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June 2020 Tax Investigation Round Up

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

  • Ex HMRC employee's £120k tax fraud
  • Spotlight on HMRC investigation procedures
  • Lap dancers and dog breeders targeted by HMRC

Ex HMRC employee's £120k tax fraud

An accountant based in Porthcawl who spent more than 30 years working for HMRC before launching his own private practice has been found guilty of committing tax fraud to the tune of £120,000.

Credited with writing the book on 'how to beat HMRC' after publishing Taxpayer Strikes Back in 2009, the individual claimed to know how individuals could best stand up to HMRC thanks to his insider knowledge of the inner workings of the organisation acquired during his time in employment.

The ruling heard at Cardiff Crown Court, and going in favor of HMRC, saw the culmination of an extended tax investigation first opened by HMRC in 2013. The investigation was initially opened on the basis of inaccurate tax returns being submitted over the period 2008 to 2013.

The £120,000 fraud comprised of £88,500 in unpaid tax plus interest to the tune of £31,400. In return, the individual was awarded an 18-month jail sentence by Judge Michael Fitton.

During the hearing, it was revealed that having declared bankruptcy in 2008 and being disqualified from being a company director, the former HMRC employee continued to operate one of his companies in his wife's name.

This disqualification has since been extended to five years as HMRC proceed to recover the money owed.

Having initially been offered an opportunity to partake in a Contractual Disclosure Facility, an offer that was declined, Steve Doyle of the HMRC criminal investigation department said "He had a chance to put his tax affairs in order but chose not to. He cheated the public purse of tens of thousands of pounds that should have been spent on vital public services.

"Now he is paying the price for his dishonesty. We try to give people a chance to put their affairs in order, but if they refuse to we will take firm action."

Spotlight on HMRC investigation procedures

In recent years HMRC has become increasingly aggressive in their approach to recovering unpaid tax in cases where deliberate tax evasion is suspected to have taken place.

The introduction of the Common Reporting Standard, alongside the development of technology and application of AI in tax investigation cases, has resulted in a dramatic increase in the amount of data HMRC has at their disposal when deciding whether or not to investigate an individual.

To manage this more efficiently, HMRC make use of the Contractual Disclosure Facility, offering targeted individuals an opportunity to correct their suspected tax evasion by voluntarily notifying HMRC of discrepancies and paying the unpaid tax. In return for volunteering this information and payment the individual concerned can avoid the potential prosecution that may otherwise follow.

HMRC typically open proceedings by issuing a Code of Practice 9 (COP9) letter, informing an individual of the suspected fraud. This can be a unsettling time for anyone who received a COP9 letter, but it is important to remember that acceptance of the Contractual Disclosure Facility is not mandatory - the offer can be rejected, and that despite a letter being issued, than necessary standard of proof may not have been met by HMRC.

As such it is important for individuals to seek professional advice in COP9 cases, so an expert can assess the case and determine the best course of action in light of the information available.

In cases where deliberate tax evasion has taken place, the offer to partake in the facility can be a welcomed opportunity. In this scenario an appointed advisor can engage HMRC to undertake negotiations on the individual's behalf.

Looking to the future, HMRC's success in using COP9 to collect tax in a highly cost-effective way would suggest they will continue down this course of action, possibly further utilising the mechanism in an increasing volume of cases. This may also be the downfall of what has previously been a powerful weapon in HMRC's arsenal, given the potential over-use of COP9 and its increasingly inappropriate application.

Lap dancers and dog breeders targeted by HMRC

HMRC has been cracking down on a number of industries commonly associated with cash-in-hand work through a series of tax probes which have resulted in an additional £540m of treasury revenue.

Specialist task forces have been investigation a range of industries, some obvious and some not so obvious, in order to recoup tax owed by individuals for the previous tax year.

These industries include the adult entertainment industry, dog breeders, the haulage sector, market stall traders, and the Lake District holiday industry, to name a few.

With a total of 209 specialist HMRC task forces now working on this, recouped revenues for the financial year 2018/19 have topped recent records, which have been increasing year on year since the 2014/15 financial year, when just £138m was recovered.

Where behaviour appears of the more serious nature, such as criminal activity or serious tax fraud, the task forces team up with Fraud Investigation Service (FIS) officers who utilise an additional layer of power to carry out actions such as dawn raids and arrests.

Whilst operations have momentarily been diverted to support the handling of the COVID-19 crisis, HMRC see their task forces as a key part of its tax recovery strategy dubbed 'promote, prevent, respond'.

Combined with the Treasury's objective of collecting a further £4bn in tax revenue over the next five years, it is clear that the range of specialist task forces will be likely resume activity in the not-to-distant future.

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