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Case stories

By admin
01 Sep 2014
Tax Investigation

I have enjoyed every case I have represented over the past eighteen years, although there is one or two that have stood out from others. I have set out some case stories below and whilst some are amusing there are important issues within each.

The Ex-Accountant and his lover…..

Whilst sitting pondering the poor quality of coffee dispensed to me as an employee of one of the big four, the post arrived. In a gleaming golden envelope was a signed engagement letter along with a lengthy note setting out the facts pursuant to the issue of a code of practice 9 investigation.

I recall the note began “I have a very happy relationship with my wife although as we have grown together my needs as a man have not always been fulfilled. I met a lady who intrigued me and I would visit her personally once or twice a week.” It appeared to me that the client, a retired accountant was certainly embracing the requirement to make a full and complete disclosure and with that I read on. “On arriving at her home, I would sit in the lounge where one or two other men would also be. When my friend was ready, I would visit her personally in her bedroom and when it came time for me to leave I would give a gesture of my gratitude.” As a young tax adviser with little experience of the world, I didn’t know whether to be shocked, snigger embarrassingly in a childlike manner or shout across to my colleagues to share the priceless and detailed transcript I had before me.

After almost two decades, the narrative or circumstances would be met with more understanding. The reality was the client was facing a number of delicate problems. Being a qualified professional, he was at greater exposure and risk of prosecution. The records identifying tax irregularities had come to light through the family court: the lady friend became pregnant, bore a son and the client provided her with a house and maintenance. However, he also left financial paperwork in a safe at the house which the lady friend obtained and subsequently sought greater maintenance.

The tax negotiations were however successful and HMRC agreed not only to a reasonable scope of review to be undertaken but also to a favourable method of calculating the tax on offshore income and gains. I am sure the client was happy with the tax outcome although I suspect the cost of relationship far exceeded his original expectations.

Air hostess

I spent an incredible amount of time listening to the stories of one client who in her early twenties had become a PAN AM air stewardess. Her lifestyle dramatically changed almost overnight as she moved into a five star lifestyle, travelled the world and mixed with the world’s rich and famous.

The client recalled the advertisement for the job stating that applicants should be single and aged in the early twenties, weighing around eight stone. I acknowledged that today our recruitment policy needed to be a little more politically correct and we couldn’t request chartered tax advisers, of modest weight, healthy appearance, and fun character!

The client had married an Iranian man whom she met whilst a stewardess. Her husband was secretive about their financial well-being although they lived an exceptionally high quality of life and mixed with royalty. The client suffered several traumatic pregnancies and miscarriages although bore two sons and a daughter. There were strains on the marriage and eventually a separation ensued. At the same time, my client identified that their financial wealth was not as healthy as she believed and the family home was at risk. The client then took legal action in relation to the lending over the family home. After a lengthy struggle she managed to acquire the property utilising a new lending facility through an offshore trust.

In a dramatic twist, the husband left the UK to reside in the UAE and a short while after leaving was involved in a flight accident ending his life.

The client managed to enhance the value of the property and leverage against it acquiring a second property. The first property was further enhanced by acquiring the property next door and combining them. It was then sold. The client, having little other means, maintained her and her family’s lifestyle through distributions from the trust.

The negotiated settlement was difficult given that if HMRC successfully challenged the application of anti-avoidance legislation, the remaining assets would be depleted and the client, now in her later years (although mildly eccentric and maintaining the Pan Am looks!) would not have any funds to live from. Our representations were that the trust was established not to avoid tax but for commercial reasons – the protection of assets from her estranged husband. The point was never formally embraced in its entirety by HMRC although they settled as if it were.

Italian Plastic Surgeon

Culturally, Italy does not rank high in the public’s view of being tax compliant. Maybe this image is brought about by Berlusconi or the film portrayal of the Italian Mafia, whom I am sure pay all their taxes. My client came to the UK as an expert in the field of Breast Augmentation and established a prominent practice in London. For seven years, according to the accounts submitted, the practice made little or no money.

The Inspector, a woman (not necessarily in need of the client’s services) took an aggressive approach towards the client and was very insistent on regular contact and meetings. She was even kind enough to telephone noticing that our client had published a book and enquire whether the royalties would be included in next year’s return. Maybe I am cynical and should start expecting that level of service from all HMRC’s officers.

Following the agreement to settle slightly shy of £300,000, a closing meeting was held where the Inspector drew attention to the need for the client to be tax compliant in the future although the pointing of a finger may have been over kill. The client responded eloquently “That is OK, I do a couple more face lifts on a Saturday morning” and glided out of the room.

Whilst we would never recommend the approach with HMRC, it does illustrate that both HMRC and the client need to respect each other!

I’m no Richard Branson

Sometimes you meet someone who is in serious trouble with HMRC and unfortunately is unwilling to accept the predicament they are in. Only twice in my career have I been faced with a client who either avoids the facts, believes they can blatantly out smart or doesn’t want to accept a reasonable deal.

A case that illustrates this involved a very simple tax “irregularity”. The client had lived a modest life, earning a modest income. Up until the event that was the “irregularity”, he and his family had lived in a house worth less than £300,000. The client was involved in a business which administered a number of service companies and their bank accounts. The introduction of new tax legislation affected the business rendering the need for most of the service companies obsolete. The service companies retained funds equal to (or thereabouts) the PAYE, VAT and corporation tax owed. The balance of each of these accounts was transferred eventually landing in the client’s newly established private bank account (onshore).

Accounts and tax returns for the client’s business were submitted. Initially the client did not inform us about the transactions and it took some time to identify the “irregularities”, which was a bad move considering code of practice 9 had been issued (make a full and complete disclosure or potentially face criminal investigation). When faced with the transactions, the client commented that he was no Richard Branson but a simple businessman that relied on his staff and accountants to get his accounts and tax returns correct. In excess of £4m had been received (and quite a bit spent) and yet the client did not want to accept that tax could be due, after all, any errors were not his fault but that of his employees or accountant. It was, in his view, our job to ensure he paid no tax on the £4m.

Unfortunately, the circumstances left us with no choice other than to disengage halfway through a COP9 investigation. This action in itself will cause HMRC concern: why is a specialist disengaging? The natural view would be that the adviser has no choice, which broadly means the client (or taxpayer) is not cooperating with a full and complete disclosure…..would a criminal investigation ensue?

It is important to appoint the right adviser, be honest with them, understand the parameters of a disclosure and work with them from the outset.

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