February 2023 Tax Investigation Round Up

February's round up of the latest tax investigation news and cases:

• Accountant ordered to pay back £237k
• Morrisons wins £1m VAT appeal
• Nadhim Zahawi sacked over tax affairs

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Accountant ordered to pay back £237k

Leeds Crown Court sentenced accountant Stephen Day to 11 years and five months imprisonment on 15 April 2021 after pleading guilty to 10 counts of fraud and two counts of theft. He has been told to pay back nearly £240,000 and faces a further 20 months in prison if he fails to do so.

Day used his job positions and took advantage of a wide range of victims to commit his tax fraud of over £1.3m. He targeted companies, individuals and NHS trusts.

Day originally became a suspect when Greater Manchester Police found that he had claimed to be a financial turnaround consultant and accountant. He alleged that he would advise businesses on their finances and did so for around 20 companies.

In order to commit his fraud, Day would take control of finances in the company's bank accounts. Large sums of money would go missing and this money was transferred to  his own personal accounts instead of the suppliers it was intended for. He would lie, making up false stories of how the money had appeared there using fake accounts to provide the directors at meetings. In total £1,382,224m was stolen.

Day spent the money by travelling to foreign countries, buying several properties and funding his own lavish lifestyle.

It proved very difficult to recoup the money as Day had used a web of transactions over many accounts to hide what he was doing. He was also subject to bankruptcy order. The Crown Prosecution Service worked with the trustee bankruptcy to identify assets that were available to him. The found shares, four pensions, a car and a personalised reg.

A confiscation order was made on 6 January 2023 covering all available assets. These valued at £237,866.61 and he has been given three months to pay his debt. If Day fails to pay there will be a default sentence of 20 months imprisonment.

Tori Boycott, specialist prosecutor for the Crown Prosecution Service, commented: ‘Stephen Day was calculated in his offending and despite his attempts to conceal the true scale of funds fraudulently gained and filing for bankruptcy, this did not prevent a confiscation order from being made.

‘The CPS proceeds of crime division worked closely with the police financial investigator to ensure Day was stripped of his available assets, even targeting his pensions. The money recovered will be used to compensate his victims.

‘This case illustrates that even when criminals are convicted and sentenced, we will work hard to continue to pursue them for the money they owe, or they risk an additional sentence of imprisonment being imposed.’

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Morrisons wins £1m VAT appeal

Morrisons supermarket has won an appeal at the Upper Tribunal over a VAT bill concerning the zero rating on Nakd and Organix food bars. It was being disputed over the fact that the bars should be classed as zero-rated confectionery. Therefore the supermarket was trying to reclaim almost £1.1m in VAT on the sale of snacks between 2014 and 2018.

The main issue in the appeal was whether Organix and Nakd bars fell into the zer0-rating confectionary umbrella under s8 of the Value Added Tax Act (1994)

When sales were made, Morrisons was still paying 20% VAT on the products, therefore was seeking repayment of over £1m for the Nakd bars over the period of October 2014 and July 2018 and £97,000 relating to Organix bar sales from October 2013 to July 2017.

Morrisons appealed against the FTT’s decision that the products bore standard VAT rates. Claiming that they are products perceived as ‘healthy’ and did not contain ingredients of traditional confectionery

Section 30 VATA 1994 provides for zero rating  goods a list of expected items that are used for human consumption.

Including ‘confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance’.

The FTT came to a decision that the products should be granted as confectionery, basing this on the fact that they had characteristics of sweetness. It also said that the fact it was ‘normally eaten with fingers’ is a sign that it is a ‘treat or a snack.’

However Nakd bars describe themselves as ‘healthy vegan snack bars,’ with no added sugar and 100% natural ingredients.

Judge Swami Raghavan stated: ‘While it is relevant, to consider whether the decision would be sustainable on the basis of the unchallenged findings made, we do not consider a decision the products were confectionery would be possible, on the basis of the findings which can be isolated, given the qualitative nature of the findings and the pervasive effect of the impugned factors on the other findings.

’The remaining findings on sugar content, that the ingredients were subjected to a process, were normally eaten with fingers, were held out as snacks, consumed between meals, and their names would not, we consider, be sufficient by themselves to sustain a holding the products were confectionery.

‘We therefore consider, taking account that given the nature of the errors means that further detailed findings of fact may need to be made, that it is appropriate for that task to be undertaken by the FTT.’

A Morrisons spokesperson announced: ‘We are very pleased with the decision and see it as the first step in providing clarity in an area of VAT law that has been subject to a great deal of uncertainty and inconsistency for both retailers and manufacturers for many years.’

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Nadhim Zahawi sacked over tax affairs

Nadhim Zahawi has been sacked as chairman of the Conservative party after there was an inquiry into his tax affairs. It was found by the prime minister’s independent ethics adviser, Sir Laurie Magnus that there has been a ‘serious breach’ of the ministerial code.

The investigation was launched after Zahwai admitted to paying a large settlement of £4.8m to HMRC regarding tax disputes of his family trust Balshore Investments. This related to a sale of a polling company, ‘YouGov’ which he founded in 2000.

Sir Laurie believed that Zahawi had ‘missed many chances’ to open up about his tax affairs. This led to an inquiry being launched in July 20202 by the National Crime Agency into his tax affairs. He used his offshore company YouGov to hold shares.

Balshore Investments held a large amount of £20m but sold in 2018 with the proceeds being transferred to an unknown person.

In his letter, Sir Laurie wrote: ‘Given the nature of the investigation by HMRC, I consider that by failing to declare HMRC’s ongoing investigation before July 2022, Mr Zahawi failed to meet the requirement to declare any interests which might be thought to give rise to a conflict.’

However, his failure to provide information regarding his involvement constituted a ‘serious failure’ to meet the standards set out in the ministerial code, Sir Laurie wrote in his report.

Sir Laurie continued: ‘A minister of the Crown has a responsibility to lead by example, demonstrating not just compliance with the Ministerial Code, but being an exemplar for integrity in public life. This means upholding high standards of propriety in their conduct as citizens and being actively conscious of possible conflicts between their private interests and their ministerial responsibilities.’

In a letter to the PM , Rishi Sunak,, Zahawi said: ‘It has been, after being blessed with my loving family, the privilege of my life to serve in successive governments and make what I believe to have been a tangible difference to the country I love. I am sorry to my family for the toll this has taken on them.’