Accountant fined over failure to co-operate with HMRC investigation - DAC Beachcroft

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Accountant fined over failure to co-operate with HMRC investigation

Published 10 February 2017

Background

HMRC suspected that two of Mr Shah's clients were involved in a £1.2m VAT fraud. As part of their investigation, HMRC served a Disclosure Notice on Mr Shah pursuant to section 62 of the Serious Organised Crime and Police Act 2005 ("the Act").

The Act gives HMRC the power to compel individuals to co-operate with investigations (forcing them to share documents, provide information and respond to queries) if it appears to the satisfaction of HMRC that "that person has information (whether or not contained in a document) which relates to a matter relevant to the investigation of that offence" and that the information held is "likely to be of substantial value."

Mr Shah repeatedly sought to evade being served with the Notice. When he finally responded to HMRC, he lied about the extent of his retainer; falsely claiming that his involvement was limited to providing a basic payroll service, when in fact he had provided a full range of accountancy services to the businesses under investigation.

The Trial

Mr Shah pleaded guilty to failing to comply with a HMRC Disclosure Notice and making false/misleading statements to investigating officers.

When handing down the £25,000 fine, His Honour Judge Topolski QC told Mr Shah: "You said you only dealt with payroll and bluntly you lied….As for culpability, what you did, did impeded the proper, efficient and fair investigation of serious crime." Mr Shah was given 28 days to pay the fine, with an 18 month prison sentence in the event of default.

HMRC Response

Simon York, Director of the Fraud Investigation Service at HMRC said "HMRC is determined is determined to clamp down on financial crime. [The fine] sends a clear message to anyone who is considering trying to cover up tax fraud – nobody is beyond our reach.

If you commit or help others to commit a financial crime, HMRC can and will come after you and you too could end up paying the price."

Analysis

The fine demonstrates the potential repercussions for accountants who fail to cooperate with HMRC. This fits squarely with HMRC's continued assault on tax evasion by targeting those that "enable" tax avoidance and follows on from Theresa May's speech at the Conservative Party Conference in which she promised to "come after" financial advisers who help clients avoid tax.

Given that this is the first prosecution of this nature, it remains to be seen whether the level of the fine will be influenced by the nature of the non-compliance or the size of the accountancy firm affected (or both). The offence carries a maximum sentence of two years imprisonment and/or an unlimited fine (or both). As Mr Shah was a sole practitioner, it is conceivable that the £25,000 fine could represent the very bottom of the scale.

From an insurance viewpoint, a fine of this nature will almost always be excluded by the terms of a professional indemnity policy. This means the accountant will bear the financial impact of the fine, as well as any reputational damage suffered. 

 

Submitted by: Suzanne Wharton, Partner and Mark Cawthorne, Solicitor

Authors

Suzanne Wharton

Suzanne Wharton

Leeds

+44 (0)113 251 4775

Key Contacts

Suzanne Wharton

Suzanne Wharton

Leeds

+44 (0)113 251 4775

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