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September 2023 Tax Investigation Round Up

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

  • £1.6m tax avoidance case goes against banker
  • Ex-footballer's £238k tax debt
  • Trader disqualified for £1m tax fraud

£1.6m tax avoidance case goes against banker

Kenan Altunis, a taxpayer, has been instructed to pay a reduced penalty following the conclusion of a First Tier Tribunal (FTT) appeal linked to his involvement in a tax avoidance scheme. The appeal centered on a penalty imposed by HM Revenue and Customs (HMRC) amounting to £1,657,268, stemming from Altunis's participation in a loss-creation scheme conducted through a Bermuda-based company.

In 2008, Altunis became involved in a tax scheme named Aphabeta, which was designed and promoted by the Montpelier group of companies, headquartered in the Isle of Man. Among its subsidiaries was Montpelier Tax Planning Ltd, previously known as MTM Ltd. Subsequently, Altunis submitted his self-assessment tax return for the years 2007-09, including a claim for scheme-generated losses totaling £5,344,846.23, attributed to derivative trading via Alphabeta Trading Limited (ABT) in Bermuda between March 3 and March 17, 2008.

Following an HMRC inquiry, a closure notice was issued, disallowing the claimed losses and imposing a penalty under the Taxes Management Act 1970 (TMA). The penalty was levied on the grounds that Altunis had acted fraudulently or negligently by "knowingly" making a false representation in his return, being fully aware that he was not engaging in derivatives trading for commercial profit. The initial penalty amount was set at £1,657,268, but HMRC sought a reduction to £1,139,371, citing the potential for higher mitigation. Altunis contested the penalty.

At the time of his involvement in the scheme, Kenan Altunis served as the Managing Director and Global Head of FX Sales for UniCredit, a part of Bayerische Hypo-und Vereinsbank AG. He refuted claims that he possessed any expertise in stock market trading, likening his skills to those of a car salesman in comparison to production engineers.

HMRC placed significant importance on a "side letter" provided to Altunis by Montpelier, stating that if the scheme failed, Montpelier would refund his entry costs and forgive a related loan. As a result of this letter, Altunis completed his self-assessment recklessly, displaying indifference towards its accuracy. HMRC argued that he did not care whether the information was true or false.

The penalties were imposed under TMA s95, which treats both fraud and negligence equally, with penalties capped at 100% of the tax that would have been due had the return been completed correctly. In this instance, the tax discrepancy amounted to £2,071,585, resulting in a penalty of 80% due to Altunis's alleged fraudulent behavior.

During the tribunal proceedings, Altunis contended that he was unaware that Alphabeta operated as a loss-generating scheme and believed it was a legitimate trading opportunity with profit potential. Altunis had signed a £5,250,000 loan agreement with a Montpelier entity called Bayridge Investments LLC as part of the scheme, maintaining that he never doubted the authenticity of the loan.

The core of the dividend strip scheme involved purchasing dividend rights from Montpelier-associated companies, allowing scheme users to claim a trading loss equal to the cost of acquiring these rights. Montpelier, exploiting what it perceived as a loophole in the Income and Corporation Taxes Act 1988 (ICTA), excluded dividends received from trade profit calculations.

The FTT concurred with HMRC's assertion that Altunis knew he was not conducting a trade but countered that Altunis believed it unnecessary since the agreement with the agency implied he was engaged in trading. In regard to the side letter, the FTT ruled that it did not establish that Altunis "knowingly" made a false representation. Instead, it indicated that he was uncertain about the scheme's validity but proceeded after receiving the side letter, which shielded him from financial risk.

However, the tribunal determined that Altunis had displayed negligence, as a reasonable person would have sought "independent professional advice" regarding such a "highly aggressive" loss-creation scheme. Judge Anne Redston stated that "Mr. Altunis had no previous experience with Montpelier, although he checked its website and took into account the professional qualifications of senior staff and his IFA. That falls far short of the actions of a reasonable person, given all the factors set out above."

Since Altunis was not found to be fraudulent, the FTT allowed an additional reduction for cooperation, resulting in a final penalty of £652,459, equivalent to 31.5% of the tax difference attributed to his inaccurate loan claim.

Ex-footballer's £238k tax debt

John Barnes, the former Liverpool and England football icon, has been granted an adjournment in response to a £238,000 tax debt following a bankruptcy petition filed by HM Revenue and Customs (HMRC).

The 59-year-old Barnes had his case reviewed this week during a hearing held in a specialized London court, although he did not appear in person.

An HMRC representative informed Judge Catherine Burton that the former football star had accumulated an outstanding tax debt of £238,000.

Nathan Webb, a barrister representing Barnes, requested an adjournment, explaining to the judge that his client required additional time to arrange payment.

John Barnes, celebrated for his remarkable career at Liverpool, Newcastle, and Watford, currently holds a position with Liverpool Football Club, earning a salary of £200,000.

From 1983 to 1995, Barnes amassed an impressive 79 caps while representing England and later transitioned into a coaching role at Celtic FC upon retiring from professional play.

Regarded as one of England's greatest footballers of all time, Barnes has diversified his career, engaging as an author, commentator, and pundit for ESPN and SuperSport.

Judge Burton refrained from issuing any orders during this hearing and stipulated that the case would be revisited on November 29, 2023.

In a preceding development back in June, another judge had dismissed a distinct bankruptcy petition that HMRC had filed against Barnes. At that time, officials had indicated that Barnes owed a minimum of £200,000.

The recent hearing took place in the Insolvency & Companies Court, with the judge being informed during the previous instance that the outstanding debt had been settled.

Trader disqualified for £1m tax fraud

A director of a metal trading company, Yasar Hussain, has been handed a 12-year disqualification order following his association with the sale of precious metals linked to a tax fraud scheme orchestrated by customers as uncovered by a tax investigation into his affairs.

Between May 24, 2019, and October 30, 2019, Yasar Hussain directed his company, Blu Tech Limited, to engage in transactions that were closely tied to a tax fraud scheme perpetrated by its customers, a fact he either knew or should have been aware of.

During this period, Blu Tech, primarily involved in the wholesale trade of metals and ores, executed 20 separate sales of silver to an undisclosed Cypriot company, leading to a cumulative tax liability of £1,046,441.68.

According to findings by the Insolvency Service, the Cypriot customer vehemently denied making any purchases from or having any dealings with Blu Tech. It was also revealed that the customer had been deregistered for VAT since September 18, 2019.

Nevertheless, Hussain persisted in conducting zero-rated sales, implying that no Value Added Tax (VAT) was remitted, using the deregistered VAT number throughout this critical timeframe.

Blu Tech had reported sales totaling £12,913,772 between VAT periods 07/19 and 10/19. Interestingly, the company's declared sales for the VAT periods between 04/18 and 04/19 amounted to a mere £67,978, raising suspicion.

Notably, no physical inspection of the goods involved in these transactions took place, and the goods were shipped to a third-party EU state rather than being directly delivered to the purported customer. No invoices were issued for the transportation of these goods by the freight company.

In addition to these irregularities, payments for the silver transactions were routed through an alternative banking platform, a detail that was conspicuously absent from the invoices pertaining to the goods.

Following an extensive investigation, Her Majesty's Revenue and Customs (HMRC) confirmed that these transactions were indeed part of a tax fraud scheme orchestrated by Blu Tech's customers.

On March 6, 2020, Blu Tech was swiftly deregistered for VAT by HMRC, who believed that the company was utilizing its VAT registration primarily for fraudulent purposes.

Subsequently, on June 17, 2020, HMRC issued a letter to Blu Tech, disallowing the zero-rating on the dispatch of silver to the Cypriot company, resulting in an outstanding tax liability of £1 million.

Furthermore, HMRC officers visited Blu Tech on September 18, 2019, and provided Hussain with information on identifying missing trader VAT fraud. A month later, HMRC issued a letter cautioning that the business might be exposed to supply chains associated with fraud.

It is important to note that HMRC had previously issued several due diligence notices to Hussain in connection with his prior companies dating back to 2013. These companies included Zen Gadgets Limited, ZINC4 Ltd, and Base Manchester Limited, all engaged in the wholesale trade of electronic equipment.

Despite the conspicuous signs of fraudulent VAT evasion associated with the sector, Hussain failed to perform due diligence, as outlined by the Insolvency Service.

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