Tax News

July/August 2010

HMRC fails to secure criminal convictions
The number of criminal convictions secured by HM Revenue & Customs (HMRC) against individuals for tax offences has fallen by 28% over the last year to 157 from 219 the previous year. Forty-seven per cent of all prosecutions secured in the last year were for offences related to VAT, which is the area targeted by criminal gangs in carousel fraud (also known as MTIC, missing trader intra-community, fraud).

“HMRC has been putting forward fewer and fewer cases for prosecution because it is worried about losing cases in front of juries. Too few convictions can act as a green light to hardcore tax evaders,” said John Benstead, a partner at McGrigors and former Inland Revenue Prosecutor. HMRC is reported to have lost £7bn through evasion last year alone. An HMRC spokesman said: “The conviction rate for tax prosecutions following an HMRC investigation remains very high. The number of prosecutions has reduced as HMRC is currently targeting larger and more complex tax frauds, which take longer to investigate.”


Manchester United in VAT dispute
Manchester United Football Club has begun legal action in a bid to recover more than £300,000 relating to backdated VAT payments. HMRC has already refunded £61,000 to the club in VAT and “simple interest”, but bosses are claiming that compound interest is still owed. If Manchester wins, thousands of other businesses are expected to start similar cases.


Government appeals to experts
The government has announced its intention to establish an Office of Tax Simplification (OTS). The OTS will form the foundation of a new, more considered, approach to tax policy. The Office’s terms of reference and formation are yet to be announced, but a recent Treasury paper emphasised that consultation on policy design and scrutiny of draft legislative proposals will be at the heart of the new approach. The government plans to open discussions with interested parties over the summer. As part of this process a forum of tax professionals will be set up to meet bi-annually with Treasury ministers. Among the tax policy principles to be considered are a convention to confirm tax changes at least three months prior to the start of the tax year, they come into effect (or publication of the Finance Bill in which they will be included); a framework for the introduction of new reliefs; a more strategic approach to tax avoidance, including the possibility of a general anti-avoidance rule (GAAR); tailored tax impact assessments to replace existing regulatory impact assessments; and better cost estimates and supporting documentation for tax changes.


Anti-avoidance rule planned
The Emergency Budget announced a number of tax-saving measures, including the possible revival of a GAAR. “The government is committed to making every effort to tackle tax avoidance,” announced Budget Press Notice 3, which maps out a raft of tax-saving measures, including the possibility of the GAAR. Meanwhile, the government made it clear that it will continue to clamp down on new avoidance schemes as they emerge. As a result, the June Budget paperwork mentions anti-avoidance several times, including accounting de-recognition, employer-financed retirement benefit schemes (EFRBS) and the extension of the disclosure of tax avoidance schemes (DOTAS) regime to inheritance tax on trusts.


Tobin fails to persuade G20
The proposed tax on financial transactions (generally referred to as the Tobin Tax) was not agreed by G20 leaders at a recent summit in Canada, leaving it up to individual countries to make their own arrangements. The Tobin Tax would be separate from a bank levy, which some governments are proposing to impose on banks to insure them against the cost of any future bailouts. The European Commission is also assessing whether the way business taxes are calculated should be harmonised throughout the EU, although some countries (including Britain) are expected to oppose this and insist that national governments should decide for themselves.


HMRC report card on NI mixed
Staff cuts have produced cost savings in National Insurance (NI) administration, but at the expense of accuracy and response times, according to a National Audit Office report. Staffing levels in HMRC’s NI administration team fell by 16% in 2006/07 and by 31% in 2009/10, with the equivalent of around 1,209 full-time jobs being cut. Despite the reduced capacity, there were no “significant operating failures” across the system, according to a National Audit Office report, although the department missed its accuracy target, delivering 93% rather than 97%. Response times for correspondence from the contributions office have also “deteriorated”, although there were no statistics given to show by how much.

The National Audit Office also revealed that a number of long-standing data accuracy issues remain across the wider system of NI, which if not resolved may affect people’s future pension and benefit entitlements, including data mismatches between HMRC and the Department for Work and Pensions. A Credits Steering Group was set up in 2009 to address these issues; its work continues.


Accountant jailed for £11m fraud
A London accountant faces eight years behind bars after being convicted of manipulating both his clients’ and his own tax returns, pocketing £11m in income tax and VAT payments.

Christos Charalambous (58) of Palmers Green, London completed over 6,000 self-assessment tax returns for clients that included fictitious expenses claims in order to increase the tax repayments due. He also understated the income he received from client fees on his personal returns and failed to register, declare and pay VAT due on his accountancy firm Charltons. Many of Charalambous’ clients were from other EU countries and had little understanding of the UK tax system.


Late-filing concession ends in March
HMRC announced in June that the Extra Statutory Concession B46 (ESC B46) allowing a seven-day grace period for late employers’ and contractors’ returns will cease from 31st March 2011. Introduced in 1995, ESC B46 established the principle that penalties would not be charged when employers and contractors submitting tax returns and CIS forms had taken “all reasonable steps” to file their returns on time, but were not able to do so owing to unforeseen circumstances, such as postal delays.


UK tax amnesties failing
Datamonitor, the market research company, has produced a new report suggesting that the UK government is still not doing enough to make tax amnesties attractive to those holding wealth offshore. According to Datamonitor, five factors determine an amnesty’s success:

The research company is highly critical of UK authorities for failing to sugar the pill enough.

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