Case Studies
As a former senior tax inspector, Alex Byrne has used his knowledge to help people deal with the many issues that can bring them into contact with HMRC.
These case studies highlight some of the complex issues that we have resolved, including:
- Prosecution
- Serious Fraud
- Investigation
- Insolvency
- PAYE Inspection
- Disclosure
- Business Reorganisations
- Tribunals
If you're dealing with one of these problems and need some advice, information or representation, Alex Byrne can help - so get in touch today.
Prosecution
We have acted in a number of cases where HMRC were looking to prosecute the clients for failure to notify tax under S144 FA2000. We expect to see many more following the Government's announcement that funds are being made available for more tax prosecutions.
In one case, 2 partners in a seasonal market stall business received a knock on the door of their mobile home one evening. Two officers from HMRC had tracked them down and invited them to a taped interview at the Tax Office the next day. We were approached to assist in preparing accounts and tax computations and to negotiate the tax liability. We were able to produce figures and make representations that resulted in the prosecution being abandoned.
In another case, a double glazing window salesman was also "invited" by HMRC to an interview. He had notified HMRC that he had commenced self employment but had never got round to submitting any tax returns. HMRC's line was that while there might be no offence for the first year, the requirement to notify chargeability to tax was an annual one and charges could be brought for the later years. Once again we were able to produce figures and make representations which resulted in the prosecution not being pursued.
We must stress that in larger cases or where several offences have been committed e.g. benefits being fraudulently claimed in addition to income tax being evaded, such cases may go on to court and our work would be confined to supporting a qualified and experienced solicitor.
Serious Fraud
We have acted in many cases where HMRC had information showing large sums of money held offshore - suggesting a sizeable understatement of tax. In all but the most serious cases, HMRC will commonly request a Report covering all years in which bank deposits had been made or the accounts were open, going back up to 20 years.
In one case concerning a clothing manufacturer, money had been held in several offshore accounts going back the full 20 year period. Accounts had been opened and closed and new accounts had been opened. The money had made its way to Asia and then to Spain where property had been purchased. We worked with the acting accountants and together managed to obtain all the information possible to produce Statements of Undeclared Income that satisfied HMRC Specialist Investigations but for a very manageable final tax bill for the client.
In another case, no straightforward explanation could be advanced for some £1million worth of deposits into offshore accounts over more than 20 years by a factory manager with no apparent other sources of income. A full Report was prepared for HMRC Specialist Investigations and a settlement negotiated for substantially less than the full tax, interest and penalties that could have been charged.
Investigation
We commonly work with accountants to settle difficult Enquiry cases or cases where the HMRC Officer sees no reason to accept the clients' explanations.
In a case concerning a newsagent, HMRC cash tests produced sizeable understated profits. Properties had been bought and sold over many years and it was not clear how these had been funded. The accountant acting approached us for help and we managed to obtain information to explain the property transactions and amend the cash tests leaving the client with a very manageable additional tax bill which he could comfortably settle from savings.
In a case concerning a hotel in a provincial town which had been run in partnership for many years, an HMRC Business Economics exercise produced income tax and VAT that would have bankrupted the hotelier. His main asset consisted of the hotel and its business. It looked as though he would be out of work and have little to show for a lifetime of effort. We were approached after his accountant had stopped acting for him. After an exchange with HMRC and several alternative sets of calculations and many discussions, a much lower settlement was negotiated then the original expected settlement. The hotel is still trading.
Insolvency
Clients commonly ask for assistance when insolvency action is being threatened or taken by HMRC, sometimes approaching us within days of a bankruptcy hearing.
A client involved in a sizeable taxi business had not responded to HMRC's Enquiry correspondence due to severe depression following a serious business failure, neither had he appealed against estimated assessments and determinations. HMRC were taking bankruptcy action. We worked with the accountant acting and managed to halt the bankruptcy, get late appeals accepted and reopen the case so the client would pay only the correct tax due.
PAYE Inspection
We have dealt with numerous PAYE inspections. We find this is an area that is often underrated by accountants and tax advisers but which can lead to substantial additional tax, interest and penalties arising from what HMRC regard as straight forward issues. Grossing up of employee liability and additional Employer NICs add considerably to the final tax bill.
We assisted accountants with clients in a specialist builder's trade which supplied craftsmen for repairs and refurbishment of many well known London landmark buildings. There were problems with CIS tax deductions, suspected payments of the directors own bills and with treatment of their car expenses. The case was eventually settled for a very reasonable tax liability.
In another case, concerning the provision of specialist care to people in the community with particular problems, HMRC had challenged a number of PAYE issues but principally that the number of employees was understated. Both sides were entrenched. We worked alongside the acting accountants and were able to reach a compromise which was acceptable to all parties.
Disclosure
We have handled many voluntary disclosures. A client approached us to make a voluntary disclosure of interest on deposits in offshore bank accounts, the balances on which were some £150K. He had always been an employee under PAYE but had saved the money to make it available to his sister if needed for his mother's nursing care in America. We made a disclosure to HMRC with full explanations and calculations and his tax liability was accepted to be just the tax on the interest. We wished to avoid a lengthy and stressful Enquiry for the client and we were successful in this. The case was settled very quickly.
Business Reorganisations
We were approached by directors of a medium sized, very successful, corporate business who were involved in negotiations with their key employees about shared ownership. We were able to put forward a number of scenarios which balanced tax efficiency with the desired ownership outcome, and were able to able to assist the parties in coming to an amicable arrangement which suited everyone. Failure may well have resulted in a disintegration of the business and a lengthy legal dispute. Success has seen the business go from strength to strength.
Tribunals
We represent clients at the Commissioners and now Tribunals.
We are seeing more and more quite routine cases going before the Tribunal. The Tribunals are run along court lines and are not for the faint hearted.
In one case within days of the Tribunal hearing, we were asked by an accountant to represent one of his clients . We had been providing general advice in the background but at the last minute the accountant decided that he would rather we handled the hearing.
The case concerned the client's loss of gross CIS status. The client had held gross payment status under the old and new schemes since 1999 and had always paid his tax on time as advised by his accountant. One and possibly 2 self assessment payments had been made late. HMRC were taking no prisoners. HMRC's stated case and documents were that one January payment was late. At Tribunal they raised the issue of the second potential late payment. We worked to confine the case to the original late payment although we had a case prepared for the second payment.
The client had made a self assessment payment but it was insufficient. It was not at all clear what had gone wrong to result in the underpayment. The accountant felt that a Statement of Account and a phone call to or from HMRC had shown a credit and no further payment due and when asked HMRC had taken 7 months to clarify the tax position. The client was caught between his accountant and HMRC and risked losing his gross status and livelihood as a result. The case was a difficult one to present but enough was done to ensure the gross status was protected at least temporarily by virtue of J Scofield v HMRC (TC00659 - 2 September), which has lead to a review of the nature of the Tribunal's jurisdiction (i.e., is it merely supervisory or is it fully appellate?). This suited the client who was nearing retirement age and would not need gross status much longer.
Another case concerns residence and is to be heard in the coming months. The decision may rock HMRC's claim that an individual needs to show that he or she has left the UK to be considered non resident, following HMRC's successes in the Gaines-Cooper case.