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HMRC and COVID-19 Risk



HMRC Directorates


The major directorates in HMRC are: -


  • Large Business;


  • Wealthy and Mid-sized Business Compliance;


  • Individuals and Small Businesses;


  • Counter-Avoidance; and,


  • Fraud Investigation Service (civil and criminal investigations).


These Directorates deal with everything from mistake and error through to legal interpretation.


Criminal investigations and civil enquiries into deliberate conduct or tax fraud is the exclusively administered by 4,500 staff of the Fraud Investigation Service.



HMRC and C-19 Legislative Flexability


Section 76 of the emergency Coronavirus Act 2020 provides “HMRC are to have such functions as the Treasury may direct in relation to coronavirus or coronavirus disease.”


This reflects both the scale of change, and that HMRC has taken on new temporary roles, such as administering the coronavirus job retention scheme.



HMRC’s Practical Support


HMRC has been exceptionally efficient and indeed improved cash flow liquidity for individuals through Furlough CJRS and businesses through grants but also by providing additional time to pay in negotiating civil financial tax settlements following an investigation, or generally in income tax, PAYE or VAT Returns.


But, where HMRC is refreshingly flexible with offering adjournment in standard compliance checks/enquiries, and some flexibility on delivery of FIS COP9 CDF Disclosure Reports, it will crack down on enforcement of FIS investigations when necessary because of an attack/abuse of the system. Think of furloughed employees continuing to work from home whilst the employer claims CJRS.


HMRC compliance with statutory deadlines of course continues to avoid statue time bars for instance.


If you think that HMRC has adopted a more relaxed approach to negotiated tax settlements in enquiry cases and tax investigations then think again. They are strictly prohibited from soft deal-making.


However, I have seen an element of sympathy due to COVID-19 restraints on business and therefore more flexibility on time to pay arrangements as I have briefly mentioned above.


FIS though has maintained its core investigatory work and stepping up its activities to combat those seeking to improperly profit from the new and untested COVID-19 financial support measures announced by the Chancellor. I think we can all appreciate why.



HMRC has not gone soft on Enforcement but finding new ways of working collaboratively  


It is unusual for HMRC to defer the payment of taxes, slowing down on routine civil enquiries and pausing insolvency activity. That is an extraordinary consequence of an exceptional COVID-19 issue.


As most tax advisers appreciate, HMRC compliance activities are proportionate to risk. A strategic approach is put in place - a diagnostic risk Action Plan - which calls on contributions from relevant Directorates I mentioned above.


Traditionally, HMRC launches a campaign, take for instance WDF, which uses a mixture of “nudge” letters. Or perhaps increased CoP9 civil enquiries and/or publicly visible raids to change behaviours in specific sectors or specific tax regimes.


However, there does appear to have been a temporary stay in HMRC requests for information and Schedule 36 access powers. Presumably because of COVID-19 issues, but also security storage problem because if investigators are working from home, presumably in locations not geared-up to GDPR, then where do they keep sensitive data?


Also, remotely accessing taxpayer electronic files presents HMRC with a logistical online problem that has also initially paused and contributed to investigators not operating at capacity. This happened in a CoP9 I was advising on, but the HMRC remedy was swift. Similarly, files of records are being uploaded by DropBox arrangements and again I have been liaising with many inspectors and indeed HMRC Solicitor’s Office using this type of electronic facilities. Virtual Meetings using MS Team is happening, and it is actually saving on travel-related costs – we can also see the colour of each other’s eyes, but remarkably the COVID-19 issue is fostering a positive approach and HMRC should be complimented. Perhaps this will breakdown the barriers, because my current experience is very positive.


However, now is not the time to be complacent as FIS targets more severe risks to the tax regimes, where there is a deterrent message to be sent. Sometimes civil investigations do not work though and HMRC FIS targets a range of diverse frauds and sets objectives to deliver on making a big splash.


Activity involving criminal investigations under the corporate criminal offence (“CCO”) is being leveraged to presumably focus attention on regulatory professions, tax advisers and corporate enablers. These investigations are triggered where the evidence supports HMRC’s criminal prosecution policy, so it is unlikely to take a relaxed approach just because of COVID-19.


HMRC is expecting businesses and their advisers (“regulators”) to look at due diligence and  risk prevention in light of the new risks emerging from COVID-19 – such as checking that home-workers are not continuing to work, or fraudulent claims under CJRS and business grants. Specifically, there should be no Nelson’s Eye to managers encouraging furloughed staff to continue working (or deliberate arrangements to cover-up working). This is potentially an abuse in line with HMRC’s criminal policy, an abuse of the welfare system/COVID Act and s 76 facilitating HMRC to look into cheats and can bring unsuspecting corporate enablers and firms within CCO. Basically, and quite rightly so using a strict liability offence to ensure the COVID-19 relief measures benefit only those businesses and firms who use them correctly.  



Tribunals, Off Payroll Rules and CIS anti tax reduction measures from April 2021


IR35 reared its head yet again (please refer to my blog IR35 and the Inequality of outcome dated 28/04/2020) and tax litigations are being aggressively pursued through HMRC SOLS in the tribunals (first tier and upper tier). However, the basic and standard categories were temporarily postponed to the end of June 2020. Virtually proceedings using technology appears to be the way forward but home-working has put significant pressure on what was already a problem for the tribunal administration with a log-jam of 1000s of appeals cases.


The Government adjourned IR35 Off Payroll Rules in the private sector but pronounced it was to start in April 2021. Jesse Norman pronouncing this on 27 April 2020 and on the same day as the House of Lords Report was published. It appears to be a default veto exercised by the Government.


There are proposed changes to the Construction Industry Scheme (CIS) that has not seen a facelift since 2006/2007. Tax advisers may recall that old-new CIS introduced a verification test required due to issues in the supply chain. The new-new CIS proposed changes include a new power from April 2021 allowing HMRC to refuse sub-contractors CIS deductions in real time where HMRC “suspects” inaccurate amounts have been claimed/withheld. CIS abuse of gross payment status, payments by contractors by cheques cashed-in at cheque shops have always been a potential abuse of the tax crediting system. In addition, the government is considering measures (to be introduced at a later date) which would require large contractors to conduct more extensive due diligence on their supply chain, which sounds familiar to VAT tax advisers as the proposed checks are akin “KYC” checks regarding MTIC.



COVID-19 Relief Risk


Reports of new COVID-related risks are being reported everywhere - emerging as the bulk of the Covid-19 business support measures introduced in March 2020 being rushed through without an HMRC impact assessment or fraud prevention stress testing. They were designed and implemented at a rush. That is not intended to be an inflammatory statement because speed was of the essence. However, that potentially created [SWOT] situation if CJRS etc vulnerability was/is being exploited.


It is astonishing in these despairing times that fraudsters are using COVID-19 lures masquerading as worthy causes to con people and the Government. The crisis in 2008 apparently exhibited such tendencies.


HMRC will come down hard on abuse of COVID reliefs.


PAYE Real Time Information, registration on Payroll before 19/03/2020, prior authentication tests by the employer, verification tests and validity tests following CJRS payments and Grants with criteria being satisfied, may not immediately identify sophisticated abuse.


Enter HMRC’s FIS Directorate to track CJRS and self-employed grants on industrial scale abuse. Expect a splash if a regulator is found to be corrupting the system.  


So, my own experience suggests that HMRC has been remarkable, working collaboratively when given the green light or offering to adjourn when necessary to do so, using technology and adapting with tax advisers like me. However, there is no room for complacency and as ever HMRC will rely on action proportionate to the abuse which has been a characteristic of their behaviour for years, but even more in these desperate COVID-19 challenging times.


I am here to help, call me on 07852700634.


Chris Leslie

Director of Tax Networks Ltd

1st May 2020

IR35 and the Inequality of outcome

1. House of Lords Report (released 27 April 2020)


It appears to me that the situation (identifying issues) as put forward in the Lords Report was about an unfair and unjust IR35 regime which has been pushed through by the Government through HMT/HMRC. I rely on the rudimentary ABCs to summarise the Report:


  • A) Coerced commercial businesses enforcing a regime which even the UK Tax Authorities struggled with, so they passed the buck; 


  • B) Has not anticipated the behavioural consequences, or rather it dismisses that inside IR35 blanketing was the consequence; and, 


  • C) Officials foresee no impact on the labour market from the IR35 reforms because HMT/HMRC rely on misguided evidence based on the Public Sector reforms. Even zero rights employment is mentioned (I will come onto this point later).


2. IR35 and safe pair of hands


On mature reflection, and to pause for a moment here, this is in consideration that my informed opinion is based on over 20 years of experience, successful defence at tribunal appeal proceedings, my many publications on other tribunal decisions, and general experience in dealing with 100s of status issues.


3. Pronounced timing of Jesse Norman's statement to Parliament


On the same day as the House of Lords Report, Jesse Norman pronounced to Parliament that the Private Sector Off Payroll reforms will go ahead in April 2021.


When questioned by Roger Gale MP:

  • Question: To ask the Chancellor of the Exchequer, what recent assessment he has made of the effect of IR35 tax reforms on the economy and flexibility in the workforce?


Jesse Norman’s response , included:

  • Response: “Independent research on the impacts of the reform in the public sector has suggested that it did not reduce market flexibility or affect the use of contingent labour."


He regurgitated the same anecdotal response we have all witnessed before and deeply criticised. We have also repeatedly listened to the like for like comparison regarding tax but disregarding zero rights. Some granular independent research is required.


To paraphrase, the Off Payroll reforms constitute inequality of outcomes, such as: -

  • I. Complexity dovetailed with uncertainty regarding interpretation of case law and all-circumstances as required by the “IR35” legislation.


  • II. Lacking an independent and robust status dispute process.


  • III. Contractors plug the skills gap, paid premium rates for doing so and in exchange sacrifice employment rights.


It is not a like for like comparison.


4. A doctrine of unfairness and injustice – the Off Payroll Reforms


Standing back, singularly the most disturbing fact is those employers/end clients who are blanketing IR35 reforms or have in the past been responsible for pushing individuals into intermediaries to save on employers NICs (and avoidance of employment rights and statutory sick pay and holiday pay etc) have not been “sanctioned” as the contractor carries the burden.


Consequently, the future of Status Decision Statements (SDS) has led to blanketing because it is too complicated and less tax risky.


It should come as no surprise to anyone that some people are much better at doing a given task, no matter what it is, than others and, because of that, it is in everyone’s selfish commercial interest, in the narrowest sense, to allow such talent to deliver contracts for business services to plug the skills gap so that we can all benefit. However, the terms they operate under mean that those micro-businesses have the perennial problem of business development and generation of further work – just at a time when their contract is concluding.


Of course, this is still in a highly regulated working environment and those regulations apply equally to employers, clients, employees and the self-employed.


However, the contractual frameworks they operate under are there for security and to protect the clients who pay premium rates to engage skills that may only be temporarily required, pro-rata payments, and termination without retention (to use and abuse the skills and experience - see my RALC v HMRC defence submissions).


Now, that also happens to be good for each party, but an equally powerful case can be made that it is true that it benefits the public and private sector economies. This means that no person should ever be denied an opportunity for progress through a personal services company in a productive direction. Otherwise there would be no sole traders, which is quite frankly ridiculous.


5. A brief recap on the Classic employment status test of Sufficiency


So, personal service is a negative condition of employment, but genuine Substitution is determinative of self-employment in an IR35 sense.


Further, the classic Ready Mix Concrete case informs us that for an employment status ruling there needs to be a sufficient framework of Control and sufficient stronger Mutually of Obligations than contract MoO (contract MoO tells us nothing about the nature of the engagement – sufficiency).


But, of course the third limb of RMC is to test whether any other factors sufficiently oppose employment status, such as being on business on your own account, exposure to financial risk etc.


Given that genuine Personal Service Companies take the risk and back themselves, then why not reward the participating director by distributing hard earned profits by way of a dividend? The doctrine of reaping a dividend from distributed profits (or retained profits) is not new. What is fair about public sector workers being paid when they do not turn up for work if they are unable, or not being furloughed, and people in business having to solve many complicated problems to cover costs without a comfort blanket? Try arguing that one with me and I will give you short shrift.  It is not a like for like comparison, is it?


To put it another way, that movement forward towards production of individuals delivering services without employment utility should never be interfered with by arbitrary prejudice such as deeming employment through IR35 and its many reforms (or rather sticking plasters on the open wounds of bad tax legislation).


However, end clients should not be complacent. Given Jesses Norman’s pronouncement in Parliament on the day the House of Lords released their highly critical Report on the Off Payroll Reforms, then reasonable care is not just about using a CEST tool that fails to cover MoO and fails to consider all the relevant circumstances, or blanketing by issuing inside IR35 SDSs.


I am here to offer my support, interested?


Chris Leslie

Director of Tax Networks Limited

28th April 2020  

COP9 (HMRC Suspicions of Serious Tax Fraud)


Code 9 or "COP9" is an HMRC civil investigation route. 

Broadly, it is a last chance opportunity to regularise the tax position without going down the perilous criminal investigation route. This can be a voluntary decision or HMRC may have already opened an enquiry/tax investigation. 

Timing with candid/pragmatic advice is essential.


HMRC can and do fish...mere "suspicion" opens up information and access powers for HMRC investigators. They will not simply go away with a crafted letter. An evidenced-based approach is required by an experienced professional.

At times HMRC investigators lack technical appreciation of discovery statute. They are experienced and operate at a high level and we have estblished senior contacts.

Pragmatism is an essential ingredient in facilitating safe passage to reach a conclusion.

Essentially, we are advocates, defend clients and advise options together with entering into HMRC's Contractual Disclosure Facility ("CDF"). This is an entirely formal process and not a cost-free environment. It involves an adoption report. We shoulder the burden for the "temporarily adopted" client. 


The COP9 CDF process has stages which involve:

  1. Clearance from HMRC to trigger an HMRC CDF Offer;
  2. Materially complete Outline Disclosure of the tax fraud and other tax irregularities;
  3. HMRC CDF acceptance; 
  4. COP9 Scoping Meeting; and, 
  5. Proportionate, but robust Report.

The negotiated settlement is subject to HMRC scrutiny of the Report with Certification and a negotiated settlement exit. 

Case management of COP9 and HMRC Fraud Investigation Service (incorporating Proceeds of Crime/Criminal Taxes Unit) and dealing with such matters are shark-infested waters and unfamiliar territory for many accountants and other professional firms. 

With complex document-heavy cases involving multi-exit strategies these HMRC matters can quickly become time-consuming and stressful for the client and uninitiated. 

Our experience is technically extensive, but pragmatic in reaching a negotiated conclusion for those who are under HMRC scrutiny. 

We provide support and expertise including an effective strategy, preparing disclosure reports, negotiating exit settlements and penalty mitigation with time to pay. 

For those requiring a preliminary meeting please contact Chris Leslie. 

Chris leslie's background: With a First Class Honours in Computing Systems Analysis and 23 years experience, Chris took up an offer outside HMRC. Tax Networks Ltd was incorporated and for many years Chris has been advising/negotiating on the full spectrum of HMRC tax investigations to defend clients and regularise the position. 


M: 07852700634 


Chris Leslie "as featured in The Barrister Magazine"

As I’m currently representing a couple of barristers in two separate CoP9 tax investigations I thought it was the right time to write an article.

The Barrister Magazine haven’t wasted any time and they have published my piece online. See link:-

I have spoken to the publishers of The Barrister Magazine and they said it was well written, which is why they were happy to put it straight out.

Sounds like The Barrister Magazine would be up for a follow up piece again. They have also tweeted it, and put it on Facebook.

I’m also fairly prolific publisher on Linkedin.

Clearly, my objective is to generate interest in my business and I can also now refer to the article in future approaches “as featured in The Barrister Magazine”, which should give some real kudos in what is a very closed community.



HMRC Raid on Football Clubs – snatch of the day

Image Rights, Salary and Taxes

A footballer’s "image" creates a "value" which the Club pays to endorse and promote a number of specific commercial deals. The value is what the Club expects to generate and pays the player for those rights.

That value is transferred to the player’s personal image rights company and the contract with the Club limits the player’s personal deal options, such as the player cannot endorse another sponsor or seek to share in revenues from other personal deals.

Standard Premier League employment contracts are generally restrictive and it is crucial for the Club to contract separately with the player's image rights company to have control of those rights to endorse particular products and services.

Consequently, a player's engagement terms are likely to be an employment contract with an image rights agreement being separately negotiated.

Clearly, this is a matter which is open to abuse and where the salary is reduced and the image rights inflated, then that becomes a tax issue - a matter HMRC will scrutinise at every turn.


Consequential taxes and benefit to the Club

In terms of taxes, PAYE and Employees NICs are deducted from the payments to the player, but the Employer’s NICs increase the total cost to the Club; however, the image rights payments are charged to corporation tax by the player's image rights company – the Employer’s NICs savings to the Club are considerable.

However, there needs to be commercial justification how that deal had been valued and how the club had exploited those rights as part of its wider commercial strategy. 


HMRC's Capped Deal - the image rights offer

HMRC and Clubs understand that higher profile players are marketable assets off the field and commercial partners are keen to engage with high profile clubs.

If proportionate, there were legitimate ways to structure payments to players for performance and also image rights in return for endorsing particular products and services.

Broadly, I believe HMRC's offer to all Premier League clubs was capped:-

  1. The Stage 1 Cap was that a club can make a maximum total image rights payments to all players image rights companies of 15% of commercial income. For example if the commercial income is £100M, then the maximum payments to image rights companies are £15M.
  2. The Stage 2 was the player cap as 20% of the total salary payments made to a player in the tax year.
  3. Clubs needed to write to HMRC if they wanted to take up the image rights offer.



Many footballers will not be UK domiciled for tax purposes and will hold their image rights through a non-UK company. This may mean that the payments escape UK taxes altogether.

Generally, if an image rights deal with HMRC and payment arrangements were deliberately falsified (or breached) resulting in tax consequences that deal is open to an HMRC tax fraud investigation. Also, any diverted/off-record payments to evade tax will be subject to an HMRC tax fraud investigation, which may result in criminal prosecution.


Chris Leslie, Director for and on behalf of Tax Networks Ltd

(M) 07852 700634 and




Twitter @ChrisALeslie

The PART 7A loan charge – a recent hokey cokey


What is a typical disguised remuneration (“DR”) avoidance scheme?

Using an Employee Benefit Trust as an illustration, consider that the flow of payments from the company to a Trust and onward to family Sub-trusts for funds (described as “loans”) then to be deposited in the participator’s personal bank account is regarded as a disguised remuneration (“DR”) scenario.

The loans are rarely/never repaid and remain outstanding. Sometimes a commercial rate of interest is charged or otherwise the beneficial (“cheap”) loans are treated as a P11D Benefit in Kind and income tax is paid annually.

NB. The above refers to Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

FB 2017 No. 2 and the hokey cokey

The Financial Bill 2017 (No. 2) axed many of the proposed clauses in the Resolution and our friends at the CIOT provided an excellent summary of what was “In” and “Out” (and shake it all about).

Take for example clause 48, broadly Schedule 16 triggers a new tax charge introduced on DR loans that are “written off”. However Schedule 17 intended to trigger a new tax charge on DR loans outstanding on 5 April 2019 (‘the loan charge’). On 25th April 2017 the Schedule 17 resolution for Finance Bill 2017 was chopped. Before celebratory champagne corks are popped while dancing the hokey cokey, I would suggest that the (“DR loans outstanding”) matter will/must be revisited later when the new Parliament sits following the 8th June 2017 General Election.  

Employer PAYE & NICs

The tax charge includes not only PAYE employment income taxes, but Schedule 16 of Finance Bill 2017 (No. 2) regarding the Part 7A charge will also include Class 1 NICs in the appropriate circumstances. Where these changes result in a charge under section 554Z2 ITEPA 2003, as amended, a NICs charge will arise due to Regulation 22B of the Social Security (Contributions) Regulations 2001 (‘Regulation 22B’). This regulation treats the amount of the PAYE employment income under section 554Z2 as earnings for, both primary and secondary, Class 1 NICs purposes.

The reasonably informed reader will realise that the tax charge operated under the PAYE and NICs regulations are operated by the Employer Entity.

Financial distress

The UK is in financial distress and therefore HMRC is the enforcement authority tasked to recover taxes. This is easier said than done when considering the litigation of tax avoidance schemes is both costly and time consuming. Enter a new tax charge – Accelerated Payment Notices (“APNs”).

Broadly, DOTAS notifiable tax avoidance schemes attracted APNs and in the illustration above the Employer Entity has been ruthlessly pursued by HMRC. In some cases this has resulted in insolvency proceedings.

But hang on, where can the Insolvency Practitioner go to where there are no funds left in the company to pay the creditors, including HMRC which since September 2003 has been a non-preferential creditor but armed with a raft of recovery powers? After all, Schedule 17 was axed (but even if it had not, the PART 7A charge was to be attracted at 5th April 2019 anyway) and despite both the 2015 and 2016 Budget promises there is still no statutory instrument to transfer PART 7A PAYE/NICs to the director.  

In summary

The informed reader will realise that DR is pointed at PAYE/NICs and logically dismisses the loans theory and therefore no indebtedness attributed to a director loan account ("DLA"). Using this "logic", it follows that unless the directors were wilful, the existing insolvency powers and HMRC Regulatory 72/81 and NICs equivalents may be ineffective and no claw-back from the director.

I suspect that Parliament has a mountain of tax legislation to consider, but meanwhile the liquidators and directors appear to be in a limbo situation with HMRC pressing hard to recover taxes from a nonsensical situation as sticky as sticky the stick insect got stuck to a sticky bun.

Please contact me if you need assistance in unravelling complex tax-technical matters or an HMRC tax investigation that has gone wrong.