Death And Taxes – But No Criminal Charges!

The inevitability of tax is a burden we all share. Shouldering this burden is not helped by the regular news items reporting waste and inappropriate spending by the various public bodies, even in this climate of so called “austerity”. The temptation for many is to avoid paying their taxes, and others get into just as deep a pickle by cutting corners when appointing inappropriate advisors.

Therefore, for a number of reasons, taxpayers find themselves on the receiving end of criminal allegations made by the authorities. The trouble is that for many outside the accountancy and associated financial professions, the danger of not treating tax compliance with utmost importance is not on their list of priorities.

Utilize reputable financial and associated legal advice

As a forensic accountant specializing in criminal defence, tax evasion and money laundering matters, I have worked with a number of self-motivated entrepreneurs who built successful empires and yet did not employ competent professional advisors until they found themselves facing criminal charges. This might be for not paying tax or conducting business in a way that raises the suspicion of money laundering.

I am not presenting a supporting case for the high fees demanded by city centre lawyers and accountants, nor am I disparaging the abilities of the sole trader. Many participants within the former are incompetent and some of the latter run highly professional boutique practices. However, I do see evidence in the cases I handle of a lack of importance being placed on professional service providers by some otherwise capable business builders.

For example, one £ multi million property empire utilized the accountancy services of a very small practice’s employee who was moonlighting in the evenings. By saving a few £1000, the property portfolio of over a hundred properties in London became insolvent as a result of administrative improprieties of an employee. The largest creditor of the insolvent business was HMRC demanding back taxes for multiple capital gains – this would not have happened if an accredited firm of accountants had been used simply to prepare tax returns.

The best outcome for a tax investigation

Most of my forensic accounting and expert witness tax related cases come through criminal defence solicitors acting for the client on the receiving end of HMRC’s attention. I have seen a number of cases where the matter has progressed all the way to Court with the criminal charges then being dropped during the hearing. In these cases, HMRC has subsequently presented lower demands for unpaid tax based on the lower profits and income presented by my forensic accountant’s report.

In my view this is the best outcome (short of getting this result at an earlier stage) – because to be investigated and charged in the first place means that the defendant had been most probably underpaying his tax. At the very least, if he was not due to pay more tax he had not kept proper records to show why.

The reason for keeping excellent accounting records

I am an accountant, but hate bookkeeping! It is a chore. As I sit here I am putting off my review of the last quarter so that I can submit my own tax return. I know that my business bank account will drop considerably when I pay the substantial sum due to HMRC. So, I know how many businessmen feel. I will pay the right amount well before the due date as usual, but there will be many who do not. They might have cash flow problems or resent the payment of taxes. However, if their accounting records were up to date all the time, they would have been in a position of knowing their obligations at any point in time.

Having records that allow an instant understanding of the state of affairs of a business not only allows better management, but also ensures that there are no surprises when it comes to paying tax. Removing the surprise means that the amounts due should be more acceptable (and manageable).

Methods for settling tax disputes with the authorities

Normally, HMRC will make a request for information as a result of information received from some source, or from a routine investigation that it has carried out. If this is provided promptly and credibly it is possible that the matter will not go any further. If the matter progresses beyond civil recovery and becomes a criminal prosecution, expert forensic tax accounting services may assist as follows:

  • Credible reconstruction of results (income, expenditure & profits) often from incomplete records;
  • Discussions with HMRC’s tax investigator, narrowing of differences;
  • Discussions with HMRC’s expert accountant, again to narrow the differences;
  • Advising the client’s defence Counsel on any accounting and business interpretation of HMRC’s procedures and limitations within the criminal framework.

As noted above, my view is that the best result in any dispute is to pay the correct amount of tax owing. Therefore, it is important to know exactly how much tax is due, before HMRC begin to make assumptions about excessive earnings or low levels of deductible expenses.

This is where better quality accounting records will assist in presenting a credible financial picture that is more likely to be accepted by HMRC, hopefully without having to test the details in a criminal court case. Testing any matter in court can be a lottery. For example, in one recent criminal case HMRC were pressing on the basis of their civil code of practice whereas the criminal matter warranted a different approach. During the hearing, it became apparent that the HMRC case controller did not initially realize the difference, nor some aspects of the relevant legislation associated with the case. This makes any ensuing arguments dangerous because the eventual outcome often comes down to which side appears more credible to the judge. Although this case developed into something of a bun fight, sensible discussions between the experts and barristers allowed differences to be narrowed so that the criminal charges were dropped.

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About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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