September 2020 Tax Investigation Round Up

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

• Upper Tribunal IR35 appeal goes in favour of HMRC
• HMRC collect £120m from deals struck with tax evaders
• 3,000 employers targeted in relation to CJRS claims

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Upper Tribunal IR35 appeal goes in favour of HMRC

HMRC has succeeded in overturning a previous ruling in relation to the tax status of Paul Hawksbee, a radio presenter and comedy writer, under the new IR35 rules that were recently introduced and are set to be rolled out into the private sector next year.

This was a significant victory for HMRC who have their sights set on reforming the way PSCs (personal services companies) are used by individuals to reduce tax liabilities for themselves and the companies they deliver work for.

Well known to Talksport radio listeners, Hawksbee was contracted by Talksport through his personal services company to deliver a programme to be broadcast every weekday afternoon. As such, Hawksbee himself was never directly employed by the radio station who he has worked for for 18 years, although HMRC deemed that under IR35 regulations he was essentially an employee as far as tax purposes are concerned.

HMRC made an assessment for around £140,000 in income tax and National insurance contributions owed. However, following a First Tier Tribunal, Hawksbee successfully challenged HMRCs claim.

HMRC went on to appeal this decision, winning their case at the Upper Tribunal. At the centre of their argument were two contracts that existed between KPL (Hawksbee's PSC) and Talksport. Overall, the judges deemed the contracts to be in effect contracts of employment.

An HMRC spokesperson said: "HMRC welcomes this judgment. We are pleased that the Upper Tribunal agreed that the off-payroll working rules (IR35) applied. These rules have been in place for twenty years and ensure that when people with a personal service company work like employees, they pay equivalent tax and National Insurance to employees. Employment status is never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right."

This case adds to a string of high profile presenters who have been targeted by HMRC under IR35 regulations, including Eamonn Holmes, Christa Ackroyd, and Lorraine Kelly.

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HMRC collect £120m from deals struck with tax evaders

It has long been common practice for HMRC to strike deals with individuals who are facing criminal investigations for suspected tax evasion. These so-called plea bargains give the taxpayer concerned immunity from prosecution and allow HMRC to more quickly and easily recoup a portion of the money owed.

The latest figures produced by Pinsent Masons suggest that over the last year the amount collected from plea bargains by HMRC increased by a significant 25%, equating to an increase of more than £23m on the previous year.

For a plea bargain agreement to be reached, the taxpayer must first admit to deliberate tax fraud and agree to pay back the money HMRC have assessed is owed. In return they are awarded immunity from being criminally investigation in relation to the fraud. Such agreements take place between HMRC and a broad range of taxpayers, from part-time business owners who owe small amounts, through to ultra-high net worth individuals owing millions.

They prove a popular resolution for both taxpayer and HMRC, with the Revenue benefiting from what is a cost-effective and time-efficient method of recovering money. This is likely to be an especially attractive route given recent events and the vast sums of money being injected into economic assistance.

Steven Porter, partner at Pinsent Masons, said: "If a taxpayer meets their side of the deal in a Contractual Disclosure Facility and makes a full disclosure, then they will also face significantly lower penalties than if they waited to get caught. Taxpayers may also avoid being publicly 'named and shamed' as a tax evader. It is important taxpayers seek advice before answering any questions."

With the volume of data HMRC now receive from overseas, and the pressing need to pay for the cost of coronavirus related economic assistance, the number of investigations and subsequent plea bargains are expected to continue their upward trend.

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3,000 employers targeted in relation to CJRS claims

In what is understood to be the first phase of HMRC's compliance approach to erroneous CJRS (coronavirus job retention scheme) claims, the Revenue has issued an initial batch of 3,000 letters to employers in relation to their claims.

The latest government figures indicate that a total of 1.2 million businesses in the UK have used the scheme to furlough a total of 9.6 million employees at an estimated cost of £34.7 billion since the scheme was first introduced.

Until now, HMRC has been risk assessing applications in real time, but now they are taking a more proactive approach to compliance.

The first 3,000 employers to be written are being asked to check their claims to ensure they have not claimed more money than they are entitled to, and that all furloughed employees meet the eligibility criteria, and then to contact HMRC and inform them either way.

HMRC has indicated that their priority is to identify and recoup money from those employers who have deliberately made claims they shouldn't have. Where employers uncover errors in their calculations, they will have a window of time to voluntarily repay the grant without incurring any penalties.