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Tax agent accused of dishonest conduct

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23rd Aug 2018
Tax writer
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Andy Keates examines the first disputed case of HMRC using its powers in FA 2012, Schedule 38 to apply civil sanctions against a tax agent for his dishonest conduct when acting for a client.

What is “dishonest conduct”?

The legislation specifies four possible scenarios where action, or omission of acts, by the tax agent may enable the client to:

  • account for less tax than required by law;
  • obtain more tax relief than allowed by law;
  • account for tax later than required by law; or
  • obtain tax relief earlier than required by law.

The dishonest conduct can take the form of:

  • a positive action by the agent;
  • dishonestly omitting to do something; or
  • advising or assisting a client to do something that the [agent] knows to be dishonest.

It doesn’t matter whether the action/omission actually succeeds in bringing about a loss of tax revenue; what matters is the intention behind the action.

The tax agent may be guilty of dishonest conduct even if he claims to be “only following the client’s instructions”.

What can HMRC do?

Schedule 38 of Finance Act 2012 provides HMRC with powers to take steps against dishonest conduct by tax agents. These civil powers are an alternative to criminal prosecution.

The first stage is the issue of a conduct notice, which can only be issued by an “authorised officer”. It sets out the grounds on which HMRC believes the agent has acted dishonestly.

The agent has the right to appeal against the notice within 30 days of issue, and any further steps, such as obtaining the agent’s client files, issuing financial penalties or publishing information about the agent, can only be taken once the appeal has been settled.

A conduct notice was issued to Rodgers on 13 September 2016. He asked for an internal review, and then appealed to the first tier tribunal (TC06617).

What had Rodgers done?

Rodgers acted for Ferguson for both VAT and income tax returns. Ferguson’s business records included a number of false purchase invoices for expenditure which he never in fact incurred.

These enabled him to boost his input VAT and to understate his trading profits between 2011 and 2015. HMRC calculated that the VAT liability was understated by £12,000 and the income tax liability reduced by £10,000.

During a meeting with HMRC to discuss the enquiry into Ferguson’s tax affairs, Rodgers confessed that he had created the false invoices on his own computer. He had done this at his own suggestion, in order to help out his client by easing his tax burden.

HMRC confirmed that it would not be seeking criminal prosecution against Ferguson. But the HMRC agent compliance team held a subsequent meeting with Rodgers regarding his part in the affair.

Rodgers asked the officers whether he would face prosecution; they responded that “it had been decided not to prosecute based on the information currently held but that [Rodgers] should not destroy any documents and HMRC reserved the right to consider criminal proceedings if a full disclosure of any dishonest conduct was not made”.

Once again, Rodgers confirmed that he personally had produced the false invoices, and that it was his idea to do so as his client did not have sufficient knowledge to do this.

Why did Rodgers appeal?

His grounds for contesting the conduct notice were:

  • He had been given unequivocal assurances that he would not be prosecuted, so that the issue of the conduct notice was a breach of a promise; and
  • Although he assisted his client to understate his tax liabilities, his actions in so doing were not deliberate or dishonest.

Rodgers did not attend the hearing, so the tribunal was unable to question him more closely, particularly on the second claim.

Judgment

1. Assurances of non-prosecution

HMRC’s reassurances on criminal prosecution at the first meeting were addressed only to the client. Since Rodgers had not at that stage mentioned his own conduct, it is hard to see how he imagined that he was included in them.

Neither then nor at the second meeting (which did directly address Rodger’s own involvement) was any suggestion given that HMRC would refrain from using its civil powers. Indeed, at the second meeting HMRC specifically discussed the actions available to them from FA 2012.

2. Actions not deliberate or dishonest

The judge noted: “To create and submit documents knowing them to contain false information and with the intention that HMRC would rely on them to calculate tax liability, with the potential or likely consequence of the right amount of tax not being paid to the exchequer, would be characterised as dishonest by any ordinary standard”.

Given that the job of a tax agent is to ensure that his clients submit knowingly accurate responses to HMRC, it is hard to see how Rodgers could believe his actions to be honest, or how objectively they could be considered honest.

Conclusion

As the appeal failed, HMRC now can take further steps. No doubt a penalty (between £5,000 and £50,000), and some “naming and shaming” will follow.

HMRC will also look very closely at Rodgers’ files for every single client he has ever acted for.

It is regrettable that the first FTT outing for this piece of legislation should have featured an appeal of such scant merit.

Replies (25)

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By Justin Bryant
25th Sep 2018 13:38

"It is regrettable that the first FTT outing for this piece of legislation should have featured an appeal of such scant merit."

I disagree. The case I think very helpfully shows that the dishonesty hurdle is (quite rightly) a very high one for HMRC to surmount (i.e. this case is an (extreme) exception that proves that rule) and claims by HMRC re dishonest conduct in any form should be strongly resisted where appropriate (as in the recent Cannon case where the taxpayer ended up getting awarded costs for HMRC's wrongful dishonesty accusations).

We also have the recent Tager CoA case very helpfully confirming that reckless negligence by a taxpayer is not dishonest conduct.

Another example of an extreme case showing that allegations of fraud/dishonesty require cogent evidence is in the link below (where fraud/dishonesty is admitted):

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10674/TC0...

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By AnnAccountant
23rd Aug 2018 11:02

If the creation of false invoices isn't prosecutable then I don't know what is. I can generate some sympathy for Inspectors when you get a glimpse into some of people they have to deal with and the rubbish and lies that get submitted to them.

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Replying to AnnAccountant:
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By Vaughan Blake1
23rd Aug 2018 13:47

The fact that Rodgers then tries to argue that his actions were not 'dishonest or deliberate', shows a spectacular failure for a professional accountant. He should have been prosecuted without doubt.

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Jennifer Adams
By Jennifer Adams
23rd Aug 2018 14:23

I suggest all look at the Tax case as per the link as it makes for interesting reading.
It all stemmed from a VAT enquiry on the client.
The tribunal bent over backwards (as indeed did HMRC) to get Rogers to come to the hearing even setting up a teleconferencing facility but he didnt appear although he did submit a written appeal. HMRC officers visited and promised no criminal proceedings but confirmed civil.
But the question that was not asked by the Tribunal (as that was not the point of the hearing) was why? why did he do it? Was the client worth all this grief? He doesnt appear to have benefited financially or otherwise so what was the client to him? It would be interesting to know.
Without going into the qualified v non qualified argument yet again please (!) I trust that whichever Institute Rogers is under take notice, fine and disbar.

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By ireallyshouldknowthisbut
23rd Aug 2018 16:00

Wow, that is unbelievable that accountants would deliberately commit fraud in that manner.

And even more unbelievable the guy protested about it!

He cant be very bright.

I wonder what he gets up to with his own accountas.

One hopes HMRC will find out and he gets stuffed left right and centre.

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Replying to ireallyshouldknowthisbut:
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By Mrbailey
24th Aug 2018 06:53

I am sorry but it's very credible to me. I have seen everything trust me

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By the_Poacher
23rd Aug 2018 21:26

What a sensible decision. Poor quality agents and the dishonest are a blight on the profession. It's about time HMRC started to give them a good kicking.

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Replying to the_Poacher:
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By Mrbailey
25th Aug 2018 14:48

I am a very honest person and a born worrier. I always comply swiftly and fully when a client is under investigation.
What is sad is that HMRC never go after the agent for being complicit in a tax fraud. By complicit I mean he did not challenge the stark bogus transactions recorded in the accounts. He submitted the figures with no challenge to the client.
A good mind can spot a fraud and let's be honest business men may be able to make money but they are very poor at concealing frauds.

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By Mrbailey
24th Aug 2018 06:23

It can never be about the " institutional accountant " versus the " experienced accountant ".
It must always be about honesty and dishonesty. This chap was dishonest whatever his background or credentials. Tax inspectors understand agents can make mistakes and are reasonable people.
However they deplore crooked agents and rightly put the boot in.

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By Mrbailey
24th Aug 2018 06:31

It can never be about the " institutional accountant " versus the " experienced accountant ".
It must always be about honesty and dishonesty. This chap was dishonest whatever his background or credentials. Tax inspectors understand agents can make mistakes and are reasonable people.
However they deplore crooked agents and rightly put the boot in.
Finally, I have witnessed several accountants submit accounts which have contained substantive blatant bogus transactions amounting to hundreds of thousands of pounds .
This is " turn a blind eye syndrome " These accounants were members of a professional institution I would add.

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Replying to Mrbailey:
By ireallyshouldknowthisbut
24th Aug 2018 11:26

And so you obviously fulfilled your legal and ethical responsibilities in help getting these accountants (if they exist) convicted?

Or did you just bleat about it on the internet?

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Replying to ireallyshouldknowthisbut:
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By Mrbailey
25th Aug 2018 14:59

HMRC convicted the tax payers in question and imprisoned them. In addition hundreds of thousands of pounds plus interest were recovered under the order of a Crown Court judge.
I said to the investigating special compliance Inspector that the firm of accountants should be punished but nothing was done.
I suppose the burden of proof is always an issue.
Re.the accounting firm. I suppose for £8000 accts.fee it's worth overlooking naughty behaviour.

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Replying to ireallyshouldknowthisbut:
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By Mrbailey
25th Aug 2018 15:01

HMRC convicted the tax payers in question and imprisoned them. In addition hundreds of thousands of pounds plus interest were recovered under the order of a Crown Court judge.
I said to the investigating special compliance Inspector that the firm of accountants should be punished but nothing was done.
I suppose the burden of proof is always an issue.
Re.the accounting firm. I suppose for £8000 accts.fee it's worth overlooking naughty behaviour.

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By hiu612
24th Aug 2018 10:56

"66. He stated that when visited by HRMC Officers Newbury and Robinson (in March 2016) they were arrogant, rude and thought threats were the way forward and the Appellant’s only intention was to get them out of his bungalow without upsetting his wife. He had made complaints about their conduct. He stated the notes of the meeting were a complete invention and should not even be allowed to be presented as they were pure fiction. He stated he did not commit a dishonest act but merely tried to help Mr Ferguson which with hindsight was the wrong way to do it but the actions of all HMRC officers excluding Mr Furber were a disgrace and brought the organisation into disrepute."

Hmmm.

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By johnacarpenter
24th Aug 2018 11:33

The question of motive is really important.
It may be that this accountant is acting under duress.
It is possible that he/she is being blackmailed into taking these actions.
That would explain the strange actions and his reluctance to attend the hearings.

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By SXGuy
24th Aug 2018 11:41

"Rodgers confessed that he had created the false invoices"

I'm at a loss as to why he would do it in the first place. I'd simply tell my client ruff, liability is what it is. But let's not take the fact that he addmitrd it away as that is likely the only reason why hmrc could and did go so far with it.

If he felt OK to create false invoices I find it hard to believe he would also admit to it.

There has to be more at play here.

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By Donald6000
24th Aug 2018 12:12

Somerone who creates false invoices with the intention of depriving HMRC of revenue is not really an accountant at all; merely a cheap thief who deserves to be disbarred from the profession. In general one would account for what is there, not seek to make it up. If one cannot account for a client's tax liability using the existing structures and protocols, then one does not really deserve to be an accountant whatsoever.

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Replying to Donald6000:
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By AnnAccountant
24th Aug 2018 13:16

Since regulation is voluntary, is there a way to stop anyone from practising?

I once came across a chap working as a self employed accountant who had been in prison for fraud - committed while a self employed accountant. He just came out of prison and set up shop again.

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Replying to AnnAccountant:
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By Mrbailey
25th Aug 2018 14:37

This is bad.

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By The Black Knight
24th Aug 2018 15:11

eeejit

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By The Black Knight
24th Aug 2018 15:11

eeejit

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By Michael C Feltham
26th Aug 2018 11:55

We are presently dealing with a case where our client was a dupe in a partnership/

Trying to unwind the three years partnership "Accounts" and review what return copies exist has become a long forensic task. Good fees though!

There are NO records or papers whatsoever! Thus we must rely, primarily on the bank account copies: fortunately, no cash transactions in this type of activity.

The surviving partner is our client.

The bank are long winded in producing cheque copies and answering multiple queries on suspicious debits and payments.

It is already abundantly clear that the previous retained "accountant" (Unqualified, no professional body membership) and the retiring partner's wife who ran the office have been in conspiracy to defraud HMRC of tax; file false accounts; and embezzle large sums due to the other partner - our client. As well as defalcation.

Once I have completed the bank analysis I will file a SAR; and then our client will take civil action against the retired partner and the supposed dodgy accountant.

A lot of money is involved.

Fools who wittingly lie, cheat and steal deserve the strongest penalty criminal law can award.

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By Mr J Andrews
28th Aug 2018 12:00

Rodgers ?
Not Buck Rodgers perhaps ?

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By hiu612
28th Aug 2018 14:27

Anyone else find it odd why he created the false invoices and then admitted it?

At phase 1, you just file 9 VAT figures - no need for invoices
At phase 2 (enquiry), you provide some backup to the figures - no invoices needed
At phase 3 (enquiry ask for supporting papers) you need the invoices. Yet as soon as he got to the point of needing the invoices, he quickly admitted they were falsified. He could have got to the same point with no invoices and then just admitted there were no invoices.
Seems odd to go to the trouble of the 'deliberate' and the 'concealment' (to use HMRC parlance), and then to fold.

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By AndrewV12
12th Sep 2018 12:19

Extract above
'Rodgers confessed that he had created the false invoices on his own computer. He had done this at his own suggestion, in order to help out his client by easing his tax burden.'

Rodgers is the sort of wally who would do anything for money. I bet his client had enough to pay the Vat and Tax bill, Rodgers was just a fool, was his fees related to lower Vat and Tax liabilities.

Rodgers was no tax agent, he was just a chancer.

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