Subcontractor prosecuted for the fraudulent evasion of tax under the Construction Industry Scheme (CIS) – case dismissed after legal argument
RG was a building subcontractor who was contracted to work on a number of construction projects across the country (including the refurbishment of Westminster Abbey). He was caught up in a large financial investigation by HMRC into the alleged abuse of the Construction Industry Scheme (CIS) by contractors and subcontractors.
HMRC chose to prosecute RG for making false declarations as to his income over a long period of time and for making false declarations as to his business expenses, thereby fraudulently obtaining a tax rebate from HMRC. The charges on the indictment were those of being knowingly concerned in the fraudulent evasion of income tax and the case went to trial at Manchester Crown Court.
Brunskill dealt with the case by conducting a thorough examination of RG’s business affairs and a detailed analysis of the relevant tax regime. At trial, the Crown was forced to concede that (for the period in question) RG was not actually liable to pay any more tax over and above that which had already been deducted at source by the contractor under the CIS. The Defence did accept that incorrect declarations had been made as to business expenses (leading to tax rebates being paid by HMRC) but said that the alleged fraudulent obtaining of a rebate was a different issue to the fraudulent evasion of tax. It was therefore submitted that this particular case could not properly be prosecuted under charges of being knowingly concerned in the fraudulent evasion of income tax.
On realising the force of the Defence argument, the Crown immediately applied to amend the indictment to include charges under section 2 Fraud Act 2006 but the Court refused because the application was made too late in the proceedings. The Court then dismissed the case against RG on the basis that he was not guilty of the charges that were on the indictment.
If RG had faced Fraud Act charges from the outset then it is likely that he would have been convicted on the evidence that was before the court, even though he maintained that his actions were not dishonest. Prior to this case, other defendants who had been prosecuted as a result of the same investigation had not questioned the correctness of the charges and had therefore pleaded guilty (and had been sentenced).
This case demonstrates how important it is for defendants to seek out expert tax lawyers when facing a HMRC prosecution. Any person wanting advice in relation to HMRC issues should contact Michael Brunskill at the earliest opportunity.