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March's round up of the latest tax investigation news and cases:
Ezazali Namaji, sole director of Leicester clothing manufacturer Miss Pebbles Clothing Ltd failed to provide adequate company accounting records resulting in a jail sentence.
The company was a cut and trim garment manufacturer set up in February 2015, employing around 50 people. In March 2016 the business went into liquidation and it owed funds to the tax authorities and a further debt to other creditors of £44,000.
During investigations, the Insolvency Service found that Namaji’s accounting records were not up to standards. Cheque and debit card withdrawals totaling over £983,000 had no records of where they had been spent, meaning the liquidators could not determine where that money had gone.
Over the period of 13 months of trading, Miss Pebbles Clothing had failed to pay HMRC tax liabilities of more than £300,000. Part of this amount was linked to national insurance and PAYE payments after it was revealed that Namaji was taking contributions from employees without passing them on.
After pleading guilty at Leicester Crown Court to failing to keep adequate accounting records, Namaji was sentenced to six months imprisonment and banned from being a company director for a period of five years.
Chief investigator for the Insolvency Service Glenn Wicks concluded: "Ezazali Ahmed Namaji was a negligent company director who failed to maintain company records. When Miss Pebbles Ltd ceased trading, it left serious losses of almost £345,000, with more than £301,000 alone owed to the tax authorities.
"Namaji’s unscrupulous conduct is a serious offence and this sentence should serve as a stark warning to others that we will investigate those that think they can flout their responsibilities as directors and cause harm and loss to the public purse."
There has been a long running tax case concerning the employment status of BBC presenter Kaye Adams.
Adams provided her services through her PSC Atholl House Productions Limited. There had been disputes about outstanding tax payments of an estimated £140,000 over the tax years 2015/2016 and 2016/17, and in this period Adams had a long running contract to present a radio show with the BBC.
Adams had a minimum commitment of 160 programmes with the BBC, to present the show ‘Kaye Adams Programme’ and her services were provided through her production company. The contracts generally rolled over a year in return for a payment of £155,000. If, however, her services were required over the 160 programmes, her company would be paid an additional rate of £968.75 per programme. Adams was not an exclusive presenter to the BBC and was able to take on other contracts under her company.
The Upper Tribunal almost fully agreed with the views of the First Tier Tribunal on mutuality, when the issues of control and mutuality were central to her ruling.
Both parties agreed that, if a person is “in business on their own account”, to quote the phrase used in Hall v Lorimer [1994] 1 WLR 209, that may supply a reason why a contract is not one of employment even though it provides for a sufficient framework of mutuality and control.
It was decided that there was sufficient mutuality of obligation to satisfy the first stage. Part of the judgement also looked into Adams’ other freelance work.
HMRC argued that the FTT’s conclusion was flawed because the FTT did not have suitable evidence to determine whether Ms Adams had been self-employed over the period of her 20-year career.
The Upper Tribunal refused to accept that, expressing that "in her second witness statement, Ms Adams said that she had worked as a freelance for the majority of her career. She gave details of other work she had done. This included co-presenting the ITV show “Loose Women” for which, on her evidence, she was paid on a “show by show” basis."
She explained what she regarded as the “ebb and flow of a freelance presenter’s role”, the uncertainty of the industry she worked in and the fact that roles could come to an end without notice. That evidence was consistent in showing that Adams’ other work was undertaken as an independent contractor, the Upper Tribunal agreed.
The Upper Tribunal stated "it was scarcely surprising that the BBC gave her that latitude as she was an expert with a proven track record of presenting popular and successful shows. However, provided that the show continued to answer to the description of “The Kaye Adams Show”, there was no constraint on the BBC’s right to determine the content or format of the show".
The judges ruled in favour of Adams, accepting that she was within her rights to work for the BBC through her production company.
An HMRC spokesperson said: "HMRC is disappointed that the Upper Tribunal has decided that the intermediary rules, also known as IR35, do not apply in this case. HMRC will carefully consider the outcome of the tribunal before deciding whether or not to appeal."
Dave Chaplin, CEO of ContractorCalculator and IR35 Shield said: "This news could provide considerable comfort to other media-based freelancers. Kaye Adams was found to be providing personal service, mutual obligations were satisfied and there was a sufficient framework of control – but yet, she was found “outside IR35”, purely on the grounds that she was in business on her own account. HMRC’s contentious and flawed CEST tool would not agree.
"The decision highlights a known flaw in the design of the new off-payroll legislation that is due to be rolled out to the private sector in April, namely, that a client won’t have all the information it needs to evaluate a freelancer’s status and will only be able to look at a partial picture. This means that many contractors who could be “outside IR35” because, like Ms Adams, they are in business on their own account, will be judged by clients as ‘inside IR35’ with no route to natural justice.
"Whilst this ruling provides some certainty on the right way to assess by looking at the whole picture, when it comes to practicalities it has also thrown a massive spanner in the works."
Over the past few years the government has introduced more than 100 reforms to the tax system. Recent reforms have been designed to help HMRC better manage cases of tax evasion and avoidance. They align with HMRC’s overarching approach which consists of promoting compliance, preventing non compliance, and responding to non compliance in a fair manner.
Recent comments provided by the external evaluation forum in relation to these reforms include;
HMRC has also decided to improve the way they communicate compliance.
This especially involves the HMRC letters that are sent out during an enquiry. This will help taxpayers to understand their rights and minimise any unnecessary worry and stress. Improvements will also be made on the guidance from HMRC, hopefully making the service as useful as possible to other users by raising awareness and feedback.
The report informs that "inevitably, HMRC do not always get everything right. However, alongside the considerable work already underway, including on other aspects of the powers and safeguards work programme, these commitments mark a significant further step forward in building trust in HMRC’s administration of the tax system."
A roundtable meeting will also take place this year to discuss ways to improve the taxpayers’ experience when it is corrected through the Worldwide Disclosure Facility.
Alongside this, HMRC have been considering the impact of the Covid-19 pandemic and how this may have impacted businesses or the health of an individual. They claim that responses have been adapted accordingly, and are more appropriate to the individuals circumstances.
To conclude, HMRC has set out a number of commitments to:
In addition, HMRC will work with taxpayers, agents and their representatives to update HMRC’s guidance, by summer 2021, on:
Jeremy Coker, president of the ATT, exclaims: "The commitments by HMRC in the report can improve public trust and confidence in the tax system.
"Among the most significant promises made by HMRC are the focus on improving awareness and uptake of the statutory review process, updating HMRC’s guidance on what constitutes reasonable excuse for failing to meet a tax obligation, identifying ways to inform harder to reach taxpayer groups about tax obligations and supporting those who need extra help.
"Each of these commitments has the potential to make a real difference in the relationship between ordinary taxpayers and HMRC."
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