Case details for Shabnam Fiza KHAN

Name: Shabnam Fiza KHAN


Date of Birth: 6 / 3 / 1978

Date Order Starts: 3 / 7 / 2019

Disqualification Length: 13 Years 0 Month(s)

CRO Number: 07187149

Last Known Address: 35 Lynwood Road, Redhill, , , SURREY, RH1 1JR

Conduct: Red Trading (UK) Ltd As the sole director of Red Trading (UK) Ltd (“Red Trading”) from 12/03/10 onwards including the VAT periods 09/13, 12/13 and 01/14 Ms Shabnam Fiza Khan (“Ms Khan”) caused or allowed Red Trading to participate in transactions which were connected with the fraudulent evasion of Value Added Tax (“VAT”), such connection being something with which she either knew or should have known about. Ms Khan caused or allowed Red Trading to make wrongful claims for VAT for the periods 09/13, 12/13 and 01/14 totalling £1,582,743. Annex Ms Khan was aware that the risk of Missing Trader Intra-Community (“MTIC”) VAT fraud was rife in the wholesale trade of metals, or ought to have been aware thereof because:

  • Prior to commencing trading in metals, on 26/03/13 HMRC Officers met Ms Khan and her agent from David Phillips & Partners who confirmed that he was a lawyer specialising in MTIC fraud and he was aware that HMRC were visiting Red Trading to establish if it was involved in MTIC fraud. The HMRC Officers discussed Notice PN726 and Ms Khan confirmed that she understood it. “Public Notice 726 Joint and several liability for unpaid VAT” sets out HMRC’s policy on joint and several liability between members of a supply chain containing tax losses, the reasonable steps to establish legitimacy / integrity of supply chains, considering types and levels of checks and consequent actions, nature of supply, payment arrangements and conditions, movement of goods etc.
  • On 11/11/13 HMRC wrote to Red Trading pointing out that MTIC VAT fraud was prevalent in the metals sector, how to spot it, the types of metals involved in the fraud and refers to suggested due diligence checks that should be undertaken to avoid dealing with high risk businesses, which could be found on HMRC’s website in the “Public Notice 726 Joint and Several Liability” and “How to spot missing trader fraud” leaflets.
  • On 18/11/13 HMRC wrote to Ms Khan pointing out that fraudsters continued to pose a threat to public finances from MTIC fraud stealing between £0.5bn - £1bn in 2011, that Red Trading could be at risk of involvement in supply chains that are connected with fraud, which could lead to the business being unable to recover the VAT charged on those supplies. The HMRC Officer also fixed a meeting to meet Ms Khan in December 2013 to explain ways to spot missing trader fraud.
  • This letter also directed Ms Khan to conduct VAT checks at HMRC’s VAT Validation Unit and pointed her to its website and the Public Notice 726 “Joint and Several Liability” and “How to spot missing trader fraud” leaflets.
  • Red Trading had also retained VAT consultancy services of Vincent Curley & Co, specialists in VAT, Excise Duties, Customs Duties and Appeals from 05/11/12. Red Trading’s trade had some common features of MTIC fraud which should have put Ms Khan on enquiry regarding the legitimacy thereof, as follows:
  • Goods traded were various metals, which are high MTIC risk goods and traded in bulk, specified in HMRC’s letter of 11/11/13.
  • With no previous experience of operating her own business or selling wholesale metals, Ms Khan was able to source suppliers, stock and customers very quickly. She did not provide any evidence to HMRC that Red Trading undertook any research into this market or provided evidence of any advertising or promotional activity to market the business. Red Trading’s trades had the following further contrived arrangements and features:
  • In the periods concerned Red Trading undertook back to back transactions with its trading partners in a very short period of time. In genuine commercial deals, it would be expected to see traders holding on to stock or sourcing stock from several suppliers but in Red Trading’s supply chains this did not occur. These features point to these transactions being contrived which is an indicator of fraud.
  • Red Trading made consistent but very small profit margins of around 0.50% regardless of stock or supplier. This is highly unlikely to happen in a true competitive commercial environment affected by fluctuating market forces. This cannot have been by accident, it can only have been by design, and it proves an underlying contrivance was governing the outcome of these transactions. The size of the profit margin would indicate that Red Trading acted as a buffer trader in a fraudulent VAT scheme.
  • Red Trading requested third party payments to an alternative banking platform from its customers. The fact that the customers did not question the request to make third party payments suggests that its transactions were artificially contrived.
  • Red Trading also made third party payments to an alternative banking platform but did not appear to find this strange or seek to refuse to do so to its supplier. It would be expected that a business carrying on a normal commercial trade would query such a request and, if the request was made prior to the transaction taking place seek to extricate itself from the deal.
  • According to HMRC the prices of goods traded by Red Trading (UK) Ltd were not in line with the prevailing price at the time of trade.
  • In a number of deals the supplies of metal were delivered direct from Red Trading’s supplier to its customer and customer's customer. There is no logical reason why these counterparties would seek to include Red Trading in their supply chains when they could simply cut Red Trading out of the supply chain and increase their profits by directly trading with each other. The timings of the transactions meant that the required checks, such as inspection of the goods could not be performed.
  • Red Trading (UK) Ltd was not registered with the local council as required by the Scrap dealers Act 2013. Under the Act all scrap metal dealers must be licensed by their local authority. They must display their licence in a prominent place accessible to the public. There was no visible sign of this at Red Trading’s business address as would be expected from a genuine business.
  • According to HMRC in normal reputable metal trading businesses it would be expected that the business would hold sizeable stocks of different grades of metals as it is more cost-effective and practical to process larger quantities of materials. Also, when prices are low, dealers will stockpile metal in anticipation that prices will increase in the future. However, there were no facilities to hold a level of stock consistent with its transactions at Red Trading’s business address or any sign of metal dealing. There was no visible plant, machinery and equipment at the premises as would be expected. Scrap metal is usually sold by weight but there were no weighbridge facilities visible at the address either.
  • Red Trading did not produce any evidence to HMRC to show that it undertook any research into the metals market or provided evidence of any advertising or promotional activity to market the business. The fact that Red Trading was not concerned with marketing or advertising suggests that the transactions were contrived. Despite being aware of MTIC VAT fraud in Red Trading’s trade sector and engaging in transactions bearing the features of such fraud, Ms Khan failed to ensure that Red Trading carried out effective steps, due diligence or other checks in respect of its trade and trading partners, as follows:
  • Despite the high value of the goods being traded, Red Trading failed to enter into written contracts or had terms of business which adequately protected its interests in the event that goods purchased were faulty, missing, damaged or not to the correct specification.
  • Red Trading did not have insurance over the deals in the periods.
  • Red Trading engaged the services of a 3rd party, the Due Diligence Exchange, to conduct checks on its suppliers and customers. The effectiveness of these checks is being established by the Official Receiver.
  • Despite HMRC’s requirement to do so, Red Trading conducted no validation checks at HMRC’s VAT Validation office on its suppliers and customers in the period where misconduct is alleged. Furthermore, the trading chains in which Red Trading was involved were associated with significant loss to the public purse, notably:
  • In the 09/13 period HMRC established that 20 of the transactions commenced with a defaulting trader, resulting in a loss to the public revenue in excess of £485,360.
  • In the 12/13 period HMRC established that 27 of the transactions commenced with a defaulting trader, resulting in a loss to the public revenue in excess of £871,886. Given the warnings of MTIC fraud, the hallmarks of Red Trading’s trading scheme and the lack of adequate checks, Ms Khan should not have expected HMRC to allow input VAT claimed for the 09/13, 12/13 and 01/14 periods. For the 09/13, 12/13 and 01/14 periods, Red Trading claimed VAT refund of £1,582,743 in respect of its deals in these periods, which were denied by HMRC after extended verification. 

    This information is correct as at 26 / 7 / 2019

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