While Tracy Emin, one of the leading lights of the Brit-Art movement reportedly quit the country in early 2009, with the famous quote “Stuff your 50% tax, I’m taking my tent to France” and thousands of celebrities, footballers, and hedge fund bosses quit the UK in search of less onerous tax regimes, those of us left are under ever increasing threat from inquisitive tax inspectors in search of tax evasion at all levels. By the summer of 2011 one in four large businesses were considering leaving Britain to escape its ever increasing tax burden according to the Revenue’s own research.
Many multi-national companies have moved their headquarters overseas in the past few years saying that Britain is becoming less competitive on tax. These include the huge advertising giant WPP and Shire Pharmaceuticals who set up shop in Dublin where corporation tax is 12.5% as opposed to our 20%. The Revenue will look out for Director’s abuses of these relocations such as looking into travel schedules, emails, diary entries, and notes of telephone calls all of which are often in the public domain.
The emigrating companies have been warned by their lawyers to keep meticulous evidence to support their assertion that their “central management and control” has moved elsewhere.
As the tax take dwindles through the significant drop in corporation tax so too does the effect of the swelling ranks of the unemployed, diminishing the yield from PAYE leaving those of us in self- employment more vulnerable than ever to tax investigation. As you perhaps hid the sprouts under your turkey last month a person called Mike Wells was looking into electronic forms of disguise.
Wells is director of risk and intelligence at HM Revenue and Customs and when he touches a button on his keyboard, a tangle of tiny lines bursts on to his computer screen. Within seconds, it weaves an elongated spider’s web connecting small graphic symbols representing people, addresses both postal and email, phone numbers, bank accounting and employment status with full details of who works for whom, and at what address taxpayers can be watched.
Over time the Revenue’s intelligence services build up a “spidergram” using a mathematical technique known as social network analysis that ploughs through a huge spread of seemingly unrelated information to detect a network of relationships. The computer system behind the Revenue was designed by BAE systems and launched in the summer of 2010. At a cost of only £45m it had delivered over £1.4 billion in additional revenue in its first twelve months.
The system called Connect is now used in six out of ten tax enquiries and can plough through 26 databases where your day to day shopping habits including average spend and types of purchases you make are just one tiny line on Mike Wells’s screen. Connect enables the Revenue to check up on databases such as the Land Registry and the electoral role, sifting through information on property transactions, company ownerships, bank accounting, employment records and self-assessment tax returns to spot where estates might be under declaring.
However the formidable computing power is not the only way that the taxman is watching you. Some of the other things to watch out for in 2013 include the following.
When I trained as a tax inspector it was in the days where “old school” methods were used and often we would simply warn a tax cheat to make sure next year’s figures “were well up” on last year. Even in those softly, softly days however we used informer’s letters as a regular way to look into people. Personally I found this quite nasty and these scripts were often penned in capital letters so to give no clue as to handwriting in much the same way a blackmailer would do.
During training, we were warned however that these were often written out of jealousy or with malice in mind. Disgruntled former employees and embittered divorcees were often amongst the key sources of information and when we were a little short of meaty cases there was a special place in our office where these could be found and looked over with some degree of macabre interest.
Today apparently there is a whole network of listed informers other than the jealous neighbour types and, like the police, they are often paid, with some £309,620 paid out in the year to April 2012
These visits are often made under disguise where Tax inspectors will turn up as couples at restaurants for a meal and check up later to see if their meal voucher has reached the accountant’s office. Similar visits were made to hairdressers and building sites. Cover operations are embarked upon with video cameras concealed in the sides of white vans and such like.
Third party information
Adverts in newsagents and newspapers placed by “ghost” businesses are an effective source of information and plumbers and other tradesmen are often traced through gas safety registers.
Even plastic surgeons have been caught doing “casual ops” for women who trace their contact details from recently “enhanced” friends and I have even had to defend undertakers, church ministers, and doctors from zealous tax men finding undeclared burials, wedding fees, and medical certificates.
Offshore bank accounting
Cross border information is now commonly shared between tax authorities where international borders are now often meaningless and I once had the difficult job of persuading a senior tax official not to prosecute someone who prior to seeking my help had signed a formal “offer to settle” a tax enquiry into a hotel without disclosing an offshore account in which he had almost £400,000 hidden.
That particular individual was disabled or else he definitely would have gone to jail. Needless to say with a huge penalty of 80% plus interest on the undeclared bank interest he had little left of the £400,000 once that enquiry was over.
I have been at tax office enquiry meetings where towards the end of an interview the Inspector brings what I call “the rabbit out of the hat”. This can be the loan agreement for the Porsche that the taxpayer drives and which costs £650 per month more than his accounting show he is making or a newspaper article of a photograph of say an expensive wedding or a trip abroad with a football team.
In one instance a newspaper cutting was produced showing both interior and exterior photos of a house which a person under investigation had purchased for £650,000 after having moved from one selling for only £250,000.
These are becoming more common and increased powers given to the Revenue mean that Inspectors have the power to raid the homes of people suspected of not paying tax. In a recent meeting here in Edinburgh a restaurateur suspected of tax evasion asked me to help him after his business premises and family home were raided at 6.30pm simultaneously.
He had all his computer and banking records amongst other things removed by aggressive tax inspectors accompanied by police.
Fear and guilt
These campaigns by the Revenue are cleverly designed to make tax evaders feel rotten about cheating when the economy is toiling but for the person “fessing up” they can be a handy way of coming clean without incurring a heavy penalty or a lengthy enquiry.
Professional fee protection
Finally should you be in any way worried about the above warnings I do recommend getting hold of a fee protection policy which can give you peace of mind should the taxman try to knock the stuffing out of you. For a modest annual fee you can have my fees paid for sorting out what can be a harrowing experience. The number to ring is as follows:
Professional Fee Protection 0845 307 1177.
Ricky worked as an Investigator in the Inland Revenue for over 20 years before founding Steedman & Company in 1987, giving him the experience and knowledge that’s enabled him to help so many clients over the years.
His appearance on a Channel 4 television programme about the inside workings of Revenue and Customs was watched by 4.1m, sealing his status as one of the most highly respected tax consultants working in Scotland today.
Ricky leads all tax investigation and COP 9 cases, using his extensive knowledge to help people reach a positive resolution to their situation.