CIOT – TaxWatch

HMRC tax defaulting tax advisor reported to two professional bodies

6th March 2023 by Alex Dunnagan

TaxWatch have submitted a formal complaint to both the Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England and Wales (ICAEW) about one of their members, namely David Warren Hannah from Leicester. This is as a result of his inclusion on HMRC’s ‘Current list of deliberate defaulters’. This is the fifth complaint lodged by TaxWatch to professional bodies.

The reasons for reporting

HMRC has published details of deliberate tax defaulters over the last decade. Today, each of those listed has avoided paying at least £25,000 in tax and has received a penalty, either for deliberate errors in their tax returns, or, deliberately failing to comply with their tax obligations. HMRC also identifies the date of default and notes: ‘the published person may have changed their behaviour’ since the time of the default. Despite the value and deliberate nature of the defaults, individuals and businesses are only ‘named and shamed’ on HMRC’s list for 12 months.[1]

David Warren Hannah was first included in HMRC’s ‘Current list of deliberate tax defaulters’ on 24 March 2022. It describes him as a “property tax advisor” and declares he was charged a penalty of £17,136 for having deliberately defaulted on £30,600 tax between 6 April 2011 and 5 April 2012.

CIOT lists a David Hannah as a personal and property tax advisor for Cornerstone – a firm based in Leicester. The ICAEW website identifies a David Warren Hannah of Leicester as a member. Both organisations state their members are governed by the Professional Conduct in Relation to Taxation (PCRT) amongst other things. The PCRT was developed by the ICAEW and others including the Chartered Institute of Taxation as a means by which the professional bodies could take a greater lead in setting and enforcing clear professional standards.

It is suggested Mr. Hannah’s actions clearly breached the ‘Integrity’ rule of the Professional Conduct in Relation to Taxation in place at the time, for rule 2.2 of the PCRT (published on 4th January 2011) stated:

“A member must act honestly in all his dealings with his clients, all tax authorities and other interested parties, and do nothing knowingly or carelessly that might mislead.”

It is also argued his actions breached PCRT 2.16 which demanded:

“A member’s own tax affairs should be kept up to date. Neglect of the member’s own affairs could raise doubts within HMRC as to the standard of the member’s professional work and could bring his professional body into disrepute.”

It is posited Mr. Hannah’s activities reveal a breach of sections within the ICAEW’s Code of Ethics (1 January 2011 – 31 December 2019) including Section 150.1 which stated:

“The principle of professional behaviour imposes an obligation on all professional accountants to comply with relevant laws and regulations and avoid any action that the professional accountant* knows or should know may discredit the profession. This includes actions that a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant* at that time, would be likely to conclude adversely affects the good reputation of the profession.”

Interestingly, Mr. Hannah is the director of over a thousand companies[2]. While Cornerstone Tax Limited went into Liquidation in 2021, it appears that Cornerstone Tax 2020 Limited took its place[3]. Mr. Hannah recently resigned as a director of Cornerstone Tax 2020, however, this company lists Cornerstone Group International Limited as the ‘person with significant control’ on Companies House[4]. Mr. Hannah remains as a director of Cornerstone Group International and holds 75% of more of its shares[5].

Following our submissions, the Taxation Disciplinary Board, an independent body that deals with complaints to CIOT, has informed TaxWatch it is unable to proceed with any complaints against Mr. Hannah pending the outcome of proposed judicial review proceedings brought against CIOT by Mr. Hannah. In contrast, the ICAEW has explained its Professional Conduct Department was already aware of the matter and is considering the case.

Unfortunately, despite several efforts, TaxWatch has been unable to contact Mr. Hannah to obtain his point of view.

[1] ‘Details of deliberate tax defaulters’, HMRC, https://www.gov.uk/government/publications/publishing-details-of-deliberate-tax-defaulters-pddd

[2] Companies House search result for ‘David Warren Hannah’, https://find-and-update.company-information.service.gov.uk/officers/J7GT9-bNfyEdm9MZs-llx5UHY_A/appointments

[3] Section 2.4 of Cornerstone Tax Limited Liquidator’s Annual Report to Members and Creditors For the Year Ending 7 February 2022 noted: “On 09 February 2021, a sale of the assets of the Company was completed to Cornerstone Tax 2020 Limited who is a Connected Company. Mr. David Hannah is the common director of both companies”. Section 2.6 stated: “On 19 February 2021, a sale of the Company book debts was completed to Cornerstone Tax 2020 Limited who is a Connected Company”.

https://find-and-update.company-information.service.gov.uk/company/10154301/filing-history/MzMzMjA0NTA3OGFkaXF6a2N4/document?format=pdf&download=0

[4] Companies House, search ‘Cornerstone Tax 2020 Ltd.’, ‘People’. ‘Persons of Significant Control’.

https://find-and-update.company-information.service.gov.uk/company/12164380/persons-with-significant-control#

[5] Companies House, search ‘Cornerstone Group International Limited’. ‘People’. ‘Persons with Significant Control’.

https://find-and-update.company-information.service.gov.uk/company/03874730/persons-with-significant-control

Director of suspected HMRC tax avoidance scheme continues to be member of professional body

2nd February 2023 by Alex Dunnagan

Despite his company being ‘named and shamed’ by HMRC for alleged involvement in disguised remuneration schemes, Paul Ruocco continues to be a member of the Institute of Chartered Accountants of England and Wales.

TaxWatch have submitted a formal complaint to the ICAEW about one of its members, Paul Ruocco, the director of Gateway Outsource Solutions Limited which HMRC suspects may be promoting disguised remuneration tax avoidance schemes. This is the fourth complaint lodged by TaxWatch to professional bodies.

The scheme

Last year HMRC began ‘naming and shaming’ companies with its ‘Current list of named tax avoidance schemes, promoters, enablers and suppliers’.¹ One company that features on this list is Gateway Outsource Solutions Limited, whose director is Paul George Ruocco. It appears from information published by HMRC, that users of Gateway’s scheme entered into an employment agreement with a Maltese company, Gateway Outsource Solutions Limited (Malta), before receiving two salary payments – one paid at minimum wage, and a second which is described as a loan or an advance, which is not taxed. HMRC suspects this to be a disguised remuneration scheme, a scheme that HMRC has been stating for years does not work, and the so-called loans to individual workers, are subject to income tax and National Insurance contributions.

The company’s financial statements for 2018, 2019, 2020, and 2021 all state that there is only one employee of the company – with Companies House listing Mr. Ruocco as the sole director during these years.

Mr. Ruocco is also a member of the Institute of Chartered Accountants of England and Wales (ICAEW), an organisation which is supposedly governed by the Professional Conduct in Relation to Taxation (PCRT). The PCRT was developed by the ICAEW and others including the Chartered Institute of Taxation in response to the government’s challenge to the professional bodies to take a greater lead in setting and enforcing clear professional standards around the facilitation and promotion of tax avoidance.

According to the Purpose of the Principles and Standards section of the Code:

“PCRT applies to all members providing advice on UK tax matters regardless of, contracts of employment, membership of other professional organisations or where in the world they work and reside”.

Moreover, in relation to: “Advising on tax planning arrangements”, section 3.2 of the PCRT notes:

“Members must not create, encourage or promote tax planning arrangements or structures that: i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation; and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.”

In sum, if members of professional bodies are involved with what is effectively tax avoidance, then action should be taken in accordance with PCRT. TaxWatch has submitted evidence to ICAEW about Gateway Outsource Solutions Limited and Mr Ruocco for review and possible investigation following HRMC’s decision to list the company. We hope that ICAEW will review the evidence provided to them and take the necessary action. We look forward to seeing evidence of the PCRT working in practice.

The Isle of Man connection

Our research also reveals that Mr. Ruocco was previously appointed as a director or designated member of the same company or Limited Liability Partnership on the same day as Mr. Douglas Alan Barrowman, Chairman of the Knox Group of companies on at least nineteen occasions. Mr. Barrowman is husband of Conservative Peer Baroness Mone who recently requested a leave of absence from the Lords “to clear her name”, amid allegations she benefited from a company she recommended for a PPE contract.² Recently, Mr. Barrowman was charged with corporate tax evasion by prosecutors in Spain.³ He denies the charges. Although it is not suggested Mr. Barrowman has been involved in the company that lies at the heart of this complaint, it is noted that Companies House records Panda Holdings Limited of Knox House, 16-18 Finch Road, Douglas, Isle Of Man, IM1 2PT as the ‘active person with significant control’ over Gateway Outsource Solutions Limited.

Incidentally, a Knox House of Finch Road, Douglas, is the headquarters of Mr Barrowman’s Knox Group of Companies, as well as the correspondence address for Braaid Limited – which Companies House records as the ‘active person of significant control’ for AML Tax (UK). Readers may recall TaxWatch’s complaint about Arthur Lancaster, the director of AML Tax (UK), to the ICAEW in March of last year. In the judgment of the Upper Tier Tax Tribunal, in the matter of Revenue and Customs v AML Tax (UK) Limited, the Court described his evidence as “seriously misleading”, “evasive” and “lacking in candor”.⁴AML Tax (UK) was added to HMRC’s name and shame list last in January 2023, with HMRC describing a disguised remuneration scheme purportedly operated by the company. Mr. Lancaster is a director of the Knox House Trustees (UK) Limited for which the ‘active person with significant control’ is one Douglas Alan Barrowman.

Mr. Ruocco was contacted for comment by TaxWatch and confirmed he is a Chartered Accountant but was now “all but retired”. He denies that he created, encouraged or promoted any tax planning arrangements and said that Gateway Outsource Solutions Ltd does not provide any tax related services or participate in any tax schemes itself.

The HMRC website states it is possible that when HMRC learns more about such schemes it may find that information which it has published is incorrect or misleading, therefore we expect ICAEW to work with HMRC when reviewing this complaint.

1HMRC. ‘Current list of named tax avoidance schemes, promoters, enablers and suppliers’ https://www.gov.uk/government/publications/named-tax-avoidance-schemes-promoters-enablers-and-suppliers/current-list-of-named-tax-avoidance-schemes-promoters-enablers-and-suppliers

It is possible that when HMRC learns more about the scheme it will find that information which has been published is incorrect or misleading.

2Conservative peer Michelle Mone to take leave of absence from Lords, BBC News, 07 December 2022, https://www.bbc.co.uk/news/uk-politics-63871448

3Michelle Mone’s businessman husband faces jail if found guilty of Spanish tax charge, The Mirror, 16 December 2022. https://www.mirror.co.uk/news/politics/michelle-mones-businessman-husband-faces-28752717

4Revenue and Customs v AML Tax (UK) Limited [2022] UKUT 81 (TCC), United Kingdom Upper Tribunal (Tax and Chancery Chamber), 14 March 2022, https://www.bailii.org/uk/cases/UKUT/TCC/2022/81.html

TaxWatch submits regulatory complaints against arms dealer’s adviser.

16th November 2022 by Alex Dunnagan

TaxWatch has lodged complaints to both the Chartered Institute of Taxation and Institute of Chartered Accountants of England and Wales about the conduct of Zaheer Dudhia, an accountant and tax adviser. This complaint centres around our assertion that Mr. Dudhia failed to act with integrity in relation to his dealings with a Hong Kong auditor when acting for an arms dealer whose overseas company he helped set up.

Dudhia is a Chartered Tax Adviser for Z. Dudhia & Company Limited, and Chartered Accountant for Dudhia Lewin Myers Associates Limited, Amdaza Ltd, London Bookkeeping Services Ltd, and Mount Road Property Ltd.

This is the third in a series of complaints we have lodged with professional bodies.

Arms Dealer

Mr. Ranger, an infamous British arms dealer who had been operating since the 1980’s¹, ran Imperial Defence Services Ltd (IDS) and in early 2010 began his attempt to source surface-to-air missiles from North Korea, and to broker deals to supply the missiles and Beretta pistols from the US manufacturer to Azerbaijan. At the time there was an arms embargo prohibiting the export of military goods to Azerbaijan and the prohibitions applied to exports, trafficking and brokering activities conducted by UK persons based either in the UK or overseas.

To make these deals and to hide his involvement from the UK authorities, including HMRC, Mr. Ranger had set up a company in Hong Kong as the vehicle for his illicit trades. Unfortunately for him, Mr. Ranger was charged and subsequently convicted of two counts of being knowingly concerned in acts calculated to promote the supply or delivery of goods subject to trade controls with intent to evade the prohibition contrary to Section 34(5) of the Export Control Order 2008 following an investigation by HM Revenue & Customs.²

Evidence from the case shows that in 2009-2010 Mr. Zaheer Dudhia assisted Mr. Ranger in setting up his Hong Kong-based company Hong Kong Commercial Ltd – albeit in the name of Ranger’s Vietnamese girlfriend. On paper, she had no familial or business connections to Ranger, who was not listed as a director. Documents from the trial also reveal Mr. Dudhia designated himself a Chartered Tax Adviser and Chartered Accountant in correspondence with Mr. Ranger, was involved in setting up the Hong Kong company’s bank account, and acted as its accountant during this period.

It was the prosecution’s case that although his girlfriend was the listed director, it was Mr. Ranger who directed and controlled the company; Mr. Ranger set it up, financed it, and operated the company bank account, and conducted the company’s business. Similarly, Mr. Dudhia himself indicated the company in Hong Kong would be Mr. Ranger’s in correspondence with a prospective bank.

Hong Kong Audit

In August 2010, Mr. Dudhia was asked whether there was any relationship between Mr. Ranger’s UK-based arms business Imperial Defence Services Limited (IDS) and Hong Kong Commercial Ltd by the Hong Kong-based auditor Cheng & Cheng Limited. Despite having sent emails to Mr. Ranger at IDS, Mr. Dudhia responded “no there is no relationship”.

TaxWatch suggests that this failing to inform the Hong Kong auditor of the true relationship between IDS and Mr. Ranger’s Hong Kong Company, constituted a breach of the rules of the two professional bodies to which Mr. Dudhia belonged, and is still a member of. In terms of the Chartered Institute of Taxation’s (CIOT), Professional Rules and Practice Guidelines in place from 2006-11, Paragraph 2.2.1 stated:

“A member must be honest in all his professional work. In particular, a member must not knowingly or recklessly supply information or make any statement which is false or misleading, nor knowingly fail to provide relevant information.”

We also assert Mr. Dudhia’s answer to the auditor may have breached General Principle 2.4 which declared:

“…a CIOT advocate must not engage in conduct which is dishonest or discreditable or which might bring into disrepute the tax profession of which he is a member. He must not compromise his professional standards in order to please his client or a third party.”

Although TaxWatch has no evidence Mr. Dudhia knew the Hong Kong business he helped create would be used by Mr. Ranger to try to breach export control legislation, given the company enabled a crime, we request the CIOT investigate the possibility that Mr. Dudhia may have breached CIOT’s guideline 2.2.3 which stipulated:

“A member should not act if he considers that the fulfilment of his client’s instructions involves a risk of assisting in a criminal activity”.

As for the rules of the Institute of Chartered Accountants in England and Wales, it is suggested the provision of incorrect information to the Hong Kong auditor of the true relationship between IDS and Mr. Ranger’s Hong Kong Company, may have constituted a breach of two of the Fundamental Principles of its Code of Ethics (1 September 2006-31 December 2010), namely those on Integrity and Professional Behaviour. In detail, it appears to be contrary to Section 110.1 which stated:

“The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in professional and business relationships. Integrity also implies fair dealing and truthfulness.

It follows that a professional accountant’s* advice and work must be uncorrupted by self-interest and not be influenced by the interests of other parties.

110.2 A professional accountant should not be associated with reports, returns, communications or other information where they believe that the information:

(a) Contains a materially false or misleading statement;…”

TaxWatch posits this action may also be a breach of the Section 150.1 which declared:

“The principle of professional behaviour imposes an obligation on professional accountants to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession. This includes actions which a reasonable and informed third party, having knowledge of all relevant information, would conclude negatively affects the good reputation of the profession.”

Photo by Clint Patterson on Unsplash

1His name has been featured in the media on several occasions, most notably for selling the rifle used in the Hungerford Massacre in 1987. See https://www.theguardian.com/politics/2003/apr/27/ukguns.armstrade Ranger imported the weapon before selling it to Westbury Guns, who then sold the rifle to the individual who committed the murders. https://www.vice.com/en/article/vdq4d3/mick-ranger-gun-sale-profile

2HM Revenue & Customs. ‘Arms to Azerbaijan Dealer Jailed’. 20 July 2012. https://webarchive.nationalarchives.gov.uk/ukgwa/20121016173420/http://hmrc.presscentre.com/Press-Releases/Arms-to-Azerbaijan-Dealer-Jailed-67d78.aspx.

TaxWatch launches regulatory complaint against Mr Arthur Lancaster of AML

21st March 2022 by George Turner

TaxWatch has lodged a complaint concerning Arthur Lancaster, Director of AML Tax (UK) Limited, and Director of the Knox House Trust of the Isle of Man.

Mr Lancaster is both a member of the Chartered Institute of Taxation and the Institute of Chartered Accountants of England and Wales, as such a complaint has been lodged with both the ICAEW and the Taxation Disciplinary Board.

A recent judgement of the Upper Tier Tax Tribunal involving an information notice gives rise to the complaint. The judgment found AML Tax (UK) failed to comply with an information notice issued by HMRC and fined the company £150,000.

The judgment of the tribunal described the evidence of Mr Lancaster as “seriously misleading”, “evasive” and “lacking in candor”.

The judgment can be found here: https://www.bailii.org/uk/cases/UKUT/TCC/2022/81.html

The rules of Professional Conduct in Relation to Taxation, which cover both Chartered Tax Advisors and Chartered Accountants require members of professional bodies to comply with information notices issued by HMRC.

The case also confirmed AML Tax (UK) had been involved in the promotion of marketed tax avoidance schemes. Professional Conduct in Relation to Taxation rules state that members of professional bodies must not “create, encourage or promote tax planning arrangements or structures that: i) set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation; and/or ii) are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.

As such the recent judgment, as well as a significant amount of information already in the public domain, indicates that the activities of Mr Lancaster breached the rules of Professional Conduct in Relation to Taxation.

A copy of the complaint sent to the Taxation Disciplinary Board can be found here: TDB_Lancaster_20220320

A similar complaint was made to the ICAEW.

Photo by oliver king on Unsplash

TaxWatch launches complaint against “Mr Red”

27th January 2022 by George Turner

TaxWatch has submitted a complaint to the Tax Disciplinary Panel about the conduct of an individual identified as “Mr Red” in the case of Murray Group Holdings vs HMRC.

TaxWatch believes that it has managed to uncover the identity of Mr Red, who continues to practice as a Chartered Tax Advisor, despite evidence of serious misconduct he engaged in when an employee of Rangers Football Club.

The case of Murray Group Holdings vs HMRC, known as “The Big Tax Case”, was one of the most important tax decisions in recent times.

The case involved a disguised remuneration tax avoidance scheme operated by Rangers Football Club for a number of years that involved players and staff being paid in the form of loans via an offshore trust. The loans were not declared as income on the tax returns of the players leading to a significant reduction in their tax liabilities.

HMRC believed that these loans were in fact remuneration and should be taxed as income.

In 2017, the Supreme Court found that the payments were earnings under PAYE legislation which meant that the club should have withheld tax due and paid it to HMRC.

Although HMRC lost their case at both the First Tier Tax Tribunal and the Upper Tier Tribunal, the findings of facts of those bodies revealed some extraordinary behaviour on the part of officials of Rangers Football Club in an effort to cover up the scheme.

In particular, the Tribunal singled out the behaviour of “a senior member of the group’s tax function”, who appeared in the anonymised judgment as “Mr Red”. The Tribunal stated that Mr Red was a Chartered Tax Advisor and former Inspector of Taxes.

During the tribunal hearing, HMRC alleged that Mr Red “misled” HMRC’s investigation into the scheme, and that “he had lied in material respects to the tribunal”.

In her dissenting judgment, Dr Heidi Poon records how Mr Red wrote to HMRC denying the existence of documents that HMRC had requested under the a statutory request for information, writing in a letter “your belief in the existence of documents demonstrating how amounts contributed to the Trust are determined is irrational and unfounded. I cannot help with your fantasies and the production of a S20 makes no difference to this”. ^[1]Section 20 of the Taxes and Management Act 1970 permitted tax inspectors to demand information from a taxpayer or third party in relation to a potential tax liability In fact, the documents did exist and had been uncovered by a City of London Police raid on Ibrox Stadium in connection with an unrelated investigation.

Concluding, Dr Poon stated that Mr Red’s behaviour went beyond what could be described as “a lack of candour”, she said: “It would be judicial to conclude that it had been obstructive and obscurantist, and there is evidence of active concealment of documents… to describe Mr Red as ‘somewhat defensive’ in giving his sworn testimony would be an understatement. On more than one occasion, Mr Red had attempted to mislead the Tribunal”.

She went onto say: “The overall impression created by Mr Red’s evidence, oral and written, was that he was being vague and evasive. It was clear that he was not on sure ground, because he was trying to tell a version of how the trust scheme should operate, rather than the version as it actually operated. As a result of this schism, it led to deliberation and inconsistency in Mr Red’s testimony.”

Another incident highlighted by the Tribunal was an attempt by Mr Red to influence the evidence of other witnesses. This was highlighted by the majority judgment:

“One aspect of his [Mr Red’s] evidence which disturbed us was his meeting with Mrs Crimson on the eve of her giving evidence. Having collected her at Edinburgh Airport it seems that there was some discussion about Trust matters and he passed to her for her consideration that evening certain extra documents including company minutes. (These were produced as late extra documents by the Taxpayers’ Counsel and Advisors for scrutiny by the Tribunal.)”

In rules in force at the time, CIOT required a member to “be honest in all his professional work” and in particular, “must not knowingly or recklessly supply information or make any statement which is false of misleading, or knowingly fail to provide relevant information. Furthermore when acting for an employer, the members were obliged to “ensure that there is appropriate disclosure of all relevant information” to tax authorities.
Despite the very clear allegations of misconduct that were placed in the public domain by the Tax Tribunal, TaxWatch has discovered that no action was subsequently taken by CIOT or the Taxation Disciplinary Board, the bodies responsible for regulating the conduct of Chartered Tax Advisors.

As a result, the individual was able to continue in practice, holding a number of senior positions after leaving Rangers Football Club. Given that the Tribunal had been clear that Mr Red was a Chartered Tax Advisor, it would have been straightforward for CIOT to contact the Tribunal, Rangers Football Club, or HMRC to seek to identify Mr Red and take appropriate disciplinary action.
The failure to take action over very clear and high profile allegations of misconduct by a Chartered Tax Advisor brings into question the robustness of the disciplinary process for the tax profession, which in turn threatens to bring the whole profession into disrepute.

For that reason, TaxWatch hopes that the Taxation Disciplinary Board will take this opportunity to take appropriate action, sending the message that the kind of behaviour outlined in Murray Group Holdings vs HMRC is not an acceptable way for regulated professionals to conduct themselves.

Photo by Bence Balla-Schottner on Unsplash

References[+]

References
↑1	Section 20 of the Taxes and Management Act 1970 permitted tax inspectors to demand information from a taxpayer or third party in relation to a potential tax liability