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Tax avoidance 2019 style

1st Apr 2019
Partner An unnamed firm
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English Pounds in Jeans Pocket

The Imprudent Accountant examines the latest tax dodge to hit the headlines: selling invoices at a knock-down price to reduce VAT burdens and business profits.

These days, I seem to get most of my best tax avoidance ideas from broadcast media. On Saturday, in a story briefly inserted between what felt like dozens of conversations with politicians talking about the latest way to sabotage a smooth exit from Europe, there was a short, sharp investigative piece regarding a sophisticated new tax avoidance scheme.

This involved a clandestine interview with a gentleman offering a solution that he seemed confident was pretty much guaranteed to beat the depleted forces of HMRC.

I thought that I had heard it all but this one was new to me. Rather than merely inventing expenses, which none of our clients would ever dream of doing but everyone else’s seem to manage on a regular basis if what he says anything to go by, the promoter had a much simpler and more credible plan.

He attempted to sell the reporter £10,000 worth of absolutely legitimate purchase invoices for a mere £800.

As we were to learn, these could be doubly beneficial because not only would they reduce the purchaser’s VAT burden but they could also be offset against business profits.

Ignoring obvious questions such as where this gentleman (please forgive me but this is apparently not yet a gender-neutral trade) had managed to acquire the invoices, this latest scam raises many other important issues.

Whenever I express doubts about the validity of tax avoidance arrangements, there is always a group of readers who will attack me and point out that tax avoidance is legitimate. I wonder whether any of them would like to suggest that this arrangement is acceptable?

Is it that different from putting through an expense claim for dinner with friends on the basis that it helps to relax someone and make them more efficient, thereby increasing profits? None of us would ever do that but I’ll bet that some of our clients have considered such an approach.

Changing tack, now that every reader of this column (and BBC junkies) is aware of this technique, is it incumbent on accountants to interrogate clients in order to satisfy themselves that the accounts which they submit to HMRC are complete, correct and valid.

Would it be a concern if you (or HMRC) discovered that accounts and tax returns submitted under the imprimatur of your firm were fraudulent? The answer should realistically be “yes” but what are you doing to ensure that this is not the case?

These days, accountants also have obligations to notify the authorities if they have a suspicion that any untoward activities are going on. Once again, I fear that not all of us are quite as diligent as we might be in this respect and, if push came to shove, might well struggle to defend ourselves against accusations that we had, at least to a degree, knowingly witnessed dubious potentially criminal activity from which our clients or other associates benefited without making the obligatory reports.

At the moment, we live in an increasingly chaotic world and have far too much red tape to fight our way through, ignoring any headaches that are wonderful parliamentarians throw in our direction.

Even so, perhaps it is time to tighten up procedures with regard to certain “tax avoidance” arrangements, particularly those that might be regarded by the authorities as abusive if only to ensure that we can sleep soundly at night.

Replies (13)

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By Justin Bryant
01st Apr 2019 10:32

I saw this and this is simply very dumb tax evasion - like SBP is very dumb tax evasion. Any sensible tax evader would simply supress their cash takings and so would not need fictitious invoices in the 1st place. If these invoices are for VAT fraud then that is dumb too as that will just put an otherwise non-VAT registered trader on HMRC's radar and you will almost certainly go to jail for VAT fraud and why bother for a few £1000s and customers don't want to pay VAT do they etc.?

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By lesrobinson
01st Apr 2019 11:34

As I point out to all clients, in the event of an investigation HMRC will primarily look at the flow of monies/paperwork - £10k of expenditure with only £800 showing (if at all) for it will immediately lead to the question "where did the other money come from?" plus an assumption that you have a hidden source of income they need to tax (and hand you penalties for).

I am personally of the opinion that current levels of tax are excessive and so careful tax avoidance is perfectly justified (by careful I mean avoidance that will pass any investigation)… but buying invoices (as in the article above) is simple tax fraud… any client that suggested that (or I found had been involved) would be shown the door immediately

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By Trethi Teg
01st Apr 2019 12:45

It is 1st April isn't it?

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By stepurhan
01st Apr 2019 13:20

I'm assuming this is an April Fools joke.

But is it worrying that this is not the most implausible idea that I've heard touted with perfect seriousness? Any clients of ours are soon disabused of such ridiculous notions, but you do wonder sometimes.

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By Duhamel
01st Apr 2019 13:28

I saw part of this news program and I found it really bizarre. These people are basically committing fraud, why were they willing to part with £800 (or whatever) in order to commit fraud? Perhaps I'm missing something.

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By ireallyshouldknowthisbut
01st Apr 2019 14:42

I also assumed this was "the fool"

If not, its a lot of money to create some fake invoices, presumably based on real business VAT numbers etc which are easy enough to get hold of.

Or do you pay the full sums to the fraudsters via the business bank account, and they remit the difference between the sum on the bill and their 'fee' to your offshore bank account?

That sounds like more the service you need. It works for many large international business after all, with a monster last minute ever changing "service charge" sucking up all the cash from your meticulously prepared accounts at local level the big boss tells you to put through.

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Replying to ireallyshouldknowthisbut:
By lesrobinson
10th Apr 2019 13:37

Many of the more reputable offshore banks will require evidence of your invoicing for larger sums (usually $5k+) before they will accept the incoming funds. This is to make money laundering harder.

In respect of large companies… they will have businesses established in many jurisdictions (all operating within the law for each jurisdiction) and transfer monies between these in the course of "normal" business trading. The monies/profits flow to the lowest tax jurisdiction - thus staying within the law whilst avoiding the worst of high/excessive tax jurisdictions like USA/UK and many other EU countries … why pay tax at 30/20 or 18% when you you only need to pay at 12% or lower? A company has a duty of care to it's shareholders and paying unnecessary tax is not fulfilling that duty.

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By jon_griffey
01st Apr 2019 16:29

I saw this in TV the other day. It seemed to me that they wanted an awful lot of money for a pile of invoices. I don't suppose they are too careful about the times and places - for example I fully expect that on closer scrutiny that there are supposed cash purchases made in London and Aberdeen within an hour of each other. Worryingly does this mean that accountants offices will be broken into to steal shoeboxes of receipts?

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By Nefertiti
03rd Apr 2019 11:01

I will happily purchase two lots of £800 invoices, can I know which pub to meet the guy in? Thanks.

I feel as much contempt for our government and the HMRC as they display for us on a daily basis.

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By C.Y.Nical
03rd Apr 2019 11:54

'These days, I seem to get most of my best tax avoidance ideas from broadcast media..... a short, sharp investigative piece regarding a sophisticated new tax avoidance scheme.'

Whether this is an April Fool joke or not, the important thing about this article is that it's yet another example of the creeping conflation of tax avoidance and tax evasion. I feel this is a very dangerous trend which must be fought against by all who are in a position to do so.

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Replying to C.Y.Nical:
Hallerud at Easter
03rd Apr 2019 16:12

Not convinced an April Fool, they had an undercover reporter on TV chatting with the seller.

Frankly I am going to stick to raking through service station bins for discarded petrol receipts and collecting those little handy parking slips from bins in the city centre streets.

If I wanted fraudulent invoices I am sure I could just create my own (I have a very passable £20 note that came out of our office copier)

Besides, re vat does each one not need to be £250 or less, otherwise does it not need addressed to the purchaser?

I actually have a confession, I have always fancied having a pop at investigation work from the HMRC side of the fence, have always thought HMRC should entice in a few older , retired,accountants to do the analysis work on some clown's books , tad like the police do on film and in books (Rebus)- some old fashioned, gut feeling, diligence.

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Replying to DJKL:
By I J Lessels
10th Apr 2019 16:37

Who'd want to be Rebus?

I suppose it is better than being Taggart.

Surely you'd rather be Morse, or even Lewis!

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By Justin Tiaras
11th Apr 2019 11:38

In indonesia, there were a lot of cases like this, and people made money off this kind of tax fraud. Can't say i know how they did it, and i think its almost impossible to do this today. I'm quite surprised that i just found an article about this in 2019, not sooner...

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