Treasury loses VAT fraud case

A businessman whose company was brought to its knees by a UK tax ruling launched a vitriolic attack on Customs officials after Europe's highest court declared it illegal yesterday.

The Treasury faces a bill that may run into hundreds of millions of pounds after the European Court of Justice said it illegally withheld tax rebates for three companies unwittingly caught up in a multibillion-pound VAT fraud. The court ruled the companies should be paid £40m of tax rebates that had been withheld by HM Revenue and Customs.

"The £40m ... is likely to be the tip of the iceberg," John O'Donnell, at the tax consultants Chiltern, said.

The case was brought by Bond House Systems, Optigen, and Fulcrum Electronics, which supplied goods that later became part of a carousel fraud. The scam involved traders claiming rebates on goods on which they had not paid tax. Last year, the fraud cost the Treasury up to £1.9bn.

Bond House was forced to cease trading and make 20 people redundant after Customs withheld £13m of rebates. Yesterday Ian Prescott, its founding partner, said: "The 20 people, myself and the other directors and their families have suffered terribly as a result of the Customs' actions.

"It has been a long and painful battle... and we are satisfied with the outcome, although Customs should never have been able to act in this way."