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September 2019 Tax Investigation Round Up

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

  • Debt bosses banned after £6.6m shortfall in funds
  • Builder jailed for £110k tax fraud
  • HMRC seeking £30m more tax from contractor investigations
  • Tax investigations yield hits £13bn

Debt bosses banned after £6.6m shortfall in funds

Varden Nuttall Limited is a debt solutions provider based in Bury, where Darren Dean Varden and Philip Andrew Nuttall held the roles of directors. Nuttall was an insolvency practitioner, working through an ICAEW licence with companies and individuals facing insolvency, supported by a small team. The administration of Individual Voluntary Arrangements (IVAs) was his main focus, issuing formal agreements whereby a debtor would pay back money owed to creditors.

At one point Varden Nuttall Limited was managing more than 3,000 IVAs, yet the two directors were not supervising the bank accounts that held the IVA funds to a sufficient extent. Following an internal tax investigation, a major accounting discrepancy arose in August 2015 that totalled a £6.6m deficit.

It was Nuttall’s responsibility to get in touch with the ICAEW, which led to an analysis of how the company operated. The ICAEW decided to revoke his license the following year, withdrawing his ability to work as an Insolvency Practitioner from 1st April. Soon after, Varden Nuttall Limited entered administration and the appointed administrators filed civil action against Varden and Nuttall in May 2017. Whilst Varden accepted that he was personally responsible for the shortfall, choosing an IVA over bankruptcy, Nuttall took the matter to trial in May 2018.

Taking place at the High Court, the court proceedings resulted in Nuttall also being made personally liable for the shortfall, which was now valued at £7.6m.

During this time, the administrators for Varden Nuttall Limited also filed a report on the directors’ conduct to the Insolvency Service, which necessitated further investigation in September 2016. This investigation found additional misconduct that had been perpetrated by the two directors. Namely, Varden Nuttall Limited was found to be one of numerous companies owned by Release Money Group (RMG) Limited. The directors of RMG were shown to be none other than Varden and Nuttall, who had been removing assets from RMG since noticing the shortfall at Varden Nuttall Limited, exploiting a cross-guarantee held by the bank to settle the matter.

The pair had also reprocessed monies around other management companies by means of an intricately designed trust scheme, with the aim being to pay off their own loans that totalled more than £1.6m.

Following the investigations and court proceedings, Nuttall is banned from acting as a director for nine years and Varden for seven years, as well as both being disqualified from being involved in any way in the formation, promotion or management of a company without permission from the court.

Builder jailed for £110k tax fraud

On 14th August 2019, a tradesman who committed tax fraud was sentenced at Bournemouth Crown Court to thirty months in prison, with half being in jail and the other half on licence.

The individual in question, Christopher Nash, had failed to pay any income tax or National Insurance contributions between April 2010 and April 2017, resulting in £108,131 being stolen from HMRC.

The HMRC investigators found that Nash had kept £49,000 in cash and a large volume of cashed cheques totalling £199,000 during those seven years. This had taken place whilst  carrying out work on high-end building and construction projects in London.

Meanwhile, as part of a separate investigation, HMRC also found that Carlo Russell, another builder based in Dorset, had been working with Nash and together they had pocketed hundreds of thousands of pounds between April 2010 and April 2015. The previously mentioned £49,000 in cash had actually been given to Nash by Russell.

Whilst Nash faces thirty months in prison and confiscation proceedings are in place to recover the stolen money, Russell was jailed for two years and four months in June 2017 for evading tax and NICs, as well as being ordered to repay £141,453.

HMRC seeking £30m more tax from contractor investigations

HMRC is scrutinising employment status extremely closely with the aim to gather more revenue from contractors. This is in reference to tax under consideration, an estimate of how much HMRC thinks it could collect before investigations have been concluded.

Following the launch of HMRC’s loan charge earlier in 2019, there is now the possibility of backdated taxes from as long as twenty years ago being recovered from businesses and contractors who used tax planning schemes to reduce tax liability. The main focus is on businesses and contractors that abuse schemes that use capital gains or dividends that attract tax relief to avoid tax liabilities. The result is likely to be that employers and employees have to make up for the shortfall through additional tax payments, increased interest and hefty penalties.

Adding to this, the IR35 legislation that investigates people who unlawfully register as self-employed as a means of cheating HMRC out of tax and NIC payments, will be extended to the private sector in 2020.

Tax investigations yield hits £13bn

The recent increase in the yield of HMRC investigations is based on three factors: payments sent to HMRC ahead of the loan charge that came into effect in April 2019; the aftereffects of HMRC’s offshore tax campaign in 2018; and more effective technology being introduced that has facilitated HMRC’s identifying of cases that require investigation, based on the likelihood of large volumes of additional tax being justified.

Nevertheless, whilst the amount of cash collected in the last year has risen, cash itself makes up only 38.5% of the £34bn HMRC claims to have collected from investigations. The majority of the other 61.5% comes from theoretical calculations, such as ‘revenue losses prevented’ and ‘future revenue benefit’. The hypothetical nature of these figures means that the actual figure of yield is difficult to put down on paper.

This is taking place at the same time as HMRC is putting in place new measures to suppress the hostile employment of transfer pricing and related errors, which has seen a tenfold increase in HMRC fines imposed on multinational businesses in relation to transfer pricing irregularities. The resultant growth in fines is exponential, jumping from £45,600 in 2015/16 to £413,437 in 2018/19.

Transfer pricing is becoming a major focus for HMRC, so it is recommended that multinationals avoid hefty fines by putting in place inter-company agreements. This extra level of administration will help to support transfer pricing policies should an audit arise.

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