June's round up of the latest tax investigation news and cases:
According to the national accountancy group UHY Hacker Young, HMRC suspects the UK’s biggest businesses of owing £725m in underpaid tax. This is down to over claiming R&D tax relief. This is said to represent a 16% increase on £623m in tax that has been believed to have been underpaid in the year before.
Whilst the focus is on larger businesses overclaiming R&D tax credits, UHY Hacker Young claims that it is also “particularly concerned” at claims made by medium and small businesses.
UHY Hacker Young states that HMRC are focusses on agents who work with a ‘no win/no fee ‘ and that they are “encouraging companies to claim far more tax relief they are entitled to.” To qualify for R&D tax credits, businesses must have made an actual advance in technology or science.
Kevin Edwards, Tax partner at UHY Hacker Young, commented: “HMRC now has a laser focus on what it sees as spurious R&D tax relief claims. They regard some of the claims submitted with the assistance of unregulated agents as very questionable at best.
“The correct approach to R&D claims is to make sure businesses receive accurate advice about how much of their R&D activity – if any – is eligible for tax relief. It is not to encourage clients to push the boundaries with speculative claims.”
He added: “Submitting an R&D claim is going to get a lot trickier as HMRC looks to clamp down on error and fraud.
“Before submitting an R&D claim, it is always better to seek professional tax advice from a qualified accountant. Otherwise, a business is opening itself up to a time-consuming and costly HMRC investigation and may have to pay back significant amounts of tax."
Mother of three children Ying Ni ran a Chinese takeaway in Hull on Holderness Road called ‘Moon River’, she fiddled nearly £350,000 of tax fraud “out of sheer greed.”
She did this over a five year period to dodge huge VAT payments, income tax and corporation tax. Inquiries revealed that from Just Eat and Hungry House the turnover was £950,990. This figure was three times the amount in which she had reported to HMRC for the whole business.
During the trial at Hull Crown Court, Ni admitted nine offences of fraud between the years 2015 and 2020. All charges against her husband, chef Fengsi He were dropped.
Prosecutor Howard Shaw, revealed that Ni under reported her taxable profits for the business, did not register for VAT and did not return her VAT returns, evading payments of income tax and corporation tax.
The business was registered on the well known online sales sites ‘Just Eat’ and ‘Hungry House.’ She said that over a five year period from 2013-2018 her turnover was £341,483. However investigations showed that from these online sales her turnover was £950,990, well over the amount that she had reported to HMRC.
Ni claimed that her husband helped to manage the business and was also the chef. She claimed to have misunderstood the VAT requirements and that she wanted to repay her debt.
Jessica Strange, mitigating, expresses : "This is a lot of money and it was over a sustained period of time. There is no getting away from the fact that these are very serious offences.
"She fully accepts dishonesty in relation to these offences. There is no suggestion that this was a mistake. She accepts the dishonesty. We accept it's a sustained period.
"This is one of the least sophisticated offences of its type. Arguably, she was always going to be found out."
Judge Sophie McKone informed Ni: "Out of sheer greed and not ignorance, for a significant period of time, that being five years, you deprived Her Majesty's Revenue and Customs out of a significant amount of money, just short of £350,000.
"You did that because you grossly under-reported the amount of money that you were making through your business by failing to register for VAT and then, of course, by failing to pay the VAT that you should have.
"You have deprived the Government, effectively the public really, of a large amount of money which could have been used by much-needed services, the obvious ones being education and health, and so this is a crime against people because, if everybody did what you did, there would be no services, no health service. That's why it's extremely important that people fulfill their responsibility and pay what they owe. This was fraudulent activity conducted over a sustained period of time - five years."
An HMRC spokesman declared: “These were deliberate attacks on the public purse. Ni stole taxpayers’ money which should be used to fund our vital public services. We will continue to pursue the small minority of business owners who think tax fraud is acceptable.
"We urge anyone with information about tax fraud to contact HMRC online. Search ‘Report Fraud HMRC’ on GOV.UK and complete our online form.”
Ni was sentenced to two years and four months in prison. She has been banned from being a company director for five years, HMRC are making its own arrangements to recover the money.
Specialist Law firm Pinset Masons claims that HMRC is ramping up investigations in multinational tax avoidance arrangements, investigating large corporations shifting profits overseas. There has been a 49% upward trend of extra tax collected from these investigations.
“HMRC is now much more aggressive in tackling what it sees as artificial profit shifting, and much more stringent in its interpretation of what makes an acceptable transfer pricing arrangement,” said Steven Porter, partner and head of tax disputes and investigations at Pinsent Masons.
Figures from 2020/21 tax year show that these extra investigations into multinational corporates increased from £1.45bn to £2.16bn highest yet on record.
Usually settled out of court, HMRC has announced that it will now evaluate multinationals’ transfer pricing strategies for criminal investigation where relevant.
“We currently have live investigations involving some very large corporates where individuals within those companies have lied to us,” said Simon York, director of HMRC’s Fraud Investigation Service.
“Let’s say a large organisation is talking to us about transfer pricing as a civil tax discussion, but in the course of that some false documents are provided or lies told, then absolutely we would go down the criminal route there in relation to those individuals no matter how senior they are.”
“Where HMRC believes companies have been dishonest in their use of transfer pricing in order to deliberately hide profits, officials have made it clear they will consider criminal prosecution,” said Andrew Sackey, partner at Pinsent Masons.
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