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October's round up of the latest tax investigation news and cases:
HMRC's tax enforcement activities within professional football have significantly intensified, with £90 million in additional tax recovered from clubs, players and agents in the last year—a third higher than the £67.5 million recovered the previous year, according to UHY Hacker Young, the national accountancy group.
During the last year, HMRC initiated investigations into 12 football clubs, 90 players and 16 agents, demonstrating the breadth of the tax authority's scrutiny across the football sector.
A primary focus of recent investigations has been the utilization of R&D tax breaks by football clubs. HMRC is closely examining valuable R&D tax claims filed by football clubs, which are now making these claims in connection with R&D undertaken in performance analytics, training techniques and sports science. HMRC is investigating certain football clubs where it suspects some may be pushing the boundaries of what qualifies for this tax relief.
The fees football agents charge to clubs have also come under increased attention. HMRC has introduced new guidelines aimed at tackling tax evasion through so-called 'dual-representation contracts'—arrangements where an agent claims to work for both the club and the player in a transfer, with the fee split 50/50 between the two parties.
HMRC has stated it will no longer accept this as a standard approach. Moving forward, if a club claims that an agent also represented them, it must provide evidence to prove it. If unable to do so, the full fee will be deemed to have been paid by the player, and income tax will be due.
Elliott Buss, Partner at UHY Hacker Young, comments: "The football industry continues to be seen by HMRC as a major source of unpaid tax. A £22.5m increase in just one year shows how aggressively HMRC is pursuing both new and long-standing areas of concern. Clubs, players and agents need to be extremely careful with how they structure payments or risk coming under the spotlight."
"The incomes of football clubs and players wages continue to rise at a sharp rate but HMRC is concerned that there is too much tax evasion and avoidance in the sector and that the Government is not getting its fair share in tax revenues."
UHY Hacker Young identifies that HMRC's football investigations are also frequently triggered by:
Elliot Buss adds: "Clubs cannot afford to take a passive approach to tax compliance. HMRC's current crackdown shows that everything from R&D claims to agent fees is under the microscope."
"It's crucial that clubs have robust advice in place and that they also guide younger players, many of whom have little experience with the tax system, to avoid costly mistakes."
The substantial year-on-year increase in tax recovery demonstrates HMRC's sustained commitment to addressing tax compliance issues within the football sector. As club revenues and player wages continue their upward trajectory, the tax authority's scrutiny shows no signs of diminishing, making comprehensive tax compliance increasingly critical for all football industry stakeholders.
The enforcement activities span traditional concerns alongside emerging areas such as R&D tax relief claims, indicating that HMRC is adapting its approach to address evolving tax planning strategies within the sport.
Investigations utilizing HM Revenue and Customs' big data system generated an additional £4.6 billion in tax during the last year—representing an increase of more than a third from the previous period.
The Connect system employs data from an extensive range of financial sources to analyse tax returns and detect potential evasion activities.
HMRC, responding to a freedom of information request from Pinsent Masons, confirmed it generated on average £3.4 billion in additional annual yield from Connect cases, with the 2024-25 tax year generating approximately £4.6 billion.
Connect, which was introduced in 2010, has expanded significantly over the past 15 years to become one of the largest datasets held by the UK government. The system has now become a central component of tax investigations, with around 4,300 HMRC staff currently utilizing it.
Ian Robotham, a tax expert at Pinsent Masons, explained that the database provides the revenue body with access to more resources than would normally be possible to examine manually.
"HMRC has spent time building up the amount of data sources that it can access and analyse," he said.
"The algorithms that it uses allows HMRC to spot anomalies that would otherwise go unnoticed by the human eye."
"With thousands of HMRC staff now using Connect, taxpayers are facing a level of oversight that would have been unthinkable just a few years ago."
The increasing scale of the Connect system enabled HMRC to conduct more than half a million cases in the last year alone.
HMRC has also confirmed a partnership with a US data analytics firm, which is expected to introduce even more sophisticated AI applications to HMRC's data capabilities.
The substantial year-on-year increase in revenue generation demonstrates the growing effectiveness of data-driven tax enforcement. As the Connect system continues to evolve and expand its analytical capabilities, taxpayers can expect increasingly sophisticated scrutiny of their tax affairs, making accurate and complete tax compliance more critical than ever.
Despite remaking an earlier First Tier Tribunal decision, the Upper Tribunal refused to admit a late appeal in a VAT case where a wholesaler had failed to fully read HMRC's letters or listen to advisers.
Tajinder Singh Pawar operated as a wholesaler through both a sole tradership and a company, First Stop Wholesale Limited (FSW). In September 2014, HMRC raised a VAT assessment of £2,642,141 for periods covering June 2010 to February 2014, followed by penalty assessments of £1,256,490 in January 2015. Finally, a personal liability notice (PLN) of £1,256,490 was issued against Pawar personally, which was later reduced to £874,238.
The assessment primarily related to refused input tax recovery due to FSW reclaiming VAT on invoices addressed to Pawar in his sole trader capacity. After some discussion with HMRC, it was agreed that Pawar would issue £1 invoices to FSW to allow him to recover the VAT in place of FSW. However, no such invoices were subsequently generated.
An inaccuracy penalty and PLN were also issued in respect of corporation tax, but HMRC opted not to resist the subsequent appeal.
The HMRC VAT review conclusion letter had been issued in November 2018 and gave Pawar 30 days to appeal, but nothing was done until February 2022 when a late appeal request was made to the First Tier Tribunal (FTT).
The FTT considered the three-step approach set out by Martland and ultimately dismissed the appeal. Pawar subsequently sought and obtained permission to appeal this decision to the Upper Tribunal (UT) on three grounds, as well as making submissions in respect of a recent case, Medpro Healthcare Limited.
Pawar argued that the FTT had failed to take into account HMRC's acceptance that there had not been a loss of tax and that corrective action was possible to "re-route" the VAT between the entities. Therefore, any inaccuracy could not be said to be deliberate, negating the grounds for the PLN.
The UT noted that Pawar had agreed the returns in question were inaccurate before the FTT but had not then disputed their purported deliberate nature. That the FTT did not address this unraised point could not therefore be said to be an error of law.
For there to be a deliberate inaccuracy, the UT found there must be an intention to mislead the Revenue; whether corrective action was then possible had no bearing.
Overall, the UT found the FTT had not erred by failing to consider the relevant points raised. It may, at times, have failed to state it had considered a point, but that was not sufficient to justify setting aside the decision.
Next, Pawar argued that the FTT had failed to consider his argument that a refusal to raise a late appeal would bankrupt him when considering step three of Martland, stating as it did that bankruptcy was "common to all such cases," which was clearly not correct.
The UT dismissed this argument as the FTT had referred to Pawar's claim he would be made bankrupt in its decision, so had clearly considered it when making its overall evaluation. Its statement that the risk of bankruptcy was common was inappropriate, but the UT found it insufficiently inaccurate to constitute an error of law.
Pawar claimed that the FTT had incorrectly applied the principles of Katib by treating the failures of Pawar's adviser as the failings of Pawar personally. His adviser had seemingly misunderstood HMRC's instructions and so not realised an appeal needed to be lodged.
However, the FTT had in fact explicitly not relied on Katib, noting that it had reached its decision "even without regard to… Katib." Pawar was responsible for his own failings, including not acting on instructions in letters sent to him directly.
There was therefore no error of law regarding the misapplication of Katib, nor the fact responsibility had been placed on Pawar despite him having an adviser, particularly as it was unclear how involved the adviser had been.
The UT then considered the recent UT case of Medpro, which conflicted with Martland. After some consideration, the UT chose to rely on Medpro and so found that the FTT had placed too much importance in step three on the need for statutory time limits to be respected. It therefore decided to set aside and remake the FTT decision, but ultimately reached the same conclusion as had the FTT as to the relative merits of each party's prospects, should the appeal be allowed to proceed.
The appeal was dismissed.
Pawar's failure to fully read and understand HMRC letters sent directly to him, or seemingly to make use of his advisers to ensure he had taken all necessary steps to remove or reduce amounts owed, proved to be his undoing. Even the remaking of the decision by the UT ultimately was not enough to save him.
This case underscores the critical importance of responding promptly to HMRC correspondence and fully understanding the implications of all communications. Taxpayers cannot rely solely on advisers without taking personal responsibility for their tax affairs, and failure to act within statutory time limits can have severe financial consequences, even when procedural challenges are partially successful on appeal.
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