January's round up of the latest tax investigation news and cases:
Since HMRC launched its specialist fraud squad (Fraud Investigation Service) in April 2016, more than £1 billion has been recovered from the proceeds of tax offenders and criminal activity.
The Fraud Investigation Service (FIS) has been investigating criminal and non- criminal activity by hindering the movement of cash and assets. Since the service was first established in 2016, there have been more than 1,200 records of seizing cash and assets. Such include £750,000 in gold bars at Manchester Airport that a passenger tried to smuggle in a lunchbox which were auctioned off. £48,000 cash was found in a freezer drawer hidden amongst frozen food in a house in Blackpool as part of a £16 million tobacco fraud.
Simon York, HMRC’s Director of Fraud Investigation Service, stated:
"To reach this £1 billion milestone in 5 years speaks volumes to the dedication, hard work and skill of FIS to recover the proceeds of crime from those who try to cheat the system.
"Whether it’s cash seizures, confiscation orders or account freezing orders, recovering these assets stops criminals bankrolling their lavish lifestyles and funding further crimes that harm our communities, such as drugs, guns and human trafficking. Crucially, this money goes back into the public purse, helping fund our vital services such as schools and hospitals.
"HMRC deploys cutting-edge technology to investigate unexplained wealth and uncover hidden assets. Last year alone, we recouped more than £218 million from proceeds of crime.
"We are committed to recovering criminal assets and today the message is clear – crime doesn’t pay."
Criminal cash is seized by officers under the Proceeds of Crime Act 2002. The court will then decide whether the cash is from criminal activity or was going to be used for this purpose and can order a forfeiture. However in uncontested cases.
HMRC also has the authority to freeze bank accounts where there is suspected criminal money. Investigations will take place and some cases will end up in court. Confiscation orders can also be imposed, assets can be confiscated up to the value of the fraud, with the courts making the final decision.
The Contractual Disclosure Facility (CDF) is used by the Fraud Investigation Service when investigating serious cases. It allows evaders to admit and agree to pay their fraud and tax in full, including interest and penalties. If however, it is discovered that the individual has held back information from the case it can criminally investigate and prosecute.
The government publicly released names of 208 employers across the country for failing to pay their lowest paid staff the minimum wage. Amongst those were Sibford School in Banbury, Oxfordshire and Woods Hair Limited (Chapters Hair Design) in Witney.
The 208 employers were exposed as failing to pay their employees £1.2 million in a clear breach of National Minimum Wage law, leaving roughly 12,000 staff out of pocket.
It was revealed that Sibford School failed to pay five employees £9,282 between September 2016 and June 2018.
A statement from a spokesperson from the school said; "I did not work at Sibford School at the time of the minimum wage enquiry but I understand that this was a complex issue connected to working hours and holiday weeks.
"During the investigation we worked co-operatively with HMRC - It is important to us that all of our employees are treated fairly.
"It was demonstrated that in most cases no breach of minimum wage rules had been made, but where there was, the school rectified the situation immediately. We are a registered charity and not a profit making organisation. Since the investigation, a regular review of salaries has taken place to ensure compliance."
Companies that were named and shamed on the government’s list ranged from multinational businesses, large high street names to SMEs and sole traders.
Since being exposed in investigations by HMRC between 2014 and 2019, these businesses have been ordered to pay back what is owed to staff and face significant financial penalties of up to 200% of what was originally owed, paid to the government.
Minister for Labour Markets Paul Scully commented: “We want workers to know that we’re on their side and they must be treated fairly by their employers, which is why paying the legal minimum wage should be non-negotiable for businesses.”
“Businesses, whatever their size, should know better than to short-change hard-working employees, regardless of whether it was intentional or not.
“With Christmas fast approaching, it’s more important than ever that cash is not withheld from the pockets of workers. So don’t be a scrooge – pay your staff properly.”
HMRC has been clear that anyone entitled to be paid the minimum wage should receive it, and action will be taken against those who do not pay their staff correctly.
Bryan Sanderson, Chair of the Low Pay Commission concludes: “The minimum wage is a success story welcomed by employees and employers alike, but it only works if everyone without exception obeys the law. We hope this latest naming round can continue to raise awareness of the most common mistakes businesses make and help protect low-paid workers from unfair treatment.”
The court supported HMRC’s decision to issue a tax notice of £90,393 to JT Quinns Limited but downgraded the £61,163 penalties as it was found to not be deliberate, but ‘careless.’ The director Queen Rose Green owned JT Quinns Limited and is worth £207,475.58 overall in respect to false tax returns.
In court it was decided that Green had acted ‘carelessly rather than deliberately’ allowing appeals against specific discovery assessments issued ti JT Quinns and Green as they were issued ‘out of time’ in relation to the Taxes Management Act (TMA) 1970.
In February 2014,HMRC opened a tax investigation into the tax returns of JT Quinns and Green for the year end of August 2012. Information was requested such as bank statements that were failed to be provided by the company so HMRC issued both with Schedule 36 notices under Finance Act 2008.
Further discovery assessments were then opened, closure notices and inaccuracy penalties into tax years 2011 to 2016 for Quinns and 2011 to 2017 for Green. Information was still failed to be provided to the HMRC so further schedule 36 notices and penalties were issued.
The amounts assessed for the company were £90,393 in tax, £61,163 in penalties. For Green the amounts were £33,105 in tax and £22,816 in penalties.
HMRC believed that corporation tax deductions had been claimed, considering that these were either due to personal expenditure of Green although no evidence was found of actual payment.
Such included cash withdrawals, repairs, mortgage payments for personally owned properties, unsubstantiated travel claims, employee wages and insurance loss, an ‘education grant’ for Green’s daughter and one off rent payments to Green’s home.
JT Quinns and Green fought the case claiming that she was unable to be held solely responsible for these actions as she relied on the company's accountant or all financial decisions in regard to tax. Therefore blaming the accountant for any inaccurate returns. When questioned over failure to provide information, Green stated she had provided her accountant with such information and the accountant had refused to return them to her and the bank had refused to provide duplicates. HMRC however saw this as an act of deliberate avoidance.
It was reported that the First Tier Tribunal found Green to be ‘evasive, unreliable and inconsistent’, but felt that Green did not have ‘any meaningful grasp over the details of her financial and tax affairs’.
The court also ruled that the closure notices and discovery assessments to JT Quinns and Green were ‘validly issued’ as there was an ‘insufficiency of tax assessed’ on the taxpayers.
Once it was agreed that both had been ‘only careless’ the court reduced the penalties from 70% less a 5% discount, to 29.25% for JT Quinn and to 30% for Green.
The court however has allowed the appeals against the discovery assessments, because they were out of time.
Meg Wilson, senior tax writer, Croner-i finishes: "In some respects, the taxpayer not having ‘any meaningful grasp over the details of her financial and tax affairs’ counted in the taxpayer’s favour, because the First Tier Tribunal found that the errors in the returns prepared by the accountant could not have been caused by the taxpayer deliberately."
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