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July 2019 Tax Investigation Round Up

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

  • 73-year old fraudster ordered to repay £616,000 in tax
  • HMRC continues targeting UK landlords living abroad
  • 6-years of minimum wage underpayment at Staffline
  • Small businesses account for £14 billion in unpaid tax

73-year old fraudster ordered to repay £616,000 in tax

A man from Norfolk has received a prison sentence of four years and eight months after being found guilty of tax fraud following an investigation carried out by HMRC. The investigation carried out by HMRC officers revealed that he had stolen as much as £1.6 million. As part of his sentence he is required to repay £615,000 or face an additional five years in prison.

The individual was assisted in his tax fraud scheme by his wife who was involved in laundering the money. The wife was also ordered to repay money to the sum of £439,000. The pair regularly travelled abroad where they had multiple holiday homes in places like Berlin, Kefalonia and Perpignan. In a bid to keep their scheme under cover, the 73-year old told family and friends their frequent travel was in relation to work as an international spy.

A spokesperson for HMRC's Fraud Investigation Service (FIS) said: "Thomas lived a life of luxury funded by taxpayers, but we put an end to that. Not only has he been jailed, but he will now have to sell assets to repay the stolen money. We will continue to pursue those involved in tax fraud and money laundering and urge anyone with information about these types of crimes to report it to us online or contact our fraud hotline."

HMRC continues targeting UK landlords living abroad

In recent months HMRC has placed an increasing focus on the tax affairs of landlords based overseas who own buy-to-let property in the UK. As a result, the past year alone has seen almost 400 overseas landlords declare unpaid tax that they owe on UK rental income that hadn’t previously been disclosed to the revenue. Disclosures are being made through the active Let Property Campaign that is now further intensifying.

The Let Property Campaign is intended to encourage landlords to make voluntary disclosures and is being most heavily used by ex-pats rather than foreign investors buying and renting property in the UK. Landlords are being notified via mailshots being sent out by HMRC that suggest they are aware of unpaid tax that could be owed. There is a 30-day window to respond to the letters before penalties can start taking effect.

Property tax laws have seen many changes in recent years which has created an environment of confusion amongst buy-to-let landlords, particularly non-professional landlords with smaller portfolios. Coupled with HMRC’s Connect database that is using AI to identify situations where tax could be owed or that may warrant further tax investigation, a growing number of landlords are erring on the side of caution and coming forward voluntarily to avoid the potentially heavy sanctions should mistakes have been made.

6-years of minimum wage underpayment at Staffline

A leading UK staffing, recruitment and training agency has set aside more than £15 million to account for what is believed to be an extended period of underpaying the national minimum wage. After whistleblower allegations were made that the company has been underpaying for as much as 6-years which triggered a national minimum wage investigation, the companies share price plummeted to £1.09 having opened the year at £12.15. Their annual accounts have also been delayed in light of the revelation.

It is estimated that Staffline provides work for around 50,000 people every day and counts large retail brands such as Tesco, Sainsbury’s and Marks & Spencer amongst its customer base. The minimum wage underpayment is specifically in relation to their workers in food production facilities, where time taken for workers to change in and out of workwear failed to be accounted for. After discussions with HMRC an initial £7.9 million was set aside earlier this year to account for the underpayment.

However, following a further review, the company board members decided to increase the provision. A Staffline spokesperson said: “The nature, complexity and volume of data that has been analysed as part of the additional independent specialist review, and the subsequent audit of this information has been a very significant undertaking which took several months to complete.  Furthermore, the calculation of underpayments is a difficult and complex matter requiring judgement and the application of assumptions, all of which have been subject to discussions with HMRC.”

Small businesses account for £14 billion in unpaid tax

The total figure for uncollected tax payments has hit a recent high of £35 billion representing an increase of £2 billion from 12 months ago, and up from just £30 billion two years ago. HMRC’s figures reveal that there is a growing amount of unpaid tax throughout the UK despite some aggressive tactics being implemented by the revenue in recent months, alongside several disclosure facilities that are designed to encourage voluntary disclosure.

Small businesses come out as the worst offenders and account for as much as £14 billion which equates to 40% of the total figure. 13% of the total figure relates directly to failure to comply with PAYE rules, although this figure has dropped significantly over the past few years. It is though that this significant reduction in PAYE non-compliance is a result of the introduction of RTI – real time reporting.

Another change from previous years is the rise in income tax, NICs and capital gains tax evasion. These have now crept above the amount of VAT being evaded and sit at £12.9 billion versus £12.5 billion in unpaid VAT. HMRC have stated that the introduction of Making Tax Digital (MTD) will make it even easier for them to spot where cases of tax evasion and tax fraud could be present, and consequently expect these figures to decline in future years.

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