your trading activities.

The harsh truth is that whether guilty or innocent, the cost of defending any investigation can be substantial and so the right advice is absolutely essential. The right defence team can make the difference between prison and freedom – and the right insurance can make this defence team affordable.

In an increasingly litigious society, individuals within a company can be personally at risk of incurring a financially crippling lawsuit. Exposure to personal liability is not industry specific. Any company, anywhere in the world, especially in the USA and UK, can be liable to such claims.

So what can you do to protect yourself, your employees and your company?

Well there are two choices really. You can ignore the risk and work on the assumption that it will never happen to you, or you can take out Directors and Officers Liability Insurance.


What Is Directors And Officers (D&O) Liability Insurance?

D&O liability insurance cover provides financial protection for the directors, officers and senior managers of a company in the event they are sued in conjunction with the performance of their duties as they relate to the company. The D&O liability insurance policy will pay on behalf of the director, officer or senior manager, his legal costs and expenses and any civil damages awarded against him.


When Do I Need D&O Liability Insurance?

You need D&O liability insurance when you assemble a board of directors. Investors, especially Venture Capitalists, will also usually require that you show evidence of D&O liability insurance as part of the conditions of funding your company. Also having employees opens management up to employment practices lawsuits that can usually be covered under D&O liability insurance.


Why Do I Need D&O Liability Insurance?

Firstly, you need D&O liability insurance because claims from employees, suppliers, customers, Government and regulatory bodies, creditors, shareholders and auditors can all be made against the company and against the directors of the company. Since a director can be held personally responsible for acts of the company, most directors and officers will demand to be protected rather than put their personal assets at stake.

Secondly, you need D&O liability insurance because investors and members of your board of directors will not be willing to risk their personal assets to serve as a corporate director or officer, no matter how heartfelt their belief in a company. In today’s changing environment, regulation is escalating along with a greater awareness on the part of third parties of the duties and responsibilities of directors and shareholders and also their own rights.

The typical cost would be £1,450 per annum for a limit of indemnity of £1m.

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