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Alternative Dispute Resolution top 10 tips

How will HMRC plug the gap in tax revenue caused by COVID-19?

HMRC inspection powers – Financial Institution Notices

In this edition Welcome from Mark Taylor.......................... 3 Alternative Dispute Resolution top 10 tips..............................................................4 Legal corner – recent tax cases................... 6 How will HMRC reduce the gap in tax revenue caused by COVID-19?.............8 HMRC inspection powers – Financial Institution Notices........................................... 10 Should you trust that HMRC’s data is always correct?..................................................12 Furlough fraud - check and disclose now ...................................................................................14 Why you should always use a specialist when making a disclosure.............................16 Can ignorance be a reasonable excuse?..................................................................18

Welcome As Head of Buzzacott’s Tax Investigations & Dispute Resolution team, I would like to welcome you to the first edition of Spotlight. Our inaugural issue, and all editions to follow, will assist accountants, lawyers and clients who may find themselves under HMRC’s spotlight now that the department is running at full steam again. COVID-19 has changed the way we all work, and this includes the way tax investigations and disputes are executed by HMRC. While HMRC eased some of its work during the early period of the first lockdown, agreeing to suspend active enquiries and extending payment dates and appeal windows, we are seeing a return to increased compliance activity. This edition sees several cases demonstrating this shift. In this packed first issue: Barbara Bento, CEDR Accredited Mediator, gives her top 10 tips to maximise success at Alternative Dispute Resolution mediation; and Laurent Sykes QC kindly provides his thoughts on the latest tax cases that you need to be aware of.

Mark Taylor Partner Head of Tax Investigations & Dispute Resolution

We also have fascinating articles on the introduction of Financial Information Notices; how HMRC may reduce the tax gap caused by COVID-19; HMRC’s focused compliance on alleged furlough fraud and a recent tax case confirming that ignorance can indeed be an excuse. In a year of firsts, this year’s PFP Tax Investigations conference took place in a television studio and I took part in a neverbeen-done-before interview with a client, on camera, who was happy to talk about the life-altering impact of his recent HMRC investigation. A full client case study can be found in this issue. Enjoy!

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Alternative Dispute Resolution top 10 tips Given the proven success of Alternative Dispute Resolution (ADR) mediation in resolving disputes between HMRC and taxpayers, Barbara Bento, Buzzacott’s CEDR Accredited Mediator, offers her top 10 ADR tips for the taxpayer and you, their legal representative.

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Appoint a trusted and accredited mediator The success or failure of mediation often depends on the calibre of the mediator. In addition to the mediator that will be provided by HMRC, the taxpayer can engage their own facilitator, and by doing so, increase their chance of success.


Preparation Just as in litigation, preparation is key for a successful outcome. Ensure the taxpayer has a good understanding of the facts and the legislation so they are seen as negotiating from a position of strength. Prepare by having pre-mediation meetings to ensure your client is fully aware of the process and what to expect on the mediation day.

Mind-set HMRC, your client, and the mediator(s) must demonstrate flexibility, patience and a willingness to persevere. It is often the case that settlement agreements are reached when least expected and after many hours of deadlock. Taxpayers must resist the temptation to make impulsive decisions or offers.

Set aside sufficient time It’s important to come to mediation with an open mind and accept that it‘s likely to take longer than envisaged, regardless of how confident your party feels about the case and opening position. While I, as an Accredited Mediator, have had cases that settled within a couple of hours, I have also had others that lasted a whole day.


Set the tone with your opening statement If your client wishes to make an opening statement, this would be the ideal opportunity to set the tone and get their position and view of facts and circumstances across - particularly if the dispute has affected them personally. However, be mindful that hostile and overly passionate opening statements can backfire by resulting in parties becoming entrenched in their own positions too early in the day. I consider that opening statements that are realistic, unbiased and succinct are more conducive to a successful mediation.


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Make timely and realistic offers It is often the case that parties come to mediation with extreme positions and unrealistic offers. While this does leave plenty of room to negotiate, such positions and offers should be avoided given it can divide both sides from the start. The timing and quantum of the offer is important and it should be strategically considered before entering the mediation room. The sooner the bargaining stage of mediation is reached, the better.

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Be objective and realistic When dealing with emotions, remaining objective can be challenging. A good mediator will act as a reality check by challenging both HMRC and the taxpayer on their positions. However, you and your client should also realistically assess the strengths of the case and work out the most likely outcome. This will often fall between the best and worstcase scenarios. This technique could be used to identify the range in which your client would be comfortable to settle.

Take breaks and make the most of private meetings A break or a private meeting with the mediators is an opportunity to test positions, to re-evaluate, to recap and reflect. These are very helpful, especially in situations of deadlock or when HMRC or your client appear to become frustrated or tired.

Authority to make decisions Ensure that the HMRC attendees have unlimited discretion to make a decision and ultimately settle the dispute.

Leave with a clear settlement agreement The settlement agreement should accurately reflect the terms agreed, to ensure everyone knows exactly how matters will then proceed. It should be signed and dated by or on behalf of HMRC and you/ your client.

How can we help? We have extensive experience in assisting clients in dispute with HMRC and in particular, mediating through the ADR process. We provide a discreet and comprehensive mediation and litigation service that is tailored to meet your unique needs and protect your interests. If you or someone you know would benefit from a noobligation discussion about mediation or litigation, please do not hesitate to give us a call on +44 (0)20 7710 3389. About the author Barbara is a Director in Buzzacott’s award-winning Tax Investigations & Dispute Resolution team. She is a CEDR Accredited Mediator with a proven track record of successfully settling disputes through ADR mediation.


Legal corner - recent tax cases Where appropriate, Buzzacott’s Tax Investigations & Dispute Resolution team work closely with leading Tax Counsel, providing clients with a multidisciplinary team who ensure they receive comprehensive advice and representation. While COVID-19 has curtailed the amount of tax cases in recent months, there continues to be interesting developments. Laurent Sykes QC, one of our trusted legal partners, provides some recent tax cases that need to be on your radar.


he decision in Evert Henkes [2020] UKFTT 159 (TC) provides an interesting tactical opportunity for taxpayers to have the issue of their domicile decided up front as a preliminary matter. In this case, the taxpayer argued, in response to a Schedule 36 information notice, that no information was reasonably required because he was non-UK domiciled. The Tribunal decided to hear the issue of domicile as a preliminary issue so that the information notice appeal could be determined (see [117] – [119], [130] and [134]). The decision as to whether the taxpayer wishes for this to be decided as a preliminary matter is a tactical one. The Upper Tribunal has recently heard the appeal in Embiricos v HMRC [2019] UKFTT 0236 on the same point, so more definitive guidance will emerge. HMRC are not limited to formal methods of investigation, and the Court of Appeal has confirmed in JJ Management Consulting LLP [2020] EWCA Civ 784 that, provided HMRC are acting for a proper purpose, they need not necessarily make use of their formal investigation powers. It was consistent with their duties and powers under the CRCA 2005 to make informal information requests, and reserve their more formal powers for cases of refused compliance. Where formal powers are utilised, HMRC must be careful

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to act efficiently. The Court of Appeal in Raymond Tooth [2019] EWCA Civ 826 upheld the decision of the Tribunals below that a discovery assessment raised in October 2014 in respect of the 2007/08 tax year, was not valid on account of being “stale”. The Court of Appeal agreed that the concept of discovery implicitly involved an element of “newness” (see Floyd LJ at [61], Males LJ at [105] and Patten LJ at [116]). The issue presents a useful argument for the taxpayer. Permission was granted for HMRC to appeal to the Supreme Court in January this year, so again the position is not yet final. The concept of staleness was also recently discussed in Royal Bank of Canada [2020] UKFTT 267 (TC) in which it was noted (at [156]) that a discovery can be prevented from going ‘stale’ by giving the taxpayer an informal notification of the intention to raise an assessment. Another interesting part of the judgment involves the assessment of carelessness, and Judge Kevin Poole’s conclusion at [167] that a finding of carelessness can be mitigated by including an explanation in the taxpayer’s return as to why a particular tax treatment in the return has been adopted, or by identifying receipts which are thought not to be taxable. This is an interesting development based primarily on

the test of carelessness espoused by the Upper Tribunal in Atherton [2019] UKUT 41 (TCC). It will be interesting to see how this development is treated in subsequent cases, particularly in light of the fact that there is no obligation on the part of the taxpayer to explain the tax analysis adopted.

How can we help?

Buzzacott has extensive experience in assisting clients who are in dispute with HMRC. We provide a discreet and comprehensive mediation and litigation service, partnered with Tax Counsel where appropriate, that is tailored to meet your unique needs and protect your interests. If you or someone you know would benefit from a noobligation discussion with an award-winning tax disputes team about mediation or litigation, please do not hesitate to give us a call on +44 (0)20 7710 3389.

About the author Laurent Sykes QC has a wide ranging practice that encompasses many areas of the tax code, particularly business and employment tax-related matters as well as issues affecting private clients. He also advises on tax-related pensions matters and tax-related commercial disputes. In the past, Laurent qualified as a chartered accountant, which provides useful background knowledge in dealing with tax questions with an accounting perspective. Litigation (usually for the taxpayer and where necessary) is an important part of his work and has taken him to the Tax Tribunal, the High Court and the Court of Appeal.


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to 200%) penalties that can be applied in those cases under the Requirement to Correct legislation. A further increase in allegations of deliberate behaviour, which increases time limits, penalties and consequently yield to the Exchequer. An increase in case officers taking, in our view, unreasonable positions in terms of behaviour and penalty assessments, due to internal pressure of increased individual yield targets. The introduction of Financial Information Notices to provide HMRC with access to more information than it has ever had before.

this means the plan is to mirror the application of the Kittel principle, which HMRC is relying on to recover VAT from the customers of defaulting businesses, or their directors, where it can recover VAT from those businesses itself.

There is no question that HMRC is better equipped to challenge inaccurate tax returns and claims than ever before.

Specific areas that will be in HMRC’s sights over the next 12 months are: • •

Operators in ‘licenced’ industries, due to something known as tax conditionality. The construction industry, with the Construction Industry Scheme set to be overhauled.

The introduction of tax conditionality

How will HMRC plug the gap in tax revenue caused by COVID-19? A

s evident in Rishi Sunak’s latest economic update, the UK government is already finding itself in the unenviable position of having to contend with the immediate and long term aftermath of the much needed and welcome COVID-19 financial support schemes. Having supplemented the income of millions of people, at a time when GDP has suffered an unprecedented fall and tax revenue is at an all-time low, the government now has to manage a formidable economic scenario. As the country reintroduces regional lockdowns where needed, the government is faced with the task of rebuilding the economy, and filling the proverbial coffers. One of the ways in which it hopes to do this is by closing the ‘tax gap’ the difference between what is collected in tax revenue, and what would be collected if everyone complied fully with their tax obligations.

So what do we anticipate the government will do to plug this critical gap?

Future compliance activity

In the Spring 2020 Budget, prior to lockdown, the Chancellor announced further action to tackle tax avoidance and noncompliance, with the goal of raising an additional £4.7bn between now and 5 April 2025. We’d expect this to be applied across the spectrum of HMRC compliance and investigation teams. Such action is only likely to intensify in the current climate. We anticipate it will include: •

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The recovery of furlough payments that were claimed ‘in error’. Initially, this is by encouraging voluntary disclosures and repayments of over-claims but, as has already been the case, there will almost certainly be fraud investigations, both civil and criminal. The continued pursuit of individuals with undeclared overseas income and gains, and the extremely high (up

Tax conditionality is a term used for when the renewal of licences is dependent on compliance with tax obligations. Industries that could be caught are: private security, taxis and private hire vehicles, waste management, landlords with houses of multiple occupancy, scrap metal and even retailers and traders. Under a system of tax conditionality, firms applying for licences to operate will be checked to confirm they are properly registered for tax, including PAYE for any employees. This ensures all such licensed businesses are within the tax system. The introduction of such a requirement follows a consultation that was held in 2018 in relation to the use of tax conditionality as a way to tackle the ‘hidden economy’. We anticipate tax conditionality will be introduced by virtue of the Finance Act 2020. Wider applications of the principle are also being considered, with further consultations being planned in relation to applications for government awards, authorisations or grants. The format of such wider applications is currently unclear. However, it would not come as a surprise if all licences, grants and even government contracts were to become conditional upon the business demonstrating complete compliance with tax legislation.

The overhaul of the Construction Industry Scheme

A consultation document in relation to Construction Industry Scheme (CIS) was open for responses earlier this year. The consultation proposed that abuse of the CIS system should be tackled by giving HMRC the power to amend deduction amounts claimed by sub-contractors. The consultation document stated the long-term objective to be the undertaking of supply chain due diligence by all parts of the supply chain to support compliance. We would assume

What should you be doing?

Whatever industry you’re in, it’s more important than ever to ensure your personal and business tax affairs are correct and up to date. HMRC is under constant pressure to increase collection of undeclared liabilities and seem increasingly willing to impose harsh penalties and use the full weight of its (comparatively limitless) resources to take unreasonable positions and put undue pressure on customers. There is no question that HMRC is better equipped to challenge inaccurate tax returns and claims than ever before. Those caught will face severe financial penalties, and potentially even criminal prosecution.

How can we help?

If you’re in any doubt as to the accuracy of your filings, or you have received any unexpected contact from HMRC, qualified and experienced expert representation is vital. Buzzacott’s award-winning Tax Investigations & Dispute Resolution team have built a reputation for making expert disclosures on behalf of clients. Our knowledge of HMRC’s policy and procedures means our clients regularly avoid unnecessary penalties. For a free, and entirely confidential, discussion regarding how we can help you correct any inaccuracies in your tax affairs, please do not hesitate to give us a call on +44 (0)20 7710 3389.

About the author Antony is a Manager in Buzzacott’s Tax Investigations & Dispute Resolution team. He is ATT/CTA qualified with extensive knowledge in making disclosures to HMRC as well as successfully challenging and mitigating any penalties that may be charged to clients.


HMRC inspection powers – Financial Institution Notices F

or the last 50 years, HMRC has relied on statutory information powers, currently governed by Sch36 of the Finance Act 2008 (FA 2008), to collate information and documents from taxpayers that are reasonably required to check their tax position. Historically, HMRC has used Sch36 to obtain information directly (from those under enquiry), but also indirectly from third parties. However, HMRC has recently announced its intention to introduce new legislation in the 2021 Finance Bill, circumventing some of the protection that Sch36 previously provided to taxpayers.

Financial institutions – the present

At present, if HMRC wants to compel a financial institution to provide information, or documents, in relation to a particular taxpayer, it has two options: 1.

It can either obtain the express permission of the taxpayer to contact the third party, or 2. It can receive Tribunal approval. To obtain Tribunal approval, HMRC must make a detailed application which convinces the judiciary panel that the information it’s requesting from the third party is reasonably required to check the tax position of the taxpayer. Before the Tribunal will even entertain an application of this nature,

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it insists that HMRC’s case has been approved by an ‘authorised officer’ (a specially trained, senior officer) of HMRC. Sch36 legislates for each of these steps, thereby providing protection from unjustified invasions of privacy.

Financial institutions – the future

Looking ahead, HMRC is in the latter stages of introducing new legislation in relation to the acquisition of information and documents from third parties. This new legislation means the above permissions will no longer be necessary. If implemented, HMRC will be allowed to issue Financial Institution Notices (FINs) to banks and building societies without receiving the permission of either the first party taxpayer, or the Tribunal. FINs will entitle HMRC to demand the provision of particular customer records and information, including: account statements, loan applications and even hypothetical borrowing potential. It’s important to note that the draft legislation does not require HMRC to have an open enquiry into a taxpayer before a FIN can be issued. In essence, this means HMRC will be able to demand a taxpayer’s bank statements from any UK bank, without the taxpayer having any prior knowledge that HMRC considers them to be a tax risk.

Reasonable action?

We ought to mention that the UK is currently the only G20 country to require the approval of a Tribunal, or the consent of the taxpayer before a third party notice can be issued. Therefore, the introduction of this new legislation isn’t entirely unexpected. HMRC has suggested that the FIN legislation is necessary to deal more efficiently with information requests from foreign tax jurisdictions under the Common Reporting Standard. However, there’s no indication that HMRC will limit the use of FINs to complying with requests from foreign jurisdictions. If the FIN legislation makes it through parliament, HMRC will have access to more information than it has ever had before and there’s no question it’ll better equip them to challenge inaccurate tax returns and claims.

Should you be concerned?

Given HMRC has the power to issue penalties of up to 200% of any tax loss involving offshore non-compliance, this should be taken extremely seriously. By far and away the simplest means for anyone to reduce the risk of these draconian penalties is to ‘come clean’ to HMRC, before you’re approached with concerns.

How can we help?

With only a matter of months before the FIN legislation is introduced, taxpayers who suspect HMRC might uncover inaccuracies in their tax affairs if given access to their bank accounts, ought to be asking what they can do to protect themselves. Anyone caught out will face severe financial penalties, and potentially even criminal prosecution. For taxpayers wishing to avoid these potential sanctions, time really is of the essence. If you or someone you know would like to correct any inaccuracies by making a disclosure to HMRC, please do not hesitate to give us a call on +44 (0)20 7710 3389.

About the author Joe is a Manager in Buzzacott’s Tax Investigations & Dispute Resolution team. As a former HMRC inspector, he has in-depth knowledge of HMRC’s statutory powers and how these are used in practice. Joe uses his unique experience to help minimise his clients’ potential exposure to unnecessary tax and penalties.


Should you trust that HMRC’s data is always correct? As any tax professional will know, in recent years, HMRC has made no secret that it receives more information, from more sources, than ever before. As the saying goes, information is power. However, as Buzzacott recently proved, information is only powerful if it is accurate.

Damned by data

This case concerned an individual, Mrs K, who had been operating a small dog-breeding business as a sole trader, before incorporating and trading as a limited company. During a very brief investigation, HMRC revealed that it had received information from a pet insurer, which suggested that sales had been understated by 600% over a three year period. Despite Mrs K denying this, and refuting the accuracy of the information, HMRC raised tax and ‘deliberate’ penalty assessments. Facing a total liability of more than £150,000, and financial ruin, Mrs K appointed Buzzacott to help her challenge HMRC’s assessments, which she considered to bear absolutely no resemblance to her true trading profits. HMRC’s assessments were calculated by multiplying the number of puppies the insurer had said Mrs K had sold, by the average sale price in Mrs K’s own records. For the insurance company’s data to be reliable, Mrs K would need to be capable of holding a ‘stock’ of up to 20 dogs at any one time. However, during a meeting with Mrs K, HMRC had acknowledged that Mrs K did not have the facilities to do so.

Testing the accuracy

Given HMRC’s allegations, we felt it was appropriate to issue a Subject Access Request to the pet insurer, requesting the recordings of all Mrs K’s telephone calls to register the puppies. It was clear from listening to the phone calls that Mrs K had not registered the number of dogs that the insurer had alleged. We wrote to HMRC, appealing the assessments and providing evidence to demonstrate that they were excessive.

Appeal – strike out

The appeal proceeded to the First-tier Tax Tribunal (FTT). However, HMRC’s Solicitor’s Office countered by applying to the FTT requesting that Mrs K’s appeal be struck out, on the basis that it was fanciful with no realistic prospect of success.

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In front of a FTT Judge, HMRC claimed that the information it had received from the insurer was irrefutable and, therefore, the assessments should be allowed to stand. Thankfully, common sense prevailed. The FTT Judge disagreed with HMRC, and stated that Buzzacott’s analytical work, evidence and oral representations suggested that there were potential flaws in the data that HMRC was so reliant on. Mrs K’s appeal was allowed to continue, and we applied to enter into HMRC’s Alternative Dispute Resolution (ADR) facility.

ADR mediation

ADR is a mediation process where both parties come together to discuss the points that are in dispute. HMRC appoints a trained mediator, with no prior knowledge of the case, to help facilitate discussions and enable both parties to recognise the merits in one another’s viewpoints. At Buzzacott, we insist on the presence of our own accredited mediator to work alongside HMRC’s. This provides our clients with the assurance that at all times, HMRC’s position will come under just as much scrutiny as their own. In this case, that proved crucial. Despite the FTT judge having indicated there were inaccuracies in the data held by HMRC, HMRC continued to hold an entrenched position throughout the opening exchanges of ADR, both in terms of the tax assessments and the behaviour of the client. However, as an Accredited Mediator, I challenged HMRC asserting that Mrs K’s lifestyle did not resemble someone with the level of omissions HMRC were alleging. HMRC then revealed a cash flow test it had performed that indicated Mrs K’s sales, while still being understated, were significantly lower than shown in the data provided by the pet insurer. With HMRC’s consent, this information was then relayed to Buzzacott for the very first time.

Settlement Success

At this point, Buzzacott’s Tax Investigations and Disputes Resolution Partner, Mark Taylor, was able to negotiate a revised settlement with HMRC, based on the findings of HMRC’s own cash flow test. This led to a significant reduction in the tax liability and HMRC agreed that the errors in Mrs K’s tax returns had not been deliberate. Mrs K ended up paying less than 10% of the amount HMRC had sought in its original assessments. HMRC’s approach in this case was most disappointing. HMRC states that it is committed to collecting the right amount of tax at the right time. In this case, the assessments it raised indicate a desire to collect the most amount of tax that was arithmetically possible. To compound matters, HMRC then attempted to deny Mrs K of her right to appeal, in spite of

“Thank you for your kindness, knowledge, and patience. We could not have succeeded without you” - Mrs K

knowing that its assessments were not supported by its own business economics analysis.

How can we help?

Buzzacott firmly believes that in most cases, HMRC does act reasonably. However, this case demonstrates that when HMRC is not acting reasonably, challenging it can prove to be difficult and technically demanding. Appointing expert professional representation is often vital to securing a fair and equitable outcome. If you or someone you know needs assistance in dealing with an HMRC enquiry, please do not hesitate to give us a call on +44 (0)20 7710 3389.

Contact details Barbara Bento, Director E T +44 (0)20 3972 6606


Furlough fraud - check and disclose now W

ith HMRC setting its sights on recuperating sums paid through erroneous or fraudulent Coronavirus Job Retention Scheme (CJRS) claims, the deadlines for a disclosure to be submitted, and for penalties to be avoided, have recently been announced. However you feel about the way the UK government has handled the COVID-19 pandemic, few would disagree that the CJRS has been a flagship support measure designed to provide vital financial assistance to both employers and employees, avoiding large scale redundancies. According to figures released in July, the CJRS supported 9.4m jobs across 1.1m employers, at a cost of £27.4bn. More recent estimates suggest that the CJRS is likely to have cost more than £35bn.

Suspected fraudulent claims

HMRC’s Chief Executive, Jim Harra, revealed that HMRC has assumed ‘for the purposes of planning’, that between 5% and 10% of the sums paid out were based on erroneous or fraudulent claims. The ‘planning’ Mr Harra was referring to. involved not only recovering up to £3.5bn of overpayments, but also punishing those responsible for deliberately submitting fraudulent claims. It has been announced that HMRC is looking into 27,000 ‘high-risk’ claims, and a number of people, including an accountant, have already been arrested in association with fraudulent furlough claims. With Downing Street confirming that the UK will be doing “everything possible” to recover any money that was incorrectly claimed, it seems highly likely that HMRC will dedicate a great deal of resource to tackling any abuse of the various COVID-19 support schemes.

Check, disclose, pay-back

It is encouraging that HMRC has already acknowledged that not every incorrect claim will have been made with the intention of defrauding the Exchequer. However, HMRC has confirmed that, irrespective of whether incorrect claims were made innocently or deliberately, it will be seeking to recover any sums that should not have been paid. In addition, if an employer over-claimed a CJRS grant but hasn’t yet repaid it, they should notify HMRC by the latest of the following notification period dates: • • • 14 |

90 days after the employer receives the CJRS grant to which it is not entitled 90 days after the day circumstances changed so that the employer was no longer entitled to keep the CJRS grant 20 October 2020 | SPOTLIGHT | AUTUMN / WINTER 2020


If HMRC has not received notification of the overpayment by the relevant date, and considers you knew you were not entitled to your grant, HMRC will treat this as deliberate and concealed behaviour. As such, HMRC will be entitled to charge a penalty of up to 100% of the overpayment that the employer received and could publish your details as a deliberate defaulter. HMRC will take account of your knowledge at the time of the offence when assessing the penalty, but, unlike with existing inaccuracy penalties, HMRC has no legislative power to offer penalty suspension. Consequently, even entirely innocent errors could potentially result in employers being detrimentally affected if the position is not rectified, and robust representations are not made, regarding your knowledge of any over claim. Employers really ought to be testing the accuracy of their claims, and making disclosures where appropriate. The importance of framing your disclosure correctly cannot be stressed enough. In cases where HMRC does not accept that the disclosure is complete, it may still charge financial penalties, and even consider criminal prosecution, if it determines that the disclosure was knowingly submitted inaccurately.

How we can help

“The team at Buzzacott filled me with confidence with their extensive knowledge and experience, which was of great comfort to me at a very challenging time. They helped me work towards a solution in a proactive manner and I felt their honest approach in dealing with the enquiry was excellent. I would happily recommend Mark and his team to any of my contacts.” Client

Buzzacott’s award-winning Tax Investigations & Dispute Resolution team have built a reputation for making expert disclosures on behalf of clients. Our expert knowledge of HMRC’s policy and procedures means that our clients regularly avoid unnecessary penalties. For a free and entirely confidential discussion regarding how we can help you correct any inaccuracies in your CJRS claims, please call +44 (0)20 7710 3389.

Contact details Joseph Burns, Manager E T +44 (0)20 7710 2602


Why you should always use a specialist when making a disclosure I

f you’re aware of any irregularities in your tax affairs, the most effective way to minimise your exposure to tax, interest and financial penalties is by making a voluntary disclosure. However, as this case demonstrates, without the use of a specialist, doing the right thing is not always recognised by HMRC and can make matters more complicated.

The visit

The proprietor (Mr X) of a well-established and popular London restaurant received an unannounced visit at 11pm, just as his staff were closing up, from five HMRC officers conducting what he described as a ‘raid’. Mr X was shown their IDs and handed countless papers, which left him with the impression that it was a search warrant. What Mr X had actually received was an unannounced visit, approved by an HMRC officer, under para 10 of Sch36 of the Finance Act 2008. This permits HMRC officers to visit business premises unannounced, during ‘business hours’. Clearly, 11pm was not business hours and the visit finished at 3am, by which time HMRC had downloaded computer data, interviewed staff, and instructed an employee to ‘cash up’ and observed them doing so. HMRC also removed physical records.

The secret

The unannounced visit served as a catalyst for Mr X deciding to make a disclosure to HMRC, and reveal activity he had been keeping secret. For the four years preceding HMRC’s visit, Mr X had regularly, and inexcusably, topped up the staff tip jar with motivational and performance-based cash bonuses. These were funded by him either removing sales from the till via ‘refund mode’, thus suppressing sales, or by Mr X himself personally funding the bonuses (often by him withdrawing cash from a local cash point). He roughly calculated that over the four years, he had suppressed 1% of the business income and the revenue lost to HMRC was around £33k. Mr X knew his actions were wrong.

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The disclosure

Given that HMRC had not discovered this during their visit, Mr X met with his accountant, admitted the irregularities and expressed his desire to disclose his actions to HMRC. Mr X’s accountant told him to sit tight and he would find a specialist advisor to assist in making the disclosure. Unfortunately, such was Mr X’s will to disclose, Mr X decided not to wait. He instead advised the HMRC lead officer who visited his business premises unannounced that he wished to disclose unrecorded sales. While his intentions were acknowledged, he was not advised that HMRC would take the nature of the irregularities at face value, and his behaviour would be considered deliberate. Mr X was also not advised that he could make a disclosure using HMRC’s Code of Practice 9 facility thus ensuring he would be immune from prosecutions in relation to the irregularities disclosed. Instead, some five days later, Mr X disclosed what he had done and the estimated lost revenue. Mr X did so expecting to receive harsh penalties in addition to the tax/National Insurance Contributions and interest he would have to pay. What he did not expect was the potential loss of his liberty, business, and personal relationship, as a result of a three-year long investigation.

Criminal action

Following Mr X making his disclosure, he heard nothing from HMRC for six months. He then received a visit to his business premises but this time during ‘genuine’ business hours. The visitors were from HMRC’s Fraud Investigations Service who personally delivered a letter, inviting him to voluntarily attend (at a scheduled venue, date and time) an interview under caution. Mr X immediately recognised the seriousness of the situation and looked for legal representation, together with a forensic expert. This led Mr X to meet and appoint Buzzacott’s Tax Investigations & Dispute Resolution team. We formed a strategy that, while admitting irregularities had occurred,

argued for the case to be dealt with civilly given, in our view, it was not in the public interest to proceed criminally against Mr X. We prepared expert reports disclosing all the facts and circumstances of the case, the revenue lost as a result of Mr X’s actions, together with mitigating factors and robust representations. Some 18 months later, Mr X received confirmation from the Crown Prosecution Service that there was insufficient evidence to proceed criminally and the case was to be settled civilly.

Civil settlement

What should have been a straightforward civil settlement actually turned into prolonged, protracted correspondence with HMRC. In the Disclosure Report commissioned by Mr X, he admitted ‘deliberate’ behaviour and provided confirmed quantified lost revenue figures. However, HMRC inexcusably attempted to push the behaviour boundaries, arguing that Mr X’s behaviour was ‘deliberate and concealed’. It was not. Some 12-months later, HMRC accepted, without reservation, the complete findings of the original Disclosure Report. However, by this time, due to HMRC not raising protective assessments in time pursuant to Mr X’s disclosure, HMRC was time bound from collecting the full amount of the loss disclosed by Mr X. Had HMRC initially accepted the original disclosure report, it would have collected the full amount and avoided unnecessary costs and stress to Mr X.

Our view

While we do not condone Mr X’s actions, we would suggest that they did not warrant or justify a three-year long investigation that, in our belief, would have cost the Exchequer in excess of £200k, especially given a full voluntary disclosure had been made with a £33k loss of revenue. Prosecuting a taxpayer who voluntarily comes forward to disclose, provides a full account of their irregularities and offers to pay the lost revenue plus penalties seriously undermines the disclosure process and would prevent individuals coming forward.

Mark interviewing Mr X at this year’s PFP Tax Investigations conference Unfortunately, Mr X’s case is all too common and was exacerbated by him making an inexpert disclosure prolonging the case, but for Buzzacott’s involvement would have led to more severe penalties.

How can we help?

Buzzacott has built a reputation for making expert disclosures on behalf of clients. Our expert knowledge of HMRC’s policy and procedures means that our clients avoid criminal investigation and prosecution and regularly avoid unnecessary penalties. For a free and entirely confidential discussion regarding how we can help you correct any inaccuracies, please do not hesitate to give us a call on +44 (0)20 7710 3389.

About the author Mark is the Partner and Head of Buzzacott’s awardwinning Tax Investigations & Dispute Resolution team. He’s a former HMRC inspector serving in all of HMRC’s elite civil and criminal investigation offices. Mark is a distinguished and recognised expert in all HMRC civil and criminal tax investigation and dispute matters.


Can ignorance be a reasonable excuse? A

ll of HMRC’s penalties include a right of appeal – customers have a right to have the decision to charge a penalty reviewed by HMRC, or to appeal to the independent Tribunal. There is no statutory definition of ‘reasonable excuse’. The legal principles of reasonable excuse are not restricted to tax law, and HMRC considers all claims in line with its interpretation of prevailing case law and the approach of tribunals. A reasonable excuse must be considered in light of all of the circumstances of each case, including the experience, knowledge and other attributes of the person. You must ask whether what the person did, or failed to do, was objectively reasonable in the circumstances. If a person has a reasonable excuse, they must remedy the failure without unreasonable delay when the excuse ends.

So can ignorance be a reasonable excuse?

The recent tax case of Leigh Jacques v HMRC [2020] UKFTT 311 (TC) considered whether ignorance can indeed be accepted as a reasonable excuse. While only an appeal of a Sch 41 Failure to Notify penalty of £250 in relation to High Income Child Benefit Charge (HICBC), the case was decided in the appellant’s favour, and should be noted by HMRC. In my view, it presents a very well explained decision by Justice Nigel Popplewell (JNP). A summary of the notable points are: •

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JNP held it was objectively reasonable for the appellant in the circumstances of this case to have been ignorant of the requirement to complete a self-assessment tax return in light of his liability to the HICBC. It was not incumbent on the objectively reasonable taxpayer, without notice of a change in tax law, to go rummaging through all of HMRC’s information on the off chance that there might be something that is hidden away in it which is relevant to his tax position - para 28. JNP states HMRC has been disingenuous in its use of other tax cases when presenting. When using Nicholson V Morris [1976] STC 269 as a reasonable excuse case


as well as the Perrin case [2018] UKUT 363 (TCC), HMRC selected extracts that did not portray the actual reasoning behind those cases to bolster their arguments without reflecting how decisions were reached in those cases. In summary, ignorance of the law can constitute a reasonable excuse. This is also demonstrated in other cases for example what para 82 said in Perrin and the decision in the Clean Car Co [1991] VATTR 234. I believe this recent case will assist practitioners in defending penalties where the taxpayer was unaware of a statutory requirement. For example, we’ve seen unprecedented use by HMRC of Schedule 18 of Finance (No. 2) Act 2017 Failure to Correct penalties, where HMRC officers have steadfastly maintained it’s not an excuse to be ignorant of the 30 September 2018 Requirement to Correct deadline. Buzzacott is currently challenging HMRC’s position on this with HMRC’s safeguards committee.

“We’ve used Mark in the past on a complex investigation matter. Being based in Birmingham we were hesitant using a London firm, however, he was superb. He and his team got a £135k liability reduced down to £3k through their unique knowledge and understanding of HMRC.” Marco De Vincentis - Accountant

How we can help

Buzzacott has built a reputation for defending clients against HMRC penalty action, either through HMRC withdrawing penalty action or varying the amount of penalty in the clients’ favour. Our expert knowledge of HMRC’s policy and procedures mean that our clients receive expert penalty mitigation advice and thus regularly avoid unnecessary penalties. For a free and entirely confidential discussion, please do not hesitate to give us a call on +44 (0)20 7710 3389.

Contact details Mark Taylor, Partner E T +44 (0)20 7710 3389


Directory About us

People trust Buzzacott. We blend pragmatism with the insightful knowledge of an industry leader, driven by attention to detail. We’re big enough to display deep knowledge over a broad range of specialisms and small enough to understand the power of personal connections. The values we identify with, the consistency of our advice and our ability to tailor-make solutions means that Buzzacott can be trusted to do the right thing.

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Office address

Buzzacott LLP 130 Wood Street London EC2V 6DL This document is prepared to keep readers abreast of current developments, but is not intended to be a comprehensive statement of law or current practice. Professional advice should be taken in light of your personal circumstances before any action is taken or refrained from. No liability is accepted for the opinions it contains, or for any errors or omissions. Buzzacott LLP is a limited liability partnership and is registered in England and Wales with registered number OC329687. Registered office is 130 Wood Street, London EC2V 6DL.. Š Buzzacott LLP 2020. All rights reserved

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Spotlight: Issue one  

Buzzacott’s Tax Investigations & Dispute Resolution team is delighted to introduce the first edition of our new Spotlight e-magazine. Design...

Spotlight: Issue one  

Buzzacott’s Tax Investigations & Dispute Resolution team is delighted to introduce the first edition of our new Spotlight e-magazine. Design...

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