Taxpayers sometimes end up with serious tax problems from what start out as the best of intentions.
Difficulties with say the bank, can lead some businesses to turn to inappropriately “borrowing” from the tax (VAT) man.
The problems mount up until HMRC attention is drawn to the taxpayer and matters then escalate.
The bank won’t loan
The circumstances could apply to any business sector but are illustrated by a free-range egg producer we helped with just such a problem.
The bank wouldn’t advance funds for capital investment, other banks were not interested so the taxpayer resorted to “borrowing” from the VAT man to fund the capex. VAT returns were “adjusted” to trigger enhanced refunds. Also known as VAT fraud to HMRC.
The VAT kept flowing so the taxpayer periodically dipped into the bank of HMRC when funds were required. He realised the issues were mounting but as he wasn’t challenged, he kept putting off addressing them.
Then the brown envelope arrived querying a particularly large, and inflated, refund.
You’re going to gaol
The HMRC challenge panicked the taxpayer. He consulted his agent who advised the taxpayer “You’re going to gaol”. Fortunately, we were introduced to the taxpayer and assured him that whilst he had a big tax problem to address, he would not go to gaol if he took and followed experienced advice.
We made an initial evaluation of the tax problems and advised a Contractual Disclosure Facility (CDF) CoP9 was the optimum route for the taxpayer to address his problems with HMRC.
A request for CDF was made and resulted in a voluntary disclosure of all relevant tax issues arising from “borrowing” from the VAT man. This encompassed VAT, income tax, capital allowances and in some years, trade losses.
The CDF CoP9 gave the taxpayer time to reconcile dealing with HMRC, it helped preserve his business and most importantly to this taxpayer it secured a guarantee of no prosecution for the disclosed tax problems. He did not go to gaol.
The financial cost of reaching a settlement with HMRC was not as great as the taxpayer had thought although it was still a challenging sum.
The penalty cost was kept to a minimum, partly as a result of the pro-active action of disclosure and also secured confirmation from HMRC the taxpayer would not be named and shamed for his actions.
The business survived and the real concern of being prosecuted never materialised.
The golden goose
The preservation of the business allowed the taxpayer to fund the liability owed to HMRC, which was cleared much sooner than the taxpayer originally anticipated. Removal of the worry about HMRC allowed the taxpayer to focus on his business, securing a multi-year guaranteed supply contract with one of the national high street supermarkets.
The result being the taxpayer was able to more than double the size of his business, having addressed his tax issues.
The irony being banks were falling over themselves to loan the taxpayer funds at the time our instruction concluded.
It’s not a fairy tale
From what may seem a dire and irretrievable position can emerge peace and blossoming success.
With skilled and experienced assistance, gaol can be avoided, the taxation issues managed and life can not only be returned to normal, it can be better.
We cannot wave a magic wand to make problems go away, but sometimes a bit of fairy dust comes in useful!