TAX NEWS - 2010

UK Tax: HMRC's 'process now, check later' approach underfire

A finance expert has questioned HM Revenue & Customs' "process now, check later" approach to tax returns, after an accountant was jailed for stealing £11m in income tax and value added tax by manipulating his clients and his own tax forms.

Sue Moore, associate director for Baker Tilly Tax and Accounting, said the case underscored the importance of getting proper tax advice before completing tax returns and verifying those returns.

Her comments came as Christos Charalambous completed more than 6000 self-assessment tax returns for clients, which included fictitious expenses claims in order to increase the tax repayments due.

She added: "Self-assessment is exactly what it says - the individual has to self-assess their tax based on their circumstances. HM Revenue & Customs receive the returns on a 'process now, check later basis'. The fact that Christos Charalambous has been caught shows that the 'check later' process does work, albeit with a time delay.

"The long jail sentence is a clear signal that tax evasion is criminal and will not be tolerated. The message to anyone seeking a tax adviser is to choose one with a professional qualification where there is less chance of suffering fraud."

The 58-year-old Charalambous of Palmers Green, London, was jailed for eight years after he understated the income he received from client fees on his personal returns and failed to register, declare and pay VAT due on his accountancy firm, Charltons.

Many of Charalambous' clients were from other EU countries and had little understanding of the UK tax system.

Blackfriars Crown Court heard how Charalambous had submitted tax returns for his clients to the Inland Revenue until April 2005, and HMRC from the same time period, without showing his clients what information he was including.

He would then receive the repayments from Inland Revenue and HMRC, deduct a minimum of 15 per cent fee and repay the remainder to his clients, who would not question the amount refunded as they trusted him to complete the returns correctly. The total amount of repayment claimed by Charalambous on his clients' behalf was £11,222,472.

The seven-week trial also heard that between 1997/1998 and 2004/2005, he understated client fee income on his own self-assessment tax returns by £807,406. He also failed to declare and pay £180,082 VAT due to HMRC.

On passing sentence Judge Richardson said: "The offences are more serious as you were a chartered accountant. HMRC ought to be able to trust you as should your clients. You exposed them to the dishonesty that you practice. With tax enquiries, you responded with evasion and lies."

Speaking after the trial, Steve Armitt, assistant director of criminal investigation for HMRC, said: "Charalambous is a thoroughly dishonest accountant who was motivated by greed. He betrayed the trust of innocent and vulnerable people to feed that greed. This deprived the nation's public services of millions of pounds."