Henry is the UK national tiddlywinks champion and sidelines as a crochet presenter for the renowned worldwide hobby megastore chain, Multi-knit. Readers may be very surprised to learn that Henry, a UK permanent resident, who is quite unworldly, is as financially successful as many international footballers. Following a recent discussion with his agent, the very worldly Wolsey, Henry concludes that he really is paying too much UK tax. He contacts an internationally renowned accountant, Thomas Cromwell, and asks for advice as to how best to manage his tax affairs. It would be fair to say that the opportunist Cromwell is not Her Majesty’s Revenue and Custom’s (HMRC) favourite member of the accountancy profession.
Cromwell advises Henry to arrange for his earnings and royalties to be paid into an offshore account established in a recently created tax haven on the Isle of Sheppey just off the Kent coast. In line with Cromwell’s very brief advice an arrangement is made whereby he will draw sums of money from the offshore account as loans. These are organised as part of a complicated scheme that has 12 constituent elements all of which appear to be couched in rather obscurely drafted legal and financial jargon which Henry signs up to but does not even remotely understand.
Six months ago, Henry was surprised to find his photograph on the front page of that well-known British broadsheet, The Daily Stench, which reports that he earns twice as much as he actually does and portrays him as an unscrupulous tax dodger. Unsurprisingly, he is contacted by a Senior HMRC official, Thomas More, who heads up a high end investigation team on the very same day that the ostensibly reliable broadsheet, The Daily Humanist carries a similar story and also provides a damning editorial.
In due course, the overzealous More who is aided by is rather two less than efficient subordinates, Empson and Dudley, determines that Henry owes £100,000 in undeclared taxes. Additionally, although HMRC decides against a criminal prosecution, during an interview with Henry which is conducted under caution, Dudley makes it abundantly clear that he considers his interviewee to be “crooked” and warns that “the criminal path may yet be pursued”. There is much talk in HMRC circles of this being an important “test case” and of it raising “points of law of general public importance”.
Advised by Wolsey, Cromwell and a solicitor who specialises in offshore tax arrangements, Cranmer, Henry launches an appeal in respect of HMRC’s determination. In the face of strident position from Cromwell, he instructs Cranmer to brief a highly accomplished tax barrister, Robert Aske, who is thought by many to be a man of complete integrity to represent him at the tribunal.
In the course of preparing for the tribunal hearing, the very thorough Aske secures an adjournment and goes through all the paperwork very carefully. He reminds his client that there is a difference between legitimate “tax avoidance” and plainly wrong “tax evasion” . He also advises that in most respects the initial arrangements that were put in place by Cromwell are unorthodox but legitimate. His one concern is that the 8th of the 12 elements is very questionable and he concludes that there could be some element of tax evasion. This is something that More and his team appear to have missed. Also to the consternation of Cromwell and Cranmer, Aske advises Henry to arrange for his accounts to be independently audited by the renowned forensic accountant, John Fisher.
Fisher confirms Aske’s advice in respect of the above-mentioned point 8 and advises it would be appropriate for Henry who can easily afford to do so to offer to pay £30,000 to HRMC in full and final settlement.
Additionally, although Fischer confirms that Cromwell’s tax scheme is otherwise legal, he advises Henry that his method of accounting is not and that by dint of some shoddy bookkeeping and a significant element of overcharging, he has effectively duped his unsuspecting client out of £8000.00.
Pending the tribunal hearing, approaches are made to HMRC. However, by this stage, there have been further “revelations” in both The Stench and the Humanist. Such is the strength of a second Humanist editorial which is reported on national television that Aske questions whether his client will receive a fair hearing and requests an immediate mediation.
More’s team have not really put their case together properly. Before the start of any meaningful dialogue begins, the barrister appointed by HRMC, the very pragmatic Norfolk, advises that he thinks the case against Henry is founded on “rampant hysteria” and that what he terms “ill-informed media” have scuppered his client’s case. However, Norfolk also rejects the offer of mediation out of hand on the basis that “things have got past that stage”.
The very stressed Henry who is finding it difficult to make sense of any of this and “just wants things to end” fires Cromwell and “puts the whole thing down to experience.” He instructs a new accountant, Richard Riche, and gets his affairs in order but no offer of payment is made to HMRC and effectively, Cromwell is £8000 to the “good”. The abortive HMRC investigation process has cost many thousands of pounds of tax payers money, Henry has paid out almost as much in legal and accountancy fees as he ostensibly owes in unpaid tax and More and his team simply carry on as before. All the talk of “test cases” and “important points of law” is forgotten.
How different things might have been had the option of #mediation been pursued. Henry should perhaps have known better but in reality, he was swayed by Cromwell’s “superior” knowledge and probably acted in good faith. He was quite happy to accept Aske’s advice and a bit of “mediation common sense” would have saved the day.
At no point did the disputing parties ever interact or communicate properly. Effectively, unwarranted press intrusion distorted matters to the point that “people get away with things that they should not have got away with”.
ADR Accredited Civil and Commercial Mediator, Certified Accountant and member of the Chartered Institute of Taxation (former Chair of the East Anglia Branch), university lecturer and trainer and a member of the CIOT Dispute Resolution and Litigation working group.