March 2020 Tax Investigation Round Up

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

• Restaurateur banned for tax fraud of over £570k
• £3.1m tax fraud results in jail for printing company bosses
• Former head of a charity for the disabled jailed for £250k fraud
• HMRC will not be “heavy handed” on penalties during first year of IR35 implementation

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Restaurateur banned for tax fraud of over £570k

An Insolvency Service investigation carried out on an individual, Syed Ahmed, uncovered that he had a hidden bank account set up under the company Blue Mango Tree Ltd which went into liquidation in September 2018.

The company based in Aberdeen traded as the Jewel in the Crown restaurant and for five years declared its full tax returns to HMRC. However, for more than three years Ahmed had not declared this ‘hidden’ bank account to the authorities. This was between February 2014 and November 2017.

The individual was successful in hiding the money for a period of time, as when customers had paid their bills in the restaurant, the payments were diverted to the hidden bank account instead of the main account the tax returns were being completed in reference to.

Investigators found that £797,587 of customer payments had been transferred to this account. Ahmed managed to withdraw £535,000 as cash and £123,000 was transferred to himself, by himself.

Chief investigator for the Insolvency Service Robert Clarke stated, "Syed Ahmed knew exactly what he was doing when he diverted funds for his own purposes, in an attempt to avoid paying the tax authorities what they were rightfully owed."

Ahmed has been banned for 11 years from November 29, 2019 from acting as a director or becoming involved directly or indirectly, without the permission of the court, in the promotion, formation or management of any company. At liquidation HMRC were owed £567,299 of which at least £502,570 (including interest and penalties) was in respect of the under-declared VAT and Corporation Tax.

£3.1m tax fraud results in jail for printing company bosses

Printing company bosses Stephen Knight, John Knight, Brian Thomas, Paul Murphy and Phillip Sach were all directors of a large printing business registered with Companies House as Anton Group Ltd, trading from Basildon. HMRC uncovered that they all had a part to play in an eight-year tax fraud amounting to the value of £3.1m.

The fraud was undertaken by a series of cash sales of wastepaper being kept 'off record' whilst they all shared the proceeds between April 2004 and November 2012. HMRC were told that the wastepaper was given to the company free of charge in exchange of the upkeep and installation of machinery. However, the investigations proved that money did change hands and that Anton Group Ltd did receive payments controlled by John Knight and Stephen Knight.

False invoices to suppliers were discovered in the company's accounts amounting to £1.4m. Funds were siphoned off to the personal bank accounts of the directors and used to repay directors' loans to the company. Staff pay was also slashed to help keep the company afloat assisting with cash flow. Staff were told that the directors pay was also decreased by £5,000 of their own monthly income to help the business, when they had in fact been secretly stealing money via the fraud.

The five directors were sentenced for their roles in this fraudulent scheme at Southwarck Crown Court. HMRC stated that it "is committed to taking action against all those who steal from the public purse. Fraudsters who use sophisticated methods to hide their criminal proceeds should know that we are more than a match for them. No tax evader is beyond our reach."

Speaking after sentencing, HMRC's fraud investigation service assistant director Adam Kingsgate said: "This was a high value and complex fraud involving a group of callous fraudsters who had no care for the impact of their crimes on others. They were complicit in almost running the business into the ground and leaving hundreds of people without jobs.”

Former head of a charity for the disabled jailed for £250k fraud

Patrick McLarry was working for Yateley Industries for the Disabled as chief executive and chairman whilst also acting as a director of VerdePlanet Ltd, the trustee of the charity's pension scheme, when HMRC commenced investigations into McLarry.

Authorities were alerted by a whistleblower after a number of unusual investments were flagged in the Yateley Industries for the Disabled pension scheme. Further investigations performed by The Pensions Regulator (TPR) found that between March 2012 and February 2013 a sum of £256,127 was transferred from the charity's pension scheme into personal bank accounts under the control of McLarry.

It was revealed that McLarry used the money to buy a home and a warehouse in the south of France and a house in Hartley for himself and his wife. He also used the money to pay off his own personal debt which he owed over the purchase of a pub lease in Portsmouth. He tried to forge documents, lie to tax investigators about who owned the houses and refused to hand over vital evidence to TPR as a way of covering his tracks.

Nicola Parish, executive director of frontline regulation at TPR said, "McLarry tried every trick in the book to hide his actions and squander the pension pots of those he was responsible for, but we were able to uncover the truth and bring him to justice."

Once TPR had hold of the bank statements it was revealed that scheme funds from Yateley were used to purchase his house in France, the jury heard that McLarry had undertaken this fraud for a number of years against vulnerable people with disabilities. Judge Andrew Barnett said he had acted with appalling dishonesty and breach of trust and had "milked the pension fund of considerable funds, spent entirely for your own needs and your wife."

Following the case at Winchester Crown Court, McLarry was jailed for five years and banned from being a director for eight years. The TPR is now seeking a confiscation order to gather all the money back which McLarry had stolen. After the court case Nicola Parish went on to say, "we were determined that he should face justice for defrauding pension savers. This sends a clear warning that we will use the full force of our powers and work with partner enforcement agencies to protect pension savers."

HMRC will not be “heavy handed” on penalties during first year of IR35 implementation

Chancellor Rishi Sunak has made assurances that HMRC will allow a soft-landing penalty period where adjustments for businesses will be permitted as they prepare for the new IR35 measures. It was also stated that HMRC would not be “heavy handed” with penalties during the first year of the implementation.

From April 6th, 2020 IR35 will increase income tax and National Insurance Contributions for contractors and their employers. This has upset over 300 off-payroll contractors who protested outside parliament about the changes last month. In response to this, Sunak states that "it is not fair to people that are employed that people doing the same job are paying less tax."

He continued to add “What IR35 does is change the balance so instead of people making the assumptions about how they should be taxed, we put the onus on the company to make that assessment for them. Now that is going to be some change because for some people they were operating in a way where they were not paying the tax they probably should have been, because essentially they were employees, but they were being taxed as if they were self-employed and there is quite a difference there.”

Tax policy expert at AAT, Brian Palmer said “While many organisations continued to call for a delay to implementation, AAT recognised that further delays were unlikely, so instead called for a 12 month ‘soft-landing’ period, with no penalties or fines imposed on businesses who can demonstrate taking reasonable steps to comply. AAT is naturally pleased that the Chancellor has agreed with our proposal and believes this should provide some much-needed reassurance for both employers and contractors alike.”

James Poyser, CEO of inniAccounts, said in response to the Chancellor “It is yet another half-baked decision that fails to do the right thing - it simply adds rather than detracts from the crisis. If the Treasury is now acknowledging there is a risk to UK plc following feedback from businesses, professional bodies and contractors, then it needs to be bold and say it will provide the delay and properly engage with organisations and those affected. Until then, a soft-landing means nothing because ultimately the legislation will not change.”