January 2020 Tax Investigation Round Up

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

• Katie Price fails to repay her debts
• Lloyd Webber's £6m capital gains tax win against HMRC
• HMRC's growing list of people they are confident can be prosecuted
• Government agrees to defer loan charge repayments until September 2020

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Katie Price fails to repay her debts

The well-known celebrity Katie Price was declared bankrupt at the High Court last year after failing to repay her debts. Katie found her fame in adult modelling, TV presenting, book writing and musically as a singer and song writer. It is believed she was worth approximately £40 million.

In October 2018 Katie had a deal that was accepted by HMRC to set up a payment plan to repay her tax debts. This Individual Voluntary Agreement (IVA) was accepted in November 2018. However, Katie failed to meet her agreement and did not follow through with her plan resulting in bankruptcy. Therefore, her finances including her property will be controlled by the official receiver. Her assets will be shared amongst creditors that she is in debt to.

Katie since has set up a children's clothing range inspired by her two daughters Princess and Bunny. She also stars in her own reality TV show "My Crazy Life" shown on the Quest Red channel. After twelve months Katie will be discharged from bankruptcy and will be released from some debt.

Speaking of her spending habits previously, Katie has said "I spend but I have people around me who save for me. My brother and another guy look after my money. I don't know what I've got. At least i don't know to the penny what I've got, I'm not really a big spender. My cars cost money and my horses cost money, but I don't go and buy designer clothes every day of the week. I'd rather buy a nice horse that waste it on an outfit. I spend a lot on my kids, but myself? Not really."

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Lloyd Webber's £6m capital gains tax win against HMRC

Andrew Lloyd Webber, former composer and impresario of musical theatre, has won a tax case against HMRC for a building project on a holiday mansion in Barbados which was never completed. The losses claimed for this project were in excess of £3,123,312 for Lord Lloyd Webber and £3,124,311 for Lady Webber.

Webber had entered into a contract with the building company stating that the sum would be reduced by £200 per day if the project was delayed from the completion date. In September 2011 work on this property ended up coming to a complete halt despite tireless efforts from the vendors to try and secure finances to continue with the build.  Ultimately this was inadequate to recommence with the building process leaving partially built villas to become derelict.

An alternative dispute resolution was briefly considered but deemed not to be appropriate by both parties due to the nature of the dispute. This decision was made on the back of two years of extensive correspondence between HMRC and the Webbers' agents.

After going to a tax tribunal, the tribunal judge ruled in favour of the Webbers' opening the door for them to reclaim costs from HMRC. A HMRC spokesperson said "HMRC is disappointed in the tribunal decision and is studying the detail carefully to determine next steps. This is not about a tax avoidance scheme, but a matter of legal interpretation."

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HMRC's growing list of individuals they are confident can be prosecuted

HMRC has been reported to be handing out fewer agreements to let taxpayers have immunity from prosecution for tax avoidance making it harder for individuals to settle affairs. Statistics show from the law firm Pinset Masons that the number of agreements entered under the "Contractual Disclosure Facility" fell 10% in the last tax year.

Pinset Masons Steven Porter stated "HMRC has a growing stack of individuals that it is confident it can prosecute. That means it is less enthusiastic, or even willing to offer plea bargain agreements." He continues, "Its new investigatory powers and reams of data that HMRC gets from private banks, from letting agents, from the Land Registry, from accountants, means it is not short of leads."

The international law firm Pinset Masons added that HMRC has a large amount of data on overseas savings and investments. This helps them to build a case easily for prosecuting taxpayers. However, if HMRC negotiates under the Contractual Disclosure Facility, it is agreed that the individual will not be investigated criminally with a view to prosecute them. If the agreement is accepted, steps are taken to ensure that the taxpayer meets certain requirements including admitting to tax evasion and revealing honestly how much debt is owed.

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Government agrees to defer loan charge repayments until September 2020

The loan charge cut-off date has been limited to 9th December 2010 instead of 1999, a decision that has been made by The Treasury. It has also been decided that it will waive charges for those who disclosed any issues to HMRC about loan scheme issues where the government failed to take action between 9th December 2010 and 5th April 2016. Qualifying taxpayers will have to have disclosed on their tax returns any loan scheme issues in this period, if no action was taken by HMRC then their case will be viewed to have been resolved.

When the Budget is announced in February this year, the government has instructed that it will take "new action" against other organisations that marketed their schemes before 2010. Users can now postpone submitting their returns until September this year, allowing them to spread the loan balance over three tax years to make bills more manageable.

Glyn Fullelove, CIOT president stated "If, after all of these changes, the loan charge still applies to you we strongly encourage you to engage with HMRC. The government response repeats that HMRC will not seek bankruptcy proceedings for individuals who have engaged with HMRC, completed an affordability assessment,and are solely unable to pay the loan charge."