November's round up of the latest tax investigation news and cases:
Three men aged 37, 43 and 48 are some of the first to have been arrested on suspicion of cheating the public revenue and fraud by false representation. They did this by exploiting the Eat Out to Help Out scheme. The arrests were made by officers from HMRC in London.
The scheme was unveiled by Chancellor Rishi Sunak, it was designed by the government to help boost the economy in the hospitality sector after the national lockdown. The scheme was used throughout August on selected days, encouraging people to come back into pubs and restaurants.
The scheme offered a large 50% discount of up to £10 per person and it was effectively used for over 100 million meals across the UK. However, sadly the scheme has been abused by fraudsters as well as purportedly contributing to a rise in new coronavirus cases.
In Birmingham, another three people were arrested for fraudulently obtaining £145,000 in coronavirus bounce-back loans. These men have been questioned and released but are still under a HMRC tax investigation.
The deputy director of HMRC's fraud investigation service Kath Doyle, said: "The vast majority of businesses will have used Eat Out to Help Out responsibly but we will not hesitate to act where we suspect abuse of the scheme.
"This is taxpayers' money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding."
There are expected to be many more arrests after the National Audit Office stated last month that taxpayers could lose billions from organised crime, fraud, or default. The government’s initiative for the loans scheme was designed to help small and medium sized businesses by allowing them to borrow up to £50,000 with no fees or interest in the first year.
Rachael Herbert from the NCA stated: "The NCA and others will pursue those serious and organised criminals who seek to exploit the help provided to businesses during a national crisis.”
HMRC have threatened to investigate 10,000 companies over abuse of the furlough scheme. Whist staff have been on furlough, companies have been able to claim up to 80% of their salaries to a maximum of £2,500. Over £41 billion has been distributed to help save 9.6 million jobs across the UK.
Jim Harra, HMRC permanent secretary, gave evidence to the Public Accounts Committee that £382 million had been returned. He continued that this was not a total figure as more money was flowing in, either in cash or in smaller pay outs for their next claim.
Some firms however have voluntarily repaid money after being prompted to do so by the government or by realising that they have not been affected as badly as they had anticipated. HMRC has written to 27,000 high risk companies over their use of the furlough scheme and expects to continue investigating 10,000 of these.
Sadly, Harra previously said that the Government expects between 5 and 10 per cent of furlough to be lost through furlough scheme fraud and error.
The furlough scheme has now been extended to March and could add another £25-30 billion on the Government's bill meaning that millions will have had their wages paid for a full year. There will continue to be further furlough reviews in January.
Dominic Chappell was jailed for six years at Southwark Crown Court after evading tax on the £2.2 million of income he made after making a £1 deal with Philip Green to buy the failing high street chain BHS.
Chappell used the money to fund his luxury lifestyle including a £90,000 yacht, a Bentley, and a lavish holiday to the Bahamas, instead of paying the tax that he owed.
In defence, his lawyers suggested that he is "utterly broke" due to the underfunded "pension problem exploding" after two weeks of buying the company. They suggested that if BHS had not failed, he would have had the funds to pay the tax liability.
BHS was losing £1 million a week and had a £250 – 500 million pension deficit when Chappell bought the company. It was alleged that Chappell provided misleading information and failed to submit VAT returns.
Chappell told the jury that it was a “life-changing catastrophe” and he should “never have touched it with a barge poll”.
“We were given forged and misleading documents by PricewaterhouseCoopers (PwC). I was lied to by Sir Philip Green, as were my board. This catastrophe has cost me my marriage, my money and my reputation.”
In his defence he said that information about the state of the firm “was not a true reflection” of what was going on. The Pensions Regulator (TPR) also launched an investigation into the BHS retirement fund.
Chappell denied three charges of cheating the public revenue but was found guilty of dishonesty by the jury after three days. This resulted in a six-year prison sentence, and he was banned from running a company for 10 years, with the Government's Insolvency Service saying he had carried out “reckless financial transactions” and “failed to maintain adequate company records”.
Earlier this year he was also ordered to pay £9.5 million into BHS's pension schemes by the TPR.
Mr Bryant-Heron QC exclaimed: “He had the financial means to pay the tax and was able to raise funds. He dishonestly chose not to pay tax. In relation to VAT, he did not even make any VAT returns as required to. He ignored his duty and legal liability to pay tax, until eventually HMRC had to take enforcement action to wind up the company for non-payment.”
'Nudge' letters have been sent out by the HMRC to over 14,000 individuals that have sold a residential property prompting them to check whether they owe Capital Gains Tax. This includes properties sold during the 2018/19 tax year, according to tax and advisory firm Blick Rothenberg.
At the same time, the firm says there is a "more immediate problem".
Suzanne Briggs, a partner at the firm explained: "Anyone who has sold a property after April 6th this year where there is CGT to pay, should have reported the disposal and paid the CGT within 30 days of the sale. A late return will incur a late filing penalty and interest on the late payment of the CGT.
“There has been little publicity about this new regime and the short filing deadline will catch many people out. HMRC should be proactively educating taxpayers rather than penalising them for late filing after the event. Anyone who thinks that they owe money should deal with it now or they could face fines and interest charges.
“The ‘nudge’ letter relating to the 2018/19 tax year will invite taxpayers to review their CGT position and either amend their tax return or make a disclosure. Taxpayers will be alarmed by receiving these letters, but they should take care not to ignore them and to take immediate advice or they too could face fines and interest charges.
"HMRC are targeting the letters at individuals who have sold a property which may not have been their main home. It is unclear how HMRC will conclude that a particular property may not have been a taxpayer’s main home, but from my experience of previous nudge letter campaigns, HMRC do not generally undertake any internal checks to verify the information they hold and so taxpayers can receive a letter where there is nothing to disclose.
“It is important to be aware that main residence relief (which exempts a capital gain on the sale of a property) only applies in full if a property has been your “only or main residence” throughout your ownership. The legislation around main residence relief can be complex if you have not lived in the property as your main residence throughout or you own more than one property. It is not always the case that main residence relief applies to the property being sold.”
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