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CJRS: Taxpayer must not redact bank statements

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An IT support company wasn’t VAT registered and hadn’t submitted corporation tax returns for some years, yet it claimed £73,000 in CJRS grants, so HMRC demanded sight of its bank statements.

25th Oct 2022
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The coronavirus job retention scheme (CJRS) paid out £61bn in 2020/21 as furlough grants to employers to support jobs during the Covid pandemic. HMRC estimates that approximately 8.7% of that sum (£5.3bn) has been lost through fraud or error.

The first tier tribunal (FTT) case of Fresh Consulting and Support Ltd v HMRC (TC8606) illustrates how difficult it is to track that fraud and recover the money.

Facts

The FTT found the following as facts regarding the company:

  • It had deregistered for VAT in 2014
  • It had not submitted a corporation tax return since 2016
  • It submitted CJRS claims of approximately £73,000 for periods between 16 March 2020 and 30 September 2021

In October 2020 HMRC informed the company that it would conduct a compliance check. In November 2020 HMRC asked for copies of bank statements. The company refused to provide those statements.

HMRC issued an information notice requiring production of bank statements, a description of the business activities, a breakdown of how the CJRS claims were calculated, and information about certain employees included in the CJRS claims.

Redaction recommended

Casey Farquharson, the company’s director, was a member of the Federation of Small Businesses, and this entitled him to seek advice from Markel Tax. Under this arrangement Farquharson was apparently advised to submit redacted bank statements.

HMRC had asked for a full set of bank statements covering the period from 16 March to 31 December 2020, but the company provided only certain statements in that range, and those statements it did provide were heavily redacted. 

The company also appealed against the information notice.

Hearing in person

FTT hearings are now routinely conducted online using the cloud video platform (CVP), and the tribunal will seek views of the participants as to the most appropriate manner of hearing a case before listing the hearing.

  

Fresh Consulting and Support Ltd, the taxpayer in this case whose business was IT support, said it did not have the capability to participate in a video hearing, so the hearing was listed to be conducted in person. In spite of these special arrangements, neither the company or its representatives attended the hearing and they could not be reached on the number provided.

FTT decision

The FTT confirmed its view that payments made under the CJRS can lawfully be the subject matter of an information notice.

Bank statements are statutory records for a business, and as such a taxpayer cannot appeal against an information notice that requires production of bank statements, as they are reasonably required for checking the taxpayer’s tax position. The FTT therefore struck out the appeal in relation to the bank statements.

The FTT considered whether the company could satisfy the information notice by providing a carefully curated, incomplete, and discontinuous run of statements, which were heavily redacted. It concluded that it could not.

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Replies (28)

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the sea otter
By memyself-eye
25th Oct 2022 14:32

What's the betting not one penny will be recovered?

Thanks (14)
Replying to memyself-eye:
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By Aprid
26th Oct 2022 11:04

Exactly, same old story I expect. No money recovered and director disqualified for a couple of years . HMRC hails as success.

Need to start chucking criminal prosecutions and jail terms around to make people pay attention, rather than it being a game to steal other law abiding taxpayers money with no real consequences.

Thanks (8)
Replying to Aprid:
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By GDavidson
26th Oct 2022 11:29

Why is it HMRC's fault when people break the law? Isn't it the crooks fault?

Thanks (3)
Replying to GDavidson:
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By Red1960
26th Oct 2022 12:12

It is the crooks fault but the simple fact is that by failing to take action to ensure compliance HMRC is complicit in creating an environment which facilitates and encourages non compliance.

You might say that this is because HMRC is prevented from policing compliance effectively because it is allocated insufficient resources.

If it is a political question you should be asking the question who benefits from non compliance?

That will give you the answer as to who is responsible for such breathtaking non compliance and how it is encouraged.

Thanks (3)
Replying to GDavidson:
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By Aprid
26th Oct 2022 12:16

I see the issue being the penalties are inconsequential and the criminal fraternity know this so alter their activity accordingly.

HMRC have power to bring criminal prosecutions and rarely seem to. Let's at least make it a bit risky for the criminals rather than a one way bet.

Thanks (3)
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By Hugo Fair
25th Oct 2022 15:11

This (the behaviour and decision to go to FTT) is what one sees more and more of nowadays ... and IMHO has a direct correlation with the perception that HMRC has insufficient resources (or desire) to tackle more than a minute %age even of the cases it manages to identify.
This isn't helped by HMRC's poor decisions (which get reported) when it wastes money on dubious positions - adding to the feeling that they are serial losers.

The net result is a sense (by some) that the odds are strongly in favour of 'getting away with it'.
Of course that still doesn't explain the behaviour and lack of engagement in this case (apparently under advice!) ... but I suspect you'd need a psychologist to throw light on the cause!

Thanks (13)
Replying to Hugo Fair:
Tornado
By Tornado
25th Oct 2022 18:14

.... dubious positions

I think we all know about those.

The basic problem is that almost everything we do these days is governed by complex rules and laws that very few people understand, particularly those that are supposed to enforce them. The net result is that anyone who wants to try and get-away-with-it more often than not will succeed, and thus these practices will flourish.

I doubt things will change much in my lifetime, but at some point we will desperately need simpler more effective rules and laws to avoid complete chaos.

Thanks (11)
Replying to Tornado:
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By Postingcomments
26th Oct 2022 16:31

Maybe, in the future, an AI Bot will automatically deduct money from your bank account if it judges you have stepped out of line. No appeals. No refunds.

Thanks (0)
Replying to Postingcomments:
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By Hugo Fair
26th Oct 2022 17:08

Already exists (in China) ... where it can also pay money into your account for 'good behaviour', but mostly determines how many points with which to 'fine' you for any non-cooperative behaviour (resulting in certain amenities being withdrawn and/or money deducted as per your suggestion)!

Thanks (1)
Replying to Hugo Fair:
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By gillybean04
26th Oct 2022 21:41

Probably was on advice - not to self incriminate.

Thanks (1)
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By GHarr497688
25th Oct 2022 15:34

How could HMRC allow this company to be so far behind and then pay out Grants - I don't get it . Does Fraud now Pay ?

Thanks (25)
Replying to GHarr497688:
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By Springfield
26th Oct 2022 10:40

Exactly. Even allowing for how quickly the scheme had to be set up, there's no excuse for not having the most basic criteria in place for checking authenticity of claims. Companies House checks, HMRC's own VAT, CT and PAYE records and a liaison point within each bank could/should have weeded out most ineligible/unlawful claims at the outset.

Just goes to prove that the easiest job in the world is spending someone else's (ie tax-payers) money.

Thanks (3)
By Duggimon
26th Oct 2022 10:06

Sorry, am I missing something obvious here, the company submitted £73,000 in CJRS claims - did these or did these not match the RTI filings before the CJRS, confirming entitlement, and during the CJRS, confirming payment, or at least reporting of payments, to the staff for whom it was claimed?

Surely that's the first point for the compliance check, and is information HMRC already have. The rest of this has nothing to do with the CJRS, it's just an incalcitrant taxpayer refusing to provide information requested by HMRC.

Thanks (14)
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By tracey2412
26th Oct 2022 10:32

part from what Duggimon says about first checking RTI submissions & then the relevant employees tax records for employment pay in the period and wondering why any company so far behind with submissions like GHarr says, I'm puzzled as to what VAT has to do with CJRS? superfluous information?
Happy to be educated in case I missed something?

Thanks (0)
Replying to tracey2412:
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By malc_b
26th Oct 2022 10:45

This is a covid support payout, "please pay my workers as the company cannot because *it is not trading*" . The not trading is the important bit or at least AFAIR not trading to the same extent as pre covid. VAT reporting would show trading sums before and during covid so indicate if company was still trading to the same extent. Bank statements would also indicate if company was still trading at the same level or at least at a level that could be same as before. As with any grant or public money it is up to the claimant to prove their claim. The redacted payments in the banking statements are very suspicious, I would suggest, of trading still occurring.

Thanks (2)
Replying to tracey2412:
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By Springfield
26th Oct 2022 11:02

The VAT reference was just a part of the HMRC's Officer's bundle of background documents provided to the Tribunal about the company and had no bearing on the case itself. However, the full Tribunal decision is quite illuminating, and unusually for me, I am in full agreement with the Judge's patience, reasoning and decisions.

The involvement of the FSB's tax advisors needs a bit more scrutiny here as they are chastised (item 58) as to their role in this debacle.

But, as said earlier, some basic checks should have prevented this company getting anyway near to be being paid £73,000 of tax payers money. The onus should always have been on all claimants being able to prove they were entitled to payments, not HMRC subsequently having to prove they weren't.

Thanks (2)
Replying to Springfield:
By Duggimon
26th Oct 2022 11:24

Springfield wrote:

But, as said earlier, some basic checks should have prevented this company getting anyway near to be being paid £73,000 of tax payers money. The onus should always have been on all claimants being able to prove they were entitled to payments, not HMRC subsequently having to prove they weren't.

Agreed, however there is nothing in the report to suggest they were not entitled. There is literally no mention of whether there were staff on the payroll entitling them to the CJRS grant money, or whether any of the grant money was paid to those staff. All that's mentioned is some entirely superfluous information that has no relevance to the central question around the CJRS.

I agree they sound circumstantially like a company which needs to be scrutinised, but there's nothing beyond that in any sort of evidentiary sense.

Thanks (2)
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By Mallock
26th Oct 2022 10:48

I see the company has an active proposal to strike it off at Co's House. Let's hope that HMRC can get in there and determine what has been going on (although I think we already know).

Abuse of the CJRS and tax evasion in general is one of the reasons the UK finds itself with a few more fiscal issues that we would all like.

Thanks (1)
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By indomitable
26th Oct 2022 11:10

And the architect of all these schemes that were just given out to 'any man and his dog' during the pandemic is now the PM of our country.

God help us, although non of the alternatives are any better!

Thanks (8)
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By tedbuck
26th Oct 2022 12:28

It all comes back to basic incompetence by HMRC in doing what they should be doing - monitoring taxpayers and checking that tax is up to date.

I have seen two cases recently - one a PAYE case where the Company has gone bust owing 3 years PAYE. Yes 3 years - only about £19,000 so probably not worth chasing in HMRC's view. But it's the taxpayer's money that has to make up their inadequacies.

The second one was a VAT case where the Company had failed to do VAT returns for about a year and a half. Only about £30K this time so obviously too small to trouble the vAT people - after all the rest of us will have to pay for it as well as the salaries of those meant to collect this money.

Truth is, I suppose, that the computers didn't spot either of these and as no doubt the staff were WFH it wasn't important enough to displace the morning paper.

Or alternatively they were drawing up more garbage on MTD for ITSA.

But at the end of the day it's WE WHO ARE PAYING FOR IT just like all the other fraudulent stuff from Covid.

Time to sack the managers of HMRC and appoint someone with brains.

Thanks (7)
Replying to tedbuck:
the sea otter
By memyself-eye
26th Oct 2022 14:46

I'm free!

Thanks (0)
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By AndrewV12
26th Oct 2022 12:35

'HMRC estimates that approximately 8.7% of that sum (£5.3bn) has been lost through fraud or error.'

And Liz Truss policies were branded nuts, just remind me who was in charge of the Furlough scheme.

Thanks (4)
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By AndrewV12
26th Oct 2022 12:36

Don't blame HMRC, the Furlough schemes / loans were wide open for fraud from day one.

Thanks (2)
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By flightdeck
26th Oct 2022 14:18

I know it was all done in a hurry but when companies applied, they (I assume) had to supply co reg number, VAT number etc. It would have been a 5 minutes job to look up these as at least a rudimentary check? Even I could do that. What am I missing?

Thanks (1)
Replying to flightdeck:
the sea otter
By memyself-eye
26th Oct 2022 14:47

What you are missing is the reality of your first sentence.

Thanks (0)
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By Mr J Andrews
26th Oct 2022 16:52

So - what happens next ? What did the Federation of Small Businesses do about Farquarson's membership ? What did Markel Tax do about the apparent advice they provided to Farquarson that he should redact bank statements requested by HMRC ? Is this normal for Markel Tax ?
Looking forward to the next thrilling instalment and sincerely hope that somehow , HMRC makes up for it's dishing out willy nilly to Farquarson.

Thanks (0)
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By tedbuck
27th Oct 2022 11:23

Given that there are several fairly pertinent criticisms of HMRC's activities in this stream is there not an argument to place the gist of them in front of our new, shiny, grinning Chancellor and ask him to make a priority of getting the Treasury and its minion HMRC to work properly and actually do their job rather than missing all the obvious things that they do, and actually collect the money which they know (or should know) about. It might also help if they answered letters and telephone calls.
Perhaps he could explain to them what a 'service' is so that they can deal properly with their captive 'customers' - the latter word being as insulting a definition of taxpayers as I could imagine. They wouldn't last ten minutes in the real world - about on a par with the energy companies.

Thanks (2)
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By Ian McTernan CTA
27th Oct 2022 22:32

I would have thought that the first stage would be to review the PAYE records and see if the employees existed- and then fire out a few letters to the employees asking what they did during lockdown (bet a couple at least say 'worked from home'). Then you can start to search for other evidence, or even something as basic as timesheets, projects completed, Linkedin history, Facebook history, etc

The issue could be that the company thought the bank statements might show trading in the period they were 'shut' . The problem might be that as an IT type company, they might have a lot of people paying them monthly on contracts- so the business might have carried on 'trading' even though no one was at the office doing any work, or working from home (ok, pretty unlikely for aan IT company).

The FSB's appointed advisers don't seem to have helped at all. It was inevitable that at some stage HMRC would ask for bank statements, as one of the tests to qualify was about trading.

Hopefully HMRC get their objection in on the striking off and chase up on the directors...

Thanks (0)