A developer linked to several stalled sites in Liverpool and under investigation by the Serious Fraud Office has been hit with a tax bill of more than £1.7 million.
North Point Global Ltd (NPG) and its subsidiary companies are already said to owe around £40 million to investors who ploughed cash into stalled developments across the city, including Baltic House, Pall Mall, New Chinatown and the Element in Manchester.
Now two of the special purpose vehicles set up by NPG, to complete the failed Pall Mall and Great George Street Chinatown developments, owe an eye-watering sum to HM Customs and Revenue (HMRC) over mistakes made in construction contracts.
READ MORE: Inside the £40m property nightmare that 'won't go away'
According to the Finance Act 2004, contractors in the construction industry should deduct 20% from any payments to sub-contractors and hand it over to HMRC unless the firm has been granted 'gross payment status' – according to the rules of the Construction Industry Scheme (CIS).
However the two subsidiary firms failed to make deductions from payments to PHD 1 Construction Ltd and several firms linked to Bilt Group – who had been asked to carry out demolition and building works.
HMRC later determined that NPG (Pall Mall) owed £663,776 for the financial year 2015/2016 and £667,046 for the year 2016/2017, while China Town Development Company owed £98,638 for the year 2015/2016, and £293,565 for the year 2016/2017.
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North Point Global appealed to the First Tier Tribunal for tax where former director Craig Griffiths argued that although he accepted the mistake, he had taken "reasonable care" to abide by the law.
The court heard Mr Griffiths had taken the advice of an employment agent called David Choules, director of Inca Management Ltd, who was "absolutely convinced" that PHD 1 Construction and Bilt were not "sub-contractors" under the regulations.
Mr Griffiths said he was entitled to rely on the advice of Mr Choules, who was experienced in large-scale project management, and who had prepared "pre-populated" contracts ready for him to sign.
However Mr Choules was wrong, and HMRC argued Mr Griffiths failed to conduct independent checks despite the fact that Mr Choules was not an expert in tax law.
When Mr Griffiths later consulted accountancy firm Grant Thornton, the mistake was noticed.
A written judgment from Judge Nigel Popplewell, handed down this week, stated: "Mr Griffiths clearly knew what operations were to be carried out and as described in the contract, these were clearly considerable works of demolition and construction.
"In these circumstances we cannot understand why he did not check with Mr Choules that the amendments to the contract meant that there was no obligation under the CIS to verify the sub-contractors and, more fundamentally, that the appellants were not contractors for the purposes of the scheme.
"He knew how the scheme operated; knew that contractors had to verify and perhaps deduct; he could work out the consequences of failure to operate the scheme properly on the basis of the payments that were being made, which were considerable.
"With this in mind, he should have enquired of Mr Choules and Inca as to the basis of that interpretation and questioned it on the basis of his knowledge."
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Judge Popplewell said he found Mr Griffiths had acted in "good faith" and was truthful in his evidence to the court, but disagreed that he had taken "reasonable care".
He dismissed the appeal.
Last month the ECHO revealed that NPG and its subsidiary firms owed buyers approximately £40,700,000, according to those who invested in the scheme.
The largest single amount relates to the North Point Pall Mall project, where buyers are allegedly owed £18m.
That development, which hit the buffers in 2016, promised an 18 storey housing scheme on the edge of the city centre with stunning views of the Mersey, a restaurant, gym, multi-storey car park, shops and around 366 apartments.
Buyers also say they are owed £4.5m from the New Chinatown scheme, an ambitious £200m proposal to create multiple shops and apartments.
The Serious Fraud Office launched an investigation into North Point Global (Pall Mall) and Chinatown Development Company Ltd in January 2017 over suspected fraud, and told the ECHO enquiries are still ongoing.
NPG is now in a company voluntary arrangement (CVA), where a company seeks to come to an agreement with creditors.
NPG has been approached for comment.
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