May 2023 Tax Investigation Round Up

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

• Finance officer commits £37k invoice fraud
• Judge invests in tax avoidance schemes
• Five employment agencies named and shamed as tax avoidance promoters

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Finance officer commits £37k invoice fraud

Finance officer at a veterinary practice, Helen Pearse took out pet insurance policies with six different insurers. She edited invoices obtained by her employer to make a total of 18 fraudulent claims over a time period of four years.

Usually, in most claims, she made up the breeds and names of the animals that she had taken policies for. To make this look believable, Pearse altered invoices that were sent to genuine clients. They were altered to make it look like they had been issued to her and then they would be sent to the insurer as evidence for her claims.

On 13 April 2023 at South East Northumberland Magistrates Court, Pearse pled guilty to six counts of fraud by abusing her position.

At Newcastle Crown Court on 11 May 2023, during her trial, Pearse was sentenced to 20 months imprisonment, which was suspended for 18 months. She will be subject to probation and supervision for the duration of her sentence.

Pearse took out pet insurance policies for two different dogs - Ripple and Pippa on 18 August 2021. She had made a false claim for Pippa on 15 October and was given £3,712 from the insurer. In order to receive the payment, Pearse provided doctored medical notes and invoices from the practice. She then further submitted a claim for Pippa on 26 October, receiving a further £3,108.

On 11 April 2022, Pearse attempted to claim £3,005 for the other dog, Ripple. The insurance company rang the veterinary practice to ask about the particular medical treatment. However, staff were unable to find any record of such and they also revealed that the dog was not registered with their practice.

To cover herself in the week after the claims were uncovered to be false, Pearse had offered to repay the insurer claiming that ‘these have been paid out incorrectly due to my error.’

Whilst under investigation, it was discovered that Pearse had made previous claims for dogs Ciara and Luke, cats Percy and Piper and rabbits Stewart and Ross with five different insurers from January 2018 onwards. All animals apart from Piper, did not exist and were made up. Although Piper existed, Pearse admitted to making three false claims against her.

Pearse has paid back money she owes to four of the insurers, a confiscation order worth £15,024.61 has been granted to cover the remaining debt to the other insurers and must be repaid within 12 months.

Detective constable Chris Jones, City of London Police, commented: ‘Pearse took advantage of the access she had to client invoices as part of her job in order to line her own pockets.

‘After her actions first came to light, we identified that she had been making fraudulent claims since 2018, motivated by her greed to earn more money. Unfortunately for Pearse, she will now have to face the consequence of having a criminal record.'

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Judge invests in tax avoidance schemes

High court judge, Justice Joanna Smith, alongside two of her colleagues had invested in a controversial scheme by HMRC before she was assigned to the High Court.

Judges Justice Simon Bryan and Martin Griffiths had also been found to invest in tax avoidance schemes by the Financial Times after they started working for the court.

Corresponding to the documents presented with Companies House, Justices Smith, Bryan and Griffiths have continued their interests in the schemes. There are no legal rules however regarding that judges make public or private disclosures about their personal finances. In contrast, they are expected to admit to parties if they believe there could be conflict of interest in their cases.

Investments made by judges were made between 2003 and 2012. Justice Smith had invested in two different property tax schemes involving tax credits. This was nine years before she had the position of a High Court judge. One scheme was Curo Charlotte House LLP, which had received payment demands from HMRC in 2014.

Justices Bryan, appointed to the High Court in 2017, and Griffiths, appointed in 2019 both invested in the Cobalt Data Centre 2 LLP scheme in 2011.

Mr Neidle, founder of the Tax Policy Associates think tank, said he believed Justice Smith should have recused herself from the cases. This was due to her investment in the Charlotte House even if it was not in dispute with HMRC at that present time.

He commented to the Financial Times: “If her dispute was over, then there was no direct conflict, but still potential for bias, given it would be hard for her to avoid [adjudicating] points that were relevant to her own scheme. So I feel she should have recused herself.”

Richard Moorhead, professor of law and professional ethics at the University of Exeter, believes there should be a formal register of interests for judges.

“They shouldn’t rely on individual judges recalling in individual cases whether they might have a conflict of interest or a perceived bias. It’s very common in any kind of professional role to have some proper governance around these kinds of issues.”

The Judicial Office, said the judges did not want to comment. “The judiciary does not comment on the financial affairs of individual judges,” a spokesman said.

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Five employment agencies named and shamed as tax avoidance promoters

A total of five employment agencies in The Isle of Man have been uncovered as promoters of tax avoidance schemes.

Collect Consulting, Connections, First Step Consulting, Simply Consulting and Total Recruitment Services were all companies that broke tax rules. They did this by hiring agency employees through schemes. Payments were then made with incorrect income tax and National Insurance contribution deductions.

All agencies were registered within the Isle of Man and worked with third party agencies in the UK placing users in work with client businesses. The users were paid minimum wage which was taxed, this was then topped up with a loan which was tax free.

HMRC is strongly advising businesses to be aware and to not get involved with tax avoidance schemes. They have created a campaign called ‘Don’t Get Caught Out,’ to explain the consequences of using these schemes, including penalties, interest, further taxes and damage to the businesses reputation.

Mary Aiston, HMRC’s director of counter avoidance, commented: ‘These cynically marketed tax avoidance schemes don’t work in the way the promoters claim and users can end up with big tax bills.

‘Over the last year we have published the details of 33 tax avoidance schemes and exposed the unscrupulous promoters behind them. HMRC has also published details of 11 Stop Notices issued to promoters, and is consulting on adding a criminal sanction for promoters who breach those notices.

‘We will continue to take strong action against those who promote and market tax avoidance schemes and remain committed to supporting taxpayers to steer clear of or exit tax avoidance.’