February's round up of the latest tax investigation news and cases:
Data obtained by accountancy firm Price Bailey, showed that a record of £4.1bn in tax was deferred in the run up to the end of the January self-assessment tax deadline.
The firm’s freedom of information request showed that the figures stood at £4.1bn on 30 September 2020, reaching almost double the amount from 2019 which equated to £2.2bn.
Price Bailey pointed out that for many taxpayers, the 31 January deadline will bring together three parts this year: (1) the second payment on account for 2019/20 (deferred from July 2020), (2) any balancing payment for 2019/20, and (3) the first payment on account for 2020/21.
Tax partner Jay Sanghrajka at Price Bailey, states: “It is likely that the value of TTP arrangements will have surged even higher in the weeks leading up to the deadline.
"The January payment deadline represents an unprecedented crunch for large numbers of taxpayers. For many taxpayers there will be three separate components to the tax bill instead of the usual two, which could mean paying double the amount that would normally be due by the end of January.
"Paying tax by credit card might be a viable option for some taxpayers if interest-free deals are available to them. If they can clear the balance before the interest-free period expires, they will have avoided paying interest to HMRC under a TTP arrangement."
However, taxpayers who have filed tax returns late or previously incurred penalties, are not eligible for TTP.
Sanghrajka remarked: "This is very harsh considering that tax payments might have been missed due to cashflow problems caused by lockdowns. HMRC needs to show flexibility on this. A monthly payment plan covering up to 12 months is too short a time frame for a lot of smaller businesses which are going through the pain that the pandemic has caused. The government should consider extending this time period to protect jobs and livelihoods."
Alternatives to TTP arrangements include options such as entering a company voluntary arrangement (CVA).
Sanghrajka precedes: "HMRC could impose significant financial penalties, as well as take enforcement action, if taxpayers miss payments under TTP. CVAs enable taxpayers to agree reduced payments with creditors (including HMRC) and pay only a proportion of the debts due over a three-to-five-year period."
Tax investigation insurance specialist PfP states that £41m was collected from penalties in November 2020. This is up a huge 97% from the £21m that was collected in May.
Penalties are due to late tax returns or underpayment of tax. The rise in figures has been seen due to HMRC pausing most of its compliance and investigation work during the first Covid 19 lockdown.
HMRC relocated more than 9,000 of its staff to focus most of their work on furlough schemes and helping businesses with loans. This resulted in a large reduction in penalties that were handed out. Whilst a further 6,000 were assigned to work on EU exit issues in 2019-20.
However, HMRC are now shifting their attention into potential cases of fraud in the government’s pandemic support schemes including furlough and Eat Out to Help Out, whilst investigating core areas of tax investigation. Estimates from HMRC show that up to £3.5bn may have been fraudulently claimed or paid due to error in the furlough scheme alone.
PfP states that there are a large number of businesses that will be due for investigations with this number rising.
PfP managing director Kevin Igoe, noted: "The huge amounts the Treasury has spent to try and stabilise the economy during the pandemic means that HMRC is going to come under huge under pressure to recoup as much tax revenue as possible.
"The taxman will, therefore, be in no mood to go easy on individuals and businesses that they believe have underpaid tax. HMRC will be looking to make up for ground lost in 2020 – that means more investigations and more penalties are inevitable."
Warwickshire restaurant owner Sadikur Rahman Chowdhury was the director of Simla Restaurant Ltd, established in December 2002. The premises were based in Blandford Forum, Devon trading under the name Simla Tandoori.
In August 2019 Simla Tandoori entered into liquidation and an investigation was prompted by the Insolvency Service. Investigators found that the business traded without issue until June 2008 when it was discovered that Chowdhury had caused the restaurant to submit inaccurate tax returns to the authorities. It was soon revealed that Chowdury owed a large amount - over £48,000 in VAT and around £113,000 in corporation tax from 2009 to 2017.
Chowdhury had under-declared sales to avoid paying the right amount of tax, at liquidation he owed more than £266,000. The tax authorities added an additional £104,000 penalty for under declaring corporation tax.
The Secretary of State for Business accepted an undertaking from Chowdhury on 13 January 2021, banning him for five years. The ban rules out being directly or indirectly involved, without the permission of the court, in the promotion, formation or management of another company.
Lawrence Zussman, deputy director of insolvent investigations at the Insolvency Service, stated: "Sadikur Rahman Chowdhury suppressed the takings of his restaurant for almost eight years so that he could avoid paying the correct taxes.
"This director’s actions meant the public purse was deprived of the funds he should have been paying whilst benefiting from years of good sales. The Insolvency Service will not tolerate behaviour such as demonstrated by Sadikur Chowdhury and we have removed him from the business environment for five years."
Over 10.7m people submitted their 2019/20 tax returns by the January deadline. However there was an expected total of 12.1m self assessments due. 1,790,368 taxpayers missed the deadline, almost double the number who failed to do so last year (958,000).
In response to the Covid-19 disruption, HMRC has said that they will not charge a late filing penalty, providing that they submit an online return form by 28 February 2020. Individuals who did not pay their self assessment bill by 31 January are now incurring interest on their outstanding balance and it is advised it should be paid as soon as possible to avoid larger costs.
Payment plans can be arranged to help pay the outstanding balance before 3 March to avoid a 5% late penalty if the balance is not paid. Those who are not able to file their self assessments should pay an estimated amount as soon as possible to minimise any interest and penalties.
Karl Khan, HMRC’s interim director general for customer services, states: "We won’t send anyone a late filing penalty if they complete their tax return by 28 February.
"We know that many individuals and small businesses are finding it harder to pay this year, due to the pandemic. Anyone who can’t afford to pay their tax bill in full can set up a payment plan, once they’ve filed their return, to spread their tax bill into monthly installments."
Information about payment plans, requirements and tax returns can be found online via gov.uk, including information about loss of earnings due to Covid-19.
Dawn Register, head of tax dispute resolution at BDO, remarked: "Whilst HMRC delayed imposing late filing penalties for online returns, it is key to remember that the payment deadline remains unchanged, so interest will still begin to accrue from 1 February if personal taxes were not paid by 11.59pm on 31 January unless the person agreed to pay by installments.
"If you missed the 31 January filing deadline and have cash flow issues, do not bury your head in the sand. HMRC will need to know what payments are due before agreeing a time to pay arrangement, which means that you must file your return first.
"Penalties may be imposed if returns are not filed online this month. The key message is that for people who missed 31 January filing they really should try to file in February and before the next penalty deadline of 28 February."
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