Tax Fraud

Tax fraud is a massive subject area. I have addressed Missing Trader Intra Community (MTIC) VAT fraud in a separate article as it is a huge subject in its own right, responsible over the past decade for absorbing many £billions of tax payers’ money that should rightfully belong within the Treasury’s coffers.  Tax fraud hits all other areas of taxation in the same way as it does VAT and duties – corporation tax, inheritance tax, capital gains tax, income tax – all suffer from the criminals’ attention.

At Mark Jenner & Co Limited tax fraud cases are investigated on a regular basis. In fact it is true to say that most frauds will have some element of tax fraud within them, even if they are not solely a fraud targeted at HM Revenue & Customs (HMRC). We can help in cases where criminal tax evasion is alleged, as such matters often require expert accounting input to unravel the financial transactions behind the fraud and present them within any trial or hearing. In civil tax investigations we are able to do a similar job, by identifying and quantifying profits and expenditure that may have been misunderstood by HMRC.

One of the biggest tax frauds we have come across in recent years, other than VAT fraud, is the prevalence of “black economy” businesses that seem to have a blatant disrespect for the tax regulators altogether. We all hate paying tax, but as they say there is nothing more certain than tax or death! An example of a business set up to simply make money for the owner without regard for any regulation is a support publisher (please note that there are legitimate companies that do “support publishing” but the type I am describing are fraudsters through and through).

Anybody can set up such a business – you simply need a reasonably respectable business image, a bank account and a telephone with a recording facility. Most crooks will set up a limited company as this “appears” to be more official. The next step is to start working your way through the yellow pages and adverts in local papers, targeting smaller businesses to place advertisements in a “good cause” or charity booklet/diary/wall planner. Within months the business will have moved from the principal’s bedroom or study to a rented office with perhaps a dozen or more telesales operatives selling advertising space to customers.

The telesales operatives will all be working on a self employed basis – and we have found that many of these will also be claiming benefit and not declaring their telesales income! They are generally paid in cash and, short of a spot visit by HMRC to the business, there is no way of catching these people out. They always use aliases for the business records and it would be difficult to prove their earnings. We contacted a senior member of HMRC about this matter and were told that there was nothing they could do and that the problem would have to be dealt with by legislation.

A further problem within these sorts of businesses is caused by the owner. Their business model is dubious of course and Companies Investigation Branch of the Insolvency Service is always closing them down. But while they are operating, often for many months or even a year or more, their owners are collecting large sums of money with very little more than the telesales operatives as overheads. They also tend to take money out of the business in cash, by putting down some fictitious self employed employees on their books.

If these fraudsters get caught they may be shut down and even be very unlucky if they are disqualified as directors. However, they simply start up again, using a different company and if needs be, using nominee directors and shareholders.

A CULTURE OF TAX EVASION

There are many people who do not pay tax. Often a culture emerges in a particular place. Many countries traditionally had a large proportion of the populace who did not pay tax. The UK was not one of the worst offenders but with the global migration problem now has substantial problems with ethnic groups or areas of the population where a distinct tax avoidance culture is strong. The support publishing problem has developed a large workforce of participants in the North West of England with the skills needed to work the scam and set up new businesses. In West Yorkshire it became apparent that a large number of the Asian Community were living beyond any obvious means of wealth and investigations revealed that many households had several untaxed streams of income.

Confusion by the authorities over Asian or Eastern European names has meant that tax evasion frauds growing up in these communities have been hard to police. The ease with which passports can be obtained, swapped or bought, together with the weak and liberal UK border controls has meant that perpetrators can easily dissappear for a while if the authorities start closing in. This is extremely frustrating for the fraud regulators and naturally leads to an over zealous attitude when some culprits are caught. This is why the regulatory defence team often turns to the forensic accountant to unravel the complexity of the tax fraud – or to demonstrate that profits are not as high as initially thought.

Tax fraud causes the rest of us to pay more in tax and reduces the income for the public purse.  When public servants are facing redundancies as a result of the harsh cutbacks being imposed, and everybody is suffering from the economic downturn, it is particularly frustrating to see the extent of tax fraud on the rise.

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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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