2013 - Legitas - The Aftershock

Alan Nolan comments on recent industry news.

Legitas has been placed into Creditors Voluntary Liquidation reportedly owing in excess of £18m which, in fairness, could be the “tip of the iceberg”.

In his report to the Liquidators, which was quoted in the press, Chief Executive David Allen cited the following reasons for the collapse of his business;

•  Poor Health
•  Reliance on “business partners” who were not directors and the deterioration of his relationships with these people
•  Use of third-party off-shore bank accounts
•  Poor financial management resulting in “embezzlement” and an inability for the company to meet its liabilities.

At the time of the company entering Creditors Voluntary Liquidation, Legitas appears to have been the subject of a HM Revenue and Customs (HMRC) investigation. 

Whilst press speculation cites the “Pay Day” tax relief model as being at the root of the problem there is no apparent evidence for this.  In fact, in an article published today, Recruiter quotes the liquidator who confirms that HMRC is owed £40k. 

We suggest that any liabilities are likely to stem from “alternative” arrangements rather than a technical failure of the Pay Day tax relief model. It has been rumoured that Legitas incorporated holiday pay into the hourly rate, has previously taken a lenient approach by inflating qualifying expenses and entered into an arrangement to defer receiving a payment of VAT from its clients.

We should stress that the exact nature of the liability has not yet been made public but an attack on such areas is much more likely than HMRC entering into a protracted debate about the technicalities of the “Pay Day” model.  In fact, we have been informed by HMRC that it will not be drawn into a technical debate at this stage.   

If a significant crown debt has indeed arisen, an independent liquidator from one of the Big 4 Accountancy practices is likely to be appointed, who will conduct a full investigation into the conduct of all parties.  

Where fraud or negligence can be proved, HMRC may make application for liabilities to be transferred to the directors of Legitas, the employment business or indeed the end-user in appropriate circumstances.     

In the meantime, HMRC will continue to remain silent, leaving speculators to draw their own conclusions, usually for their own benefit.