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May 2019 Tax Investigation Round Up

May’s round up of the latest tax investigation news and cases:

  • Former mechanic on the popular TV show Top Gear has been awarded a prison sentence for the part he played in aiding a father and son in a £1 million VAT fraud.
  • HMRC is receiving an unprecedented volume of data under the new Common Reporting Standard that requires financial institutions to automatically report clients' offshore assets.
  • 8,600 of the 81,000 Accelerated Payment Notices issued since their inception in 2014 have been withdrawn by HMRC, with 2,600 being withdrawn in the last year alone.
  • An analysis by Funding Options of HMRC's winding up petitions suggests that the tax authorities are continuing to take an aggressive approach to closing-down businesses.

Former Top Gear mechanic sent to prison for aiding £1 million VAT fraud

A mechanic who previously worked on the hit TV show Top Gear has been sent to prison after being found guilty of assisting a father and son in their £1 million VAT fraud scheme. The Oxfordshire mechanic helped the father and son escape to Spain shortly before they were extradited back to the UK. The pair are now also facing prison time amounting to nearly eight years.

During HMRC's tax investigation it was revealed that the former mechanic had received a sum of £2,900 into his personal bank account and around the same time had bought travel tickets and hired a van. These were used by the father and son to reach their Spanish hideout. During a raid on his home further evidence was found including receipts for the purchases and a full travel itinerary.

Despite this he claimed that he had no knowledge of, or involvement in, the events although he admitted to having previously worked for the pair. However, the evidence was sufficient for him to be sentenced to 15 months jail time for perverting the course of justice. HMRC subsequently used data found on his phone to track down the father and son who were arrested at their villa in Benidorm in May 2018.

The Common Reporting Standard generates unprecedented amounts of financial data

HMRC, along with tax authorities across the world, are receiving unprecedented amounts of financial information relating to individuals' offshore assets thanks to the Common Reporting Standard. The CRS dictates that financial institutions must automatically declare their clients' interest in offshore assets to the 'home' tax authority.

The data spans back multiple years presenting HMRC with a significant amount of work to sift through and analyse the vast amount of financial information that may, or may not, present opportunities recoup unpaid tax. If too much time is taken some of these opportunities could be missed which has presented HMRC with a challenge.

Consequently, HMRC has taken what is being referred to as a 'blanket approach' of issuing tens of thousands of letters to tax payers who have they have received information about asking them to sign a certificate to say whether their offshore tax affairs are in order. The approach has come under considerable criticism and has been branded a 'fishing expedition'. Some leading tax firms are urging tax payers who receive these letters to seek professional advice before taking any action or responding to HMRC.

Concerns that Accelerated Payment Notices are becoming commoditised

According to research carried out by a leading law firm, In the past year alone, HMRC has cancelled as many as 2,600 of the Accelerated Payment Notices they issued. APNs have become an increasingly controversial topic with concerns arising around the commoditisation of the process in light of around 10% of all APNs issued since 2014 resulting in cancellations.

The cancellation rate could suggest that not enough care and attention is being given when the APNs are being issued. APNs were introduced to speed up the process of recovering disputed tax by making taxpayers pay the disputed in advance of their appeals being determined by the tax tribunal. The law firm that carried out the research claim that there are many cases where the amounts demanded by APNs have pushed companies into severe financial difficulty.

With so many APNs being withdrawn by HMRC, in instances where taxpayers receive an APN it is advisable to seek professional tax advice before taking any action. HMRC's aggressive approach to issuing APNs does not appear to consider the devastating impact they can have on the recipients.

A partner at a leading law firm said "The fact HMRC has had to withdraw over 10% of all APNs they have issued suggests they need to exercise far greater care when exercising this power. There is a suspicion that HMRC may have commoditised the process for administrative convenience."

HMRC taking an aggressive approach to shutting down businesses

Research carried out by Funding Options has revealed that in 2018 HMRC raised 4,160 winding up petitions to closedown businesses that had fallen behind on their tax payments. This is despite particularly tough trading conditions that have resulted from uncertainty around Brexit and a slowdown in global economic growth. The analysis suggests that taking these factors into consideration, HMRC's approach is overly aggressive.

HMRC make the Time to Pay scheme available to businesses to give them longer to pay their tax bills. This was used heavily during the last recession to tide a lot of companies through difficult times. The Funding Options analysis suggest there is still more that HMRC could be doing. They suggest as an alternative, that HMRC takes a more sympathetic approach by giving business owners longer extensions for making the necessary payments rather than pushing to liquidate companies.

Funding Options believe that a lot of the smaller businesses receiving winding up petitions are falling foul of late payments by larger clients. Some of the tax bills companies are required to pay are calculated on money invoiced as opposed to money received (such as VAT and Corporation Tax), meaning large amounts being paid late can cause serious cash flow issues. A representative for Funding Options said, "businesses must be prepared and know how they are going to manage their finances through the tricky periods."

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