September 2021 Tax Investigation Round Up

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

• Furlough fraud enquiries predicted as furlough finishes across Wales
• Nine-year ban for construction directors over £124k hidden funds
• Takeaway boss imprisoned for avoiding over £100k in tax payments

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Furlough fraud enquiries predicted as furlough finishes across Wales

Businesses in Wales are expected to prepare for furlough fraud letters from HMRC as furlough comes to an end. According to business advisors Grant Thornton, the government are trying to make up for losses of £7bn in fraudulent claims from the Coronavirus job Retention Scheme (CJRS.)

HMRC now has a full team in its Taxpayer Protection Taskforce investigating around 30,000 checks, shifting from compliance and support to stricter enforcement.

Total figures published by Grant Thornton last month show that in the pandemic, more than one million businesses used the CJRS. This enabled companies to safeguard over 11.6m jobs at the cost of under £70bn. It is believed that of these claims up to 10% have been claimed wrongly with suspected fraud accounting for a significant proportion.

Any incorrect claims or mistakes are treated as deliberate in the CJRS legislation. In contrast to other penalties in tax regimes where something will only be judged as deliberate with compelling evidence.

Jonathan Riley, practice leader for Grant Thornton’s Cardiff-based team, explains the Code of Practice 9 (COP9) letter which some business owners will be receiving this autumn: “HMRC has been embattled on two fronts: supporting businesses to deal with both Brexit and the pandemic. It’s fair to say the department’s put that ahead of enforcement activity due to a lack resource. But that stance is set to change as it comes under pressure to recoup a suspected £7bn fraudulently, or erroneously, claimed under the CJRS.

Grant Thornton’s team practice leader Johnathon Riley describes the Code of Practice 9 (COP9) letter received by businesses: “HMRC has been embattled on two fronts: supporting businesses to deal with both Brexit and the pandemic. It’s fair to say the department’s put that ahead of enforcement activity due to a lack resource. But that stance is set to change as it comes under pressure to recoup a suspected £7bn fraudulently, or erroneously, claimed under the CJRS.

“Come September, we’re expecting that a number of businesses in Wales will be opening a letter inviting them to enter a Contractual Disclosure Facility (CDF) under COP9. This lets the recipient know they’re suspected of deliberate fraud and offers them protection from criminal prosecution; on the proviso they come completely clean, disclose any tax errors over the last two decades, and repay the amount owed.”

When accepting a COP9 offer, information will need to be provided to the HMRC with full disclosure, they will need to admit to deliberate offences explaining why they were committed. All inaccuracies will be required to be detailed over the last 20 years. Any attempts to put fraudulent claims down as a mistake will invalidate C0P9 protection and may lead to criminal prosecution.

He continued: “There’s a misconception that HMRC isn’t interested in smaller and mid-sized businesses. But we’ve seen instances where CJRS claims for one single employee have been investigated. Businesses may have made honest mistakes during the incredibly challenging trading conditions posed by the pandemic. But HMRC’s view is likely to be that there will have been at least three instances to get things right: the initial claim, replying to the nudge reminder letters it has sent out, and again when completing a corporate tax return.

“Receiving a COP9 letter can be a stressful event. It’s important to enlist the right professional advice and respond within the 60-day deadline.”

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Nine-year ban issued to construction directors over £124k hidden funds

Telford married couple Jane and Norman Thornton were directors of construction company Norjan (Properties) Limited, which went into liquidation in July 2020 with a sum of over £411,00 in debts.

When under tax investigation, the liquidator found that Norjan had asked its major clients to direct payments to a new bank account from January 2020. Between the months of February 2020 and April 2020 over £124,000 was paid into this account which belonged to a third party.

The following Insolvency Service investigation discovered that the company had been trading while insolvent from around 31 July 2017, with an outstanding County Court Judgement of almost £34,500.

Both directors signed undertakings on 19 August 2021 which were accepted by the secretary of state. From 9 September 2021 both directors are disqualified from directly or indirectly being involved in the promotion or formation or management of a company without the permission of the court. Each disqualification will last for nine years each.

Chief investigator for the Insolvency Service Nina Cassar said: "In December 2019, Mr. Thornton told bailiffs that Norjan (Properties) Limited didn’t have any funds to pay its debts. Then, with knowledge of the financial position, over £124,000 was placed out of the reach of creditors.

"This ban should serve as a warning to other directors that you have a duty to your creditors. If you neglect this duty, you could be investigated by the Insolvency Service and lose the privilege of limited liability trading."

Disqualification undertakings are the equivalent of a disqualification order, however do not involve court proceedings.

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Takeaway boss is imprisoned for avoiding over £100k in tax payments

Bahram Mansouriboroujeni from Liverpool was sentenced to two and a half years in prison by Liverpool Crown Court on 26 August 2021. He had been submitting fraudulent tax returns to HMRC worth £103,751.04 on his pizza takeaway business, ‘The Deep Pan Express Limited.’ He ran this business from February 2016 and January 2020.

Mansouriboroujeni pleaded guilty to failing to disclose to HMRC £107,333.98 in VAT, £10,162.20 in income tax, £5,403.13 in national insurance contributions (NICs).

Originally, the figure that Mansouriboroujeni owed was £122,899.31, however the court found that £19,148 of VAT had been paid from September 2018 in installments.

Investigations began when Mansouriboroujeni was interviewed on 0ctober 2019. He blamed his accountant for any tax discrepancies. Invoices obtained from Just Eat and Hungry House proved he had a higher turnover than he claimed, deliberately failing to disclose information to HMRC.

His accountant argued that although Mansouriboroujeni did not speak English as his first language, revenue was clearly explained to him and the obligations placed on the business. Mansouriboroujeni pleaded that he was new to the takeaway business and didn't understand his business or his responsibilities regarding tax.

His defence said that Mansouriboroujeni lived ‘frugally’ and was ‘struggling to keep his family’s heads above water.’ It was also claimed that he didn't charge VAT to customers and was not making a profit, but his lower prices ‘gained some advantage over his competitors.’

George Ward, senior crown prosecutor, of Crown Prosecution Service Mersey-Cheshire’s Fraud Unit, said: "Mansouriboroujeni claimed he didn’t understand what he was supposed to declare on his tax returns. But his accountant said he had explained that all of his turnover must be revealed.

"This was a substantial fraud, running into over a £100,000 and was carried out over an extended period of time.

"As a result of his dishonesty this businessman is now behind bars. There are a lot of demands on the public purse and those who cheat the Exchequer, cheat all of us. Let this be a lesson to anyone who thinks they can provide false returns to HMRC and get away with it."