Operation Edgewood

Her Majesty's Revenue and Customs have launched an unprecedented investigation into all of the clients of a firm of accountants.  Sussex-based Christopher Lunn & Co is currently undergoing a criminal investigation by HMRC.  The taxman has also written to every client of the firm, stating that they have concerns about the accuracy of their tax returns. HMRC have invited the individuals and companies to make disclosures. Those who do not make disclosures will be investigated.  Criminal proceedings may follow for people who make materially inaccurate disclosures and for those with material irregularities in their tax affairs who do not disclose.

HMRC's civil investigations is being lead by Mike Garrahy, a very experienced ex-Specialist Investigations unit inspector based in Leeds. His team of investigators are currently largely based in Yorkshire but further investigators are now being appointed to the team from around the UK.

HMRC first wrote to known Christopher Lunn clients in July 2010 informing them of the search carried out by the Criminal Investigation Unit and stating that HMRC might check their tax returns.  In September 2010 the taxman wrote to known Christopher Lunn clients setting out a number of areas where they believed tax returns were likely to be incorrect, and asking taxpayers make a full disclosure by 30 November 2010.   For various operational and legal reasons HMRC extended the deadline to May 2011.  However, HMRC have made clear that anyone who comes forward now may still be able to benefit from reduced penalties and also avoid prosecution.

Ominously for anyone who does not come forward, HMRC have stated: “We will be checking all returns of Christopher Lunn clients.”  For anyone who has made a repayment claim HMRC say: "until we have checked their returns HMRC will not be making any repayments”. 

The taxman expects those who come forward to make a "full written disclosure of all omissions and understatements of income/gains together with details of incorrect claims to deductions, allowances and reliefs across all tax for all years with a declaration that the disclosure is correct and complete to the best of your knowledge, information and belief.  We will be checking the disclosures against the material held by the Criminal Investigation Team and we will be pursuing any discrepancies.  If appropriate; cases will be escalated to the Civil Investigation of Fraud team for the issue of Code of Practice 9”.
 
The taxman is demanding a full analysis of business records and other information. In particular they are requesting “copies of any email exchange” with Christopher Lunn and Co.  The Revenue have also explicitly said that they want all relevant earlier years considered.

HMRC have highlighted a number of specific areas where they believe irregularities are likely to have occurred.  These include: IR35; Status (i.e. the question of whether an individual is employed or self-employed);  Claims to Expenditure and specifically: Apportionment of private and business expenses, entertaining, travel & subsistence, interest, loan finance, professional fees (including to Christopher Lunn & Co), use of home as office, furnished residential property-wear and tear allowance, capital allowances in general and cars in particular, capital items used privately or owned by another person, the distinction between revenue expenditure (e.g. repairs) and capital (e.g. improvements), reimbursed expenditure and benefits, capital gains, issues regarding partnership income, UK tax residence, domicile issues, double taxation relief, commencement of trading and cessation of trading for both individuals and companies, attribution of profits to the correct tax year or period, termination payments, general VAT issues (in particular regarding date of registration and associated companies).

What does it mean for me?
Whatever the rights and wrongs of HMRC's approach, it is quite clear they have serious concerns regarding the tax returns of clients of Christopher Lunn & Co. Furthermore, they fully intend investigating all such clients in detail. It may be that people they have written to do not have any tax irregularities. If this is the case, then a long, expensive and intrusive tax enquiry could be avoided by appointing an experienced tax investigations practitioner to deal with the matter now.  If there are tax irregularities then the best way to avoid the risk of prosecution, costly enquiry and very high penalties is also to appoint a professional tax investigation specialist: with a view to making a disclosure.

How can Lynam Tax Enquiry Experts help me?
Lynam Tax investigation specialists have over 38 years full-time experience of dealing with tax enquiries and disclosures. We can use our deep specialist knowledge and intensive experience for your advantage.

For a free, wholly confidential initial discussion, telephone Paul Lynam now on 0845 643 9997