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Ripped Off By a Crooked Employee? You May Be Entitled to Tax Relief

Losing money at the hands of a crooked employee is a sadly familiar experience for many businesses, but what are the tax consequences of such deceit? The First-tier Tribunal (FTT) tackled that issue in the case of a catering supplies company whose manager diverted customers' payments into his personal bank account.

When the company's clients made payments over the phone by credit or debit card, the manager gave them his own bank details. After his dishonesty was discovered, the company sought bad debt relief in respect of its VAT bill for the relevant quarter. HM Revenue and Customs (HMRC), however, took a restrictive view and refused to grant the relief sought.

In upholding the company's challenge to that decision, the FTT rejected HMRC's argument that, due to the seniority of the manager's role, he had at all times been acting for and on behalf of the company. The reality was that he had done the opposite of representing the company's legitimate interests and had self-evidently been acting dishonestly for his own benefit.

The stolen money had been diverted from customers at source, never reaching the company's account. It could thus not be said that the manager had stolen money that was in the company's possession. Never having received any payment for the goods, the company was entitled to bad debt relief.

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