Dominic Chappell, the former owner of BHS, is thought to have been arrested in a dawn raid as part of an ongoing investigation into unpaid taxes on the department store's profits.

Chappell, who bought the company from Sir Philip Green in March 2015 for £1, is said to have been paid £2.6m ($2.06m) into his personal company Swiss Rock Ltd by BHS and apparently owes more than £500,000 in taxes.

HMRC declined to comment on the arrest near Chappell's home in Blandford Forum, Dorset, which is thought to have taken place on November 2. It said: "We do not comment on identifiable cases but can confirm we have arrested a 49-year-old businessman."

Chappell also refused to comment, but said in September: "There was a return that was made in error; they [HMRC] have acted upon it and we are rectifying that as we speak."

The case relates to Chappell's purchase of the troubled store which entered administration in April 2015 before folding, at a cost of 11,000 jobs and a huge deficit in the company's pension scheme. Green and Chappell are both now subject to enforcement action by the Pensions Regulator over the £571m hole in the fund, it was announced earlier this month.

Green said in response to the announcement: "I have provided the regulator with what I believe is a credible and substantial proposal… which would prevent the scheme from entering the Pensions Protection Fund. This is in order to achieve a better outcome for the BHS pensioners."

In July this year, Chappell defended his actions. He told the BBC's Newsnight programme: "Did I take a lot of money out? Yes, I did. But did the business fail because of the money I took out? No, it didn't.

"This was just a drop in the ocean compared to the money that was needed to turn around BHS," he added.

Last month MPs voted unanimously to strip Green of his knighthood after Conservative MP Richard Fuller tabled an amendment calling for the annulment of his honour. Green was awarded the knighthood in 2006 for services to retail.

Previous knights to have had their honours revoked include disgraced Royal Bank of Scotland boss, Fred Goodwin, and Zimbabwean President Robert Mugabe, who was stripped of his honorary knighthood in 2008.

Dominic Chappell
Dominic Chappell, the former bankrupt who bought retail chain British Home Stores for one pound in 2015 gives evidence to the business, skills and innovation parliamentary select committee about the collapse of BHS, in Westminster. Reuters