June 2019 Tax Investigation Round Up

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

• Jail time awarded to the ringleader of a £300,000 tax fraud trio
• £480,000 tax evading restaurant owner jailed for 3 years
• HMRC crackdown on tax evasion by individuals intensifies
• Promoters of fraudulent loan charge schemes arrested

£300,000 tax fraud trio's ringleader sent to jail

For four years starting from 2010, the 35 year-old ringleader of a tax fraud trio committed multiple offences including making fraudulent tax credits claims, not revealing his true income and making false VAT repayment claims. These offences were carried out alongside a 32 year-old and a 42 year-old who joined forces to create a web of trading companies with the specific purpose of evading paying VAT.

HMRC's investigation into the matter revealed that more than £130,000 in VAT was stolen, along with evading over £122,000 in income tax payments and pocketing in excess of £37,000 in tax credits that they were not entitled to. Investigators determined that the leading figure behind the fraud was the 35 year-old who appointed his friends as directors of his companies to provide himself with a layer of protection.

He also operated under different identities in a bid to further cover his tracks, using the aliases Chris Mills and Chris Marshall. All three were charged in 2015 despite repeat attempts to postpone the trial on the grounds of health issues which were dismissed by the judge. HMRC are now in the process of recovering the stolen funds and said "This was the deliberate theft from the taxpayer - money which should be funding our vital public services instead of funding the lifestyles of fraudsters. The group, led by Chris May, stole the equivalent to the salaries of 13 trainee firefighters in the East Midlands."

Restaurant owner jailed for evading £480,000 in tax

The 52 year-old from Birmingham, who was arrested in 2017, has been awarded a 3 year jail sentence after HMRC investigators discovered a hidden sales book revealing £480,000 in evaded tax during a search of his home and his restaurant. The meticulous records the individual had kept for the years 2012 to 2017 showed clear discrepancies with the information that had been submitted to HMRC on VAT returns.

It is understood that as much as half of his restaurant takings went undeclared. This was aided by the use of a second card machine that the businessman had set up to funnel money into a separate account to his main business account. A HMRC spokesperson from the FIS (Fraud Investigation Service) stated that the evidence clearly indicated that this was a coordinated, well planned and long-running fraud.

As a result he has been awarded a 3 year jail sentence and was disqualified from being a company director for seven years. HMRC successfully recovered £22,170 in cash from the individual's home, which they found hidden behind a large marble wardrobe. Proceedings have begun to recover the remaining balance of stolen funds. Richard Paris of the FIS said "Tax fraud is not a victimless crime. [The individual] deprived vital UK public services of this money and he gained an unfair advantage over honest competitors who pay the tax they owe."

Over 1,000 tax evasion prosecutions launched last year

The huge influx of data HMRC has recently received due to new regulations regarding the sharing of offshore account and financial data has strengthened the ability of HMRC to effectively investigate and prosecute individuals in relation to tax evasion. This intensified focus isn't set to relent given that more countries will be sharing offshore data as the year progresses, including Switzerland and the United Arab Emirates.

Yet whilst things are hotting up for individual tax evasion cases, the same cannot be said for business tax evasion cases. Analysis by Reuters Thompson has revealed that very few business tax evasion cases make it to the Crown Prosecution Service, which they believe is due to their increased complexity and the length of time they can take to resolve.

It would appear that the current focus of HMRC is to focus only on the 'bigger-ticket' business cases which ultimately provide a better pay-out for HMRC with high penalties for non-compliance.

A spokesperson from the company who undertook the analysis said "at the centre of HMRC’s tax evasion crackdown is an unprecedented data gathering exercise – bringing in far richer information from an increasing range of countries. HMRC will be running that data through its increasingly sophisticated artificial intelligence (AI) tools. Prosecutions are up significantly over the last five years and are likely to increase as new data sources filter through."

Six arrested for promoting fraudulent loan charge schemes

Despite clear and repeated warning from HMRC and other industry professionals against the use of loan charge avoidance schemes, people are continuing to fall foul of fraudulent services being promoted as away of getting around the pending loan charge payments. Six individuals promoting such a scheme have been arrested by HMRC in addition to coordinated raids by 50 HMRC officers of multiple business and residential properties.

A spokesperson from HMRC said "We strongly encourage people not to use loan-busting schemes and methods. They clearly don’t work and people run the risk of losing more money and being involved in fraud. As we always say – if it looks too good to be true, then undoubtedly it is."

This comes at a time of growing controversy surrounding the loan charge in relation to many of the individuals who will be required to make repayments being relatively low paid workers, potentially putting them in severe financial difficulty. Many will be facing bankruptcy and one has already taken their life as a consequence. Despite pressure from a group of MPs to defer the charge until an independent review had taken place, the government looks set to press ahead.

The government estimates that it will claw back an extra £3.2bn over the next five years from employers and employees caught up in disguised remuneration schemes. So far, HMRC has settled some 6,000 cases, receiving around £1bn of which 85% has come from employers.