Director appropriating company funds

[MegL]

Can anyone shed some light on the following situation for me please?

In a Ltd company with three directors, one of the directors has invoiced a client in the EU without the knowledge of the other two directors and received funds directly into his personal bank account in return for a service which has still to be delivered. In the ensuing furore the director has walked and won't/can't return the funds. The invoice he issued did not show the company VAT registration or the EC Vat Code of the receiving company which is needed to zero rate the supply but did have the name of the company at the top of the invoice. No VAT has been charged.

If the director ends up keeping the money as part of a negotiated settlement in lieu of payment via the normal channels, what would be the situation with regard to the VAT and also PAYE and NICs?

I'd be grateful for any comments about the implications of any of this.

Many thanks

[peugeot]

I suppose HMRC (Vat) could argue that as the 3 conditions have not been met to zero rate the EU supplies (EU vat registered trader, proof of delivery and EU Vat number on the invoice), then it should be standard rated. This would be a case for your company vs VAT inspector to argue about.

If the income the ex-director has received is classified as part of his final salary then this, of course, should be processed through the normal payroll routine and grossed up to take into account the relevant PAYE and NIC deductions. Failing this, the director should declare the extra income on his tax return.

Kind regards
Steve