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July 2022 Tax Investigation Round Up

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

  • HMRC exposes ‘Peak PAYE’ as tax avoidance promoter
  • Charity used £450k property sale for personal use
  • £12.5m handed out in fines for tax evaders

HMRC exposes ‘Peak PAYE’ as tax avoidance promoter

HMRC has named and shamed a tax avoidance scheme provided by umbrella payroll services company Peak PAYE. Customers have since been warned to remove themself from its services.

Peak PAYE is a London based company which processes payments, invoices, taxes and administration work for contractors. This latest publication came to light after HMRC introduced its new powers as part of its ‘Don't Get Caught Out.’ campaign.

Peak PAYE promised its users that they could avoid paying National Insurance and Income Tax by paying contractors the National Minimum Wage and the remainder of the wage was disguised as a salary advance.

Mary Aiston, HMRC’s Director of Counter Avoidance, stated, “Tax avoidance schemes are advertised as clever ways to pay less tax when in reality, they rarely work as the promoters promise, and it is the users that end up with big tax bills.

“Naming tax avoidance promoters is one of the many steps we are taking to disrupt and drive scheme promoters out of business,” Aiston said. “We want to help ensure customers do not get caught out by tax avoidance.”

The details of three tax avoidance schemes and their promoters have been published by HMRC and are available to view online. This list will be continually updated in the coming months, however it is not a complete list of all tax avoidance schemes, it is just the ones that have been publicly named.

Charity used £450k property sale for personal use

The Everlasting Arms Ministries, a charity set up to advance Christian teachings and reduce poverty, has been ordered by the Charity Commission to improve its governance and financial management.

This inquiry into the Everlasting Arms Ministries found that in 2016 the charity sold a property on the Old Kent Road for £8m. They agreed with a developer that it would continue to use the site for its own purposes until it was fully redeveloped. They had drawn up an agreement between them over the sale, which complicated finances in that the purchaser retained £2m of the sale price as a holding payment until it was developed. However in the annual accounts this was not reported correctly.

The charity continued to increase its expenditure without proper oversight or budgeting. When the bank statements were analysed in the compliance case, it was found that payments were sent to various trustees and connected people.

Such information was found that in the financial years 2016 to 2018, £450,000 was spent on ‘internal outreach.’ This involved luxury five star hotels, business class travel and partner organisations in China and India. There was no evidence due to poor management that the money had been spent exclusively for charitable reasons.

The senior pastor was also using an American Express card which was used for various personal and charitable reasons. Over £14,000 was not explained for which the regulator concluded was for private use.  

Once questioned about the finances on the credit card, the charity explained that the Amex was used to reimburse expenses as the charity did not have a debit or credit card. Payments amounting to £8,870.00  were apparently made in error and were paid back to the charity through the senior pastor's private bank account. The charity has now ceased using the personal Amex card to avoid any financial conflicts.

The regulator commented that was ‘an unusual practice which together with the poor record keeping blurs the line between charitable and private expenditure. It leaves no clear audit trail of how the charity’s funds have been expended, as is a legal requirement under section 130(1) of the Charities Act’.

The regulator said ‘considering the numerous overseas activities of the charity, the previous trustee board should have ensured that a robust policy on travel related expenses/reimbursements was in place and that it was being followed’.

Due to the absence of poor record keeping, the charity could not explain its finances in work with overseas charities. Therefore it could not be determined whether the money was solely for charitable purposes. They failed to demonstrate that they had anyone monitoring the funds sent abroad. This was seen as misconduct in the administration side of the charity.

Since the inquiries, the charity’s trustees changed and fully complied with an action plan issued in February 2021. They now fully update new records and policies relating to the financial side and have suspended their international outreach programmes and reduced salaries to employees that were increased after the property sale.

Head of investigations at the Charity Commission, Amy Spiller said: ‘It is essential that charities have robust financial management in place so the public can trust that all of its funds are used in furtherance of charitable objectives. With The Everlasting Arms Ministries, a sudden increase in income highlighted failures by its then trustee board to have adequate policies and governance in place.

‘In order to prevent further mismanagement, our inquiry had to intervene to freeze the charity’s bank accounts and issue an Action Plan. We are pleased that the current trustees have implemented the Action Plan and are committed to improving the charity’s financial management. We will continue to monitor their progress on this matter.’

£12.5m handed out in fines for tax evaders

HMRC has sent penalties for unpaid tax totaling to £12.5m as a way to force tax evaders to settle their bills. This compared to last quarter's penalties of £18.4m. Here are some examples of substantial tax evaders in which HMRC are going after to recover their debt.

Erica Claire Stanford is a buy-to let landlord and a crypto investor with a staggering £4.04m in unpaid income tax from the years 2015 to 2020. She has not been charged a £2.82m fine.

Red Jon Ltd, a waste management company, racked up a staggering bill of £1.45m over the period of November 2019 to January 2021 during the height of the pandemic. The company now faces a penalty charge of around £740,000 to put its tax affairs back in order. It has failed to update its accounts since starting the business and is facing a strike-off from Companies House.

In the hospitality industry, the biggest tax evader was a fish supplier, The Upper Scale Limited, owing a significant £940,932 in unpaid tax between the years 2010 and 2016. With a penalty of £458,000 added to the bill, the fish seller will be facing a bill of around £1.5m.

Ian Nicholas Mihill, an accountant and business investment consultant failed to comply with tax liabilities over a three year period from 2016-2019 with an £128,137 bill outstanding augmented by a penalty of £76,5000.

A dog breeder under declared earnings for four years resulting in tax liability of £28,500 which was then fined over £15,000 for non compliance.

Consulting Europe Limited, supplied face masks in the pandemic and by August 2020 has evaded £374,658 in tax and been fined £262,000 for evasion. Strike off action is being considered by Companies House.

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