Successful challenge to HMRC “Fraud” Allegation

HMRC had alleged that a company had committed fraud. The taxpayer disagreed: so HMRC took the case to the Tribunal. When challenged, HMRC dropped the case. The taxpayer was awarded costs of £22,000 in respect of HMRC’s unreasonable behaviour.

HM Revenue and Customs argued that First Choice Recruitment Ltd should pay over construction industry scheme (CIS) deductions that it alleged were due. The company appealed to the Tax Tribunal.

The taxman’s Statement of Case made allegations of fraud against the directors; but included no evidence any. The allegation of fraud shifted the burden of proof fro m the taxpayer onto HMRC. When this basic matter was pointed out HMRC withdrew from the proceedings: effectively giving up and agreeing with the company’s position.

Having got this victory under their belt First Choice then made an application for costs under the Tribunal Procedure Rules, on the basis that HMRC had acted unreasonably.

HMRC tacitly accepted that the allegations of fraud were not supported by evidence. The tax department admitted that the caseworker was not appropriately qualified or experienced to handle cases alleging fraudulent conduct.

The First Tier Tribunal’s judgement was scathing towards HMRC, its caseworkers, and the handling of the appeal. The Tribunal judged that HMRC had been unreasonable in defending and conducting the appeal; and that its conduct in alleging fraud was egregious. They said that HMRC should have an appropriate system of supervision and training in place to ensure that their litigators deal with matters in an appropriate manner and in accordance with the law (including the laws of procedure and evidence). And that if this matter was being managed by HMRCʼs Solicitors department, it might well amount to serious professional misconduct! Further, it is unacceptable for a public authority to make allegations of fraud where they had no credible evidence upon which to make a case. Judge Aleksander directed that HMRC pay First Choice’s costs of the appeal of £22,000.

What does this mean for me?
In many tax investigation cases the question of the taxpayer’s behaviour is crucial. If the taxpayer’s behaviour is found to be careless, or deliberate then additional years can be taxed, and higher penalties can be charged. HMRC have to produce evidence to back up any of allegations of careless or deliberate behaviour. If they are unable to do so, then they are not allowed to use the extended time limit rules, or charge such high penalties. It is always important to examine HMRCs case in detail, and to consider if their evidence is sufficient to meet the legal requirements.

How can Lynam Tax Enquiry Experts help me?
Lynam Tax Enquiry Experts are specialists in tax negotiations. We have over 90 years’ of experience in negotiating behaviour, and can use our expertise to substantially reduce, and sometimes eliminate, the tax and penalties that the tax inspector is demanding. We have helped hundreds of taxpayers achieve substantially lower outcomes than those first sought by the taxman; including getting to zero in many cases.

For a free, confidential and no obligation discussion call today:

Paul Lynam: 0845 643 9997

or Andrew Nutbrown: 0771 877 8710

NB. If you, or your client, are facing extended time limit assessments or tax geared penalties Lynam Tax Enquiry Experts can help. The earlier in a tax investigation or dispute you involve us the more we can potentially save you: in tax, interest, penalties – and general grief and hassle.