August 2021 Tax Investigation Round Up

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

• Low prosecution rates for minimum wage breaches
• Football clubs targeted for £45m tax recoup
• Property developer faces £1.7m tax bill

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Low prosecution rates for minimum wage breaches

HMRC's prosecution rate against UK companies that fail to pay the minimum wage have come under criticism amid new findings that the Government issued furlough cash to companies they had 'named and shamed' for failing to pay the minimum wage.

Over the course of the past six years there have been more than 6,500 violations by employers failing to pay their staff the national minimum wage.

Despite this significant number, over that same six year period, no more than six employers have been prosecuted by tax authorities.

In December 2020, the government disclosed the names of over 100 employers who were failing to pay the minimum wage as part of their 'naming and shaming' campaign aimed at putting pressure on employers to comply and save their public image and reputation.

Amongst these are Pizza Hut, Superdrug, and Costco - all given the title 'rogue employer'.

Little over 2 months later, and 58 of these organisations were being awarded assistance as part of the government's furlough scheme.

The most striking example was that of Pizza Hut who claimed as much as £5m under the Coronavirus Job Retention Scheme despite having underpaid an estimated 11,000 employees almost £850,000.

The report also revealed that employees most at risk of being underpaid are those in the hospitality industry and care sector.

With so few prosecutions the government has come under scrutiny of effectively giving employers the 'green light' to underpay their staff.

Andy McDonald, Labour's shadow employment rights and protections secretary said;

"The National Minimum Wage and laws preventing the exploitation of workers aren’t worth the paper they are written on if they’re not effectively enforced.

"In failing to prosecute employers for paying less than the minimum wage, the government has given the green light to these despicable practices.”

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Football clubs targeted for £45m tax recoup

In the last year, it is understood that HMRC has recovered an estimated £5.8m in tax owed by professional footballers, and a further £4.8m owed by their agents, primarily in relation to transfers and image rights.

HMRC claims that a further £34m is still owed by the clubs themselves.

93 players, 23 agents, and nine clubs across 125 total tax investigations opened by HMRC between 2020 and 2021 account for these figures.

The focus of HMRC's attention has firstly been on lucrative transfer fees. New rules around the payment and taxation of transfer fees were introduced last April, and HMRC are continuing to close in on this in the belief that the previous structure was being exploited by the various parties involved to minimise tax liability.

Secondly, HMRC are scrutinising the arrangements some high profile players have in place to manage their image rights, sponsorships, and endorsements. Rather than pay the higher rate of 45% personal income tax on revenue generated from these endeavors, it is common for players to run these deals through a company where the 19% corporation tax rate applies instead.

Over the last 12-months HMRC has already managed to recoup more than £55m from cases such as these.

Elliott Buss, partner at UHY Hacker Young, said: "HMRC sees the football industry as an area where there is a great deal of unpaid tax owed by extremely high earners.

"Despite HMRC’s capabilities being stretched over the past year, they still identified a significant sum in unpaid tax from the football industry totalling £55.6m. HMRC increasingly targeting agent’s fees is a clear signal that they think this is an area where too much tax is going underpaid.

"HMRC has requested that clubs and agents keep evidence of the relationship between the agents and the club in the transfer process and that records, such as letters between the agent and the club, texts, emails, and Whatsapp messages are kept.

"HMRC will then use these records to determine whether the split is justified."

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Property developer faces £1.7m tax bill

A Liverpool based property development company with multiple holdings saw five of it's projects suspended due to insufficient investment or other financial problems over a period of years leading up to 2017.

Over this period, the subsidiary companies of North Point Global Ltd should have been making payments to HMRC under the construction industry scheme, but failed to do so.

This resulted in them owing various amounts ranging from £98,638 to as much as £667,046.

A First-Tier Tribunal dismissed the appeal of North Point Global Ltd company director Craig Griffiths, stating that he had not taken reasonable care to ensure his operation was abiding by the law and complying with CIS.

The court heard how Griffiths has employed the services of David Choules to provide guidance on employment matters, who has subsequently been banned by the Insolvency Service for a period of seven years.

Judge Popplewell maintained that although Griffiths has acted in good faith he should have taken it upon himself to verify the advice Choules provided, in light of his own substantial knowledge and understanding of the arrangements and schemes.

It is believed that investors in the projects being undertaken by North Point Global Ltd are left being owed as much as £40.7m.

Following the case the Serious Fraud Office launched an investigation into the company in relation to suspected fraud. North Point Global Ltd entered into a Company Voluntary Arrangement that was fully completed in June 2021.

Speaking after the case, Judge Popplewell said; "In these circumstances, we cannot understand why he did not check with Mr Choules that the amendments to the contract meant that there was no obligation under the CIS to verify the sub-contractors and, more fundamentally, that the appellants were not contractors for the purposes of the scheme.

"He knew how the scheme operated; knew that contractors had to verify and perhaps deduct; he could work out the consequences of failure to operate the scheme properly on the basis of the payments that were being made, which were considerable. With this in mind, he should have enquired of Mr Choules and Inca as to the basis of that interpretation and questioned it on the basis of his knowledge."