March 2023 Tax Investigation Round Up

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

• £1m tax appeal lost by Celebrity Big Brother star
• Overseas corporate property owners targeted by HMRC
• Construction company boss jailed for £2m tax fraud

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£1m tax appeal lost by Celebrity Big Brother star

Former Celebrity Big Brother star Darryn Lyons has lost an appeal with the First Tier Tribunal (FTT) over capital gains tax totaling to around £1m. This was related to his residency in the UK.

Lyons appealed against the capital gains tax of £1,087,413.68 in relation to the sales of different UK properties during the tax years of 2012-13.

The tax year of 2012-13 preceded the introduction of the statutory residence  test (SRT) and Lyons residence. Under pre- SRT rules, it was determined that Lyons was a UK tax resident for at least one day in the tax year of 2012-13.

Lyons disagreed with this decision, arguing that he had not been a UK tax resident before 6 April 2012 and any of his time in the UK after fell within the provisions of s9(3) Taxation of Chargeable Gains Act 1992. This would mean he fell into the statement of Section 9 TCGA establishing that an individual  is in the UK for ‘some temporary purpose only and not with any view or intent to establish his residence’ shall only be charged CGT for ‘which he is resident in the UK in that year of assessment exceeds six months’.

On the other hand, HMRC argued that it was an ‘overwhelmingly clear case’ that Lyons was a UK resident up to 5 April 2012.

HMRC believed that marketing or valuing his home in the UK was ‘not sufficient’ to represent an ‘actual loosening of ties’, which would have needed a more final step such as a lease of the property, contract for sale or a sale.

HMRC stood by the fact that Lyons’ actions in Australia did ‘not necessarily’ mean he had cut his ties with the UK.

Judge Bowler said: ‘Ms Hardy submitted that the evidence of Mr Lyons’ connections to and activities in Australia increasing substantially in the tax year 2011/12 was a major component of his case that he had substantially loosened his UK ties.

‘However, we are satisfied that this is not a zero-sum situation. A person can increase connections to, time spent in and activities in another country even to the point of becoming tax resident in that country without necessarily losing their ties in the UK to such an extent that they cease to be UK tax resident.’

The appeal was dismissed.

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Overseas corporate property owners targeted by HMRC

Letters are being sent out by HMRC to overseas entities that have registered on the UK’s Register of Overseas Entities (ROE) warning them to report all UK tax liabilities.

They will be able to use the worldwide disclosure facility to inform HMRC of any outstanding tax liability and have 90 days to calculate this. This hopefully will help them to agree to a resolution without being fined.

The letter released by HMRC warned that all information on the register will be provided to them to identify any non tax compliance. It is recommended that any parties worried about their financial tax position should consider taking advice professionally from the WDF (worldwide disclosure facility).

If they use the WDF to contact HMRC, they are then granted 90 days to gather all information needed to complete a disclosure. HMRC will generally not start an investigation during this period, and if the disclosure is accepted, no further action will be taken.  If however, no disclosure is created and tax non - compliance comes to light from the information on the register, an investigation will be launched and it will be too late to stop this.

‘As an authorised agent, Sovereign has been and continues to be working extremely hard to register clients on the register of entities (ROE),’ said Stuart Stobie, managing director of Sovereign Corporate & Trustee Services.

‘If any clients have any concerns about their UK tax compliance, our in-house tax counsel will be available to deal with enquiries or we can engage external tax advisers to review current structures.

‘It is clear from these letters that HMRC intends to be pro-active in using the ROE information. You should also be aware that HMRC has extended the time limits for assessing income tax, capital gains tax and inheritance tax where the loss of tax involves an offshore matter or transfer. It can also apply increased penalties for non-compliance involving offshore matters and transfers.’

Only 19,510 of a total of 32,440 registered overseas entities had declared their beneficial owners before the deadline in February.

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Construction company boss jailed for £2m tax fraud

Ben Richardson from Kent was the head of four failing construction companies. They involved selling modular buildings to construction sites between October 2010 and July 2019. He evaded paying over £2m in taxes, using the gains for his own personal use. This included buying a cottage in Kent and paying off his debts.

Richardson pled guilty to multiple tax evasion crimes, including the fraudulent evasion of VAT at a staggering £1.8m. He also confessed to multiple offences including evading national insurance contributions and income tax. He failed to disclose the Construction Industry Scheme returns, this tax bill amounted to nearly £380,000.

At Maidstone Crown Court on 3 March 2023, he was charged and given a six year sentence. His wife, Dawn Richardson also had a part to play in the fraud and was sentenced to 17 months, which was suspended for 18 months.

Judge Edmund Burge KC stated: ‘This was a deliberate and systematic attack on the public revenue. You exploited what you believed was a weakness because HMRC trusted businesses and individuals to declare and pay the taxes they owed.

‘Your motivation was greed as you wanted a more expensive and glamorous lifestyle than your legitimate income could provide and you used your various businesses as a mechanism to fund your lifestyle.’

Gurminder Sanghera, legal manager at the Crown Prosecution Service (CPS), declared: ‘Ben Richardson did all he could to evade paying his fair share to society through his control of these companies. He was determined to make as much money as he could to pay off his spiraling debts and fund his lifestyle and evaded paying more than £2m in tax.’

Pete Vivian, assistant director at HMRC’s Fraud Investigation Service, stated: ‘Ben Richardson stole from the taxpayer to fund a lifestyle that was out of his reach. He evaded taxes, ran up debts and closed businesses with the expectation that the honest, tax-paying majority would pick up the tab. He’s started a lengthy prison sentence and we continue to work with CPS colleagues to recover his ill-gotten gains.’