Farooka & Anor, R. v

Factual and Procedural Background

On 20 April 2022, in the Crown Court at Bristol, the appellant pleaded guilty to conspiracy to commit fraud and forgery. Other counts were ordered to lie on the file. On 20 March 2023, the applicant was convicted of being concerned in the fraudulent evasion of VAT and acquitted of an allegation of fraud. Sentencing occurred on 24 March 2023: the appellant received 4 years 4 months' imprisonment for conspiracy to commit fraud, and the applicant was sentenced to 18 months' imprisonment suspended for 21 months with unpaid work requirements.

The case concerns the financial dealings of Company A, a fast food chain based in The City. The appellant, a director of Company A, sought a loan from a lender to facilitate business development with ambitions of floating the business on a stock exchange. To encourage the lender, the appellant inflated the company's sales figures by depositing large sums of cash, including unusual denominations contrary to company policy. Over a period, declared sales exceeded actual till receipts by over £14 million to create the appearance of greater business activity.

The appellant directed the applicant to enter false figures into the accounts to support these inflated sales, resulting in a £7.5 million loan from the lender. This conduct increased Company A’s VAT liability, prompting the creation and submission of false invoices to reclaim nearly £300,000 of VAT, leading to the VAT evasion charge against the applicant.

A financial consultant was engaged as part of the loan agreement but resigned after investigations began, issuing a resignation letter critical of the appellant and the applicant. The appellant manipulated this letter to remove damaging content and circulated the altered version within Company A.

Legal Issues Presented

1. Whether the sentence imposed on the appellant for conspiracy to commit fraud was manifestly excessive and wrong in principle.
2. Whether the applicant’s application for leave to appeal against his conviction for fraudulent evasion of VAT should be granted.
3. The proper legal interpretation of the offence of fraudulent evasion of VAT under section 72 of the Value Added Tax Act 1994, particularly regarding whether the defendant’s conduct constituted evasion when the company might have been owed VAT.

Arguments of the Parties

Appellant's Arguments

• The judge erred in principle by increasing the sentence starting point from 6 to 6½ years, resulting in double counting of aggravating features already considered in establishing high culpability.
• The judge failed to reduce the starting point to reflect factors of reduced seriousness and personal mitigation.

Applicant's Arguments

• The prosecution failed to prove that VAT was evaded because it was not established that the company was not owed the amount claimed in the false invoices.
• Dishonesty alone is insufficient for conviction; obtaining VAT to which the company was entitled does not amount to evasion.
• Relied on precedent suggesting if no VAT was due, or if the defendant reasonably believed no VAT was due, the verdict should be not guilty.
• The judge wrongly rejected the no case to answer submission, conflating the issue with a defence rather than an element of the offence.

Prosecution's Arguments

• The claim for nearly £300,000 VAT was false because it included amounts not lawfully reclaimable.
• Had the fraud not been discovered, the company would have recovered the full claim wrongfully.
• The precedent cited by the defence was not applicable due to differences in offence and facts.
• The applicant knowingly and dishonestly submitted false invoices to obtain a VAT credit, constituting evasion under the statute.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the appellant’s sentence by examining the judge’s identification of aggravating factors and personal mitigation. It found that the judge’s increase of the starting point from 6 to 6½ years involved double counting because the aggravating features were already accounted for in setting the starting point. The court held that the judge did not sufficiently account for personal mitigation in the final sentence. The appropriate starting point was 6 years, reduced by one year for personal mitigation and further reduced by one third for the guilty plea, resulting in a 40-month sentence.

Regarding the applicant’s VAT evasion conviction, the court focused on the statutory construction of section 72 of the Value Added Tax Act 1994. It held that the offence includes fraudulent obtaining of a VAT credit, regardless of whether the company might have been owed VAT overall. The court rejected the defence argument that a possible VAT credit due to the company negated evasion, stating that the fraudulent claim of VAT credit constitutes evasion under the statute. The court found no properly arguable ground for appeal and refused leave to appeal.

Holding and Implications

The court ALLOWED the appellant’s appeal against sentence and substituted a sentence of 40 months' imprisonment.

The court REFUSED the applicant’s application for leave to appeal against conviction for fraudulent evasion of VAT.

The decision reduces the appellant’s custodial sentence but upholds the conviction of the applicant, affirming the legal interpretation that fraudulent obtaining of VAT credit constitutes evasion regardless of overall VAT liability. No new precedent was established beyond the application of existing statutory interpretation and case law.