This tax case involves an appeal by Mr Rong Gen Poon (formerly known as Wing Kan Poon) against income tax, capital gains tax, VAT, and penalty assessments made by HMRC following an investigation into his restaurant business in Belfast.

Mr Poon carried on the restaurant business in Belfast during the 2000s. In June 2008, HMRC opened an enquiry into Mr Poon’s 2006-07 self-assessment tax return after discovering he had made bank lodgements of over £800,000 in 2007 but declared business drawings of only around £17,000. This led HMRC to widen the scope of their enquiries and launch a formal investigation (under Code of Practice 9 procedures) in October 2010 into Mr Poon’s tax affairs from 2000 onwards.

At a formal interview in May 2011 conducted under COP9, Mr Poon made several admissions to HMRC officers, including:

• Suppressing £1,700 per week of business takings
• Paying restaurant staff cash wages without PAYE deductions
• Owning several rental properties in Belfast with omitted rental income
• Disposing of properties and not declaring capital gains

Mr Poon was represented at the COP9 interview by his accountant, Mr YC Luk, who spoke Cantonese and assisted in translation. HMRC took detailed notes of Mr Poon’s admissions at this interview.

In February-March 2012, HMRC issued assessments to Mr Poon for unpaid income tax, capital gains tax, VAT, PAYE liabilities, and penalties covering tax years 2000-01 and 2005-06 to 2009-10. The assessments were based on the admissions made by Mr Poon at the COP9 interview.

Mr Poon subsequently appealed against the assessments, claiming he did not understand the COP9 interview questions, was coerced into giving false answers by his accountant, and that HMRC had no conclusive evidence to support the assessments.

Key Issues in the Case

There are several key issues and areas of dispute in this tax case:

• Reliability of Mr Poon’s admissions at the COP9 interview – Mr Poon claims he did not understand the questions, and his accountant coerced him into giving false answers. HMRC maintains that the interview was conducted properly with translation assistance, and detailed notes were taken of Mr Poon’s voluntary admissions. The reliability and evidential weight of the COP9 interview admissions is a crucial issue.
• Calculation and basis of tax assessments – Mr Poon argues there is no conclusive evidence to support HMRC’s tax assessments, such as business observations or third-party interviews. HMRC contends the assessments are based on Mr Poon’s admissions and information obtained from Land Registry records. The validity of using such information as the basis for raising tax assessments is disputed.
• Deductions and allowances – Mr Poon claims insufficient deductions were given in calculating the additional business profits, such as for the cost of sales related to the undeclared cash turnover. HMRC gave deductions only where corroborating evidence was provided by Mr Poon. The appropriateness of the deductions needs to be examined.
• VAT assessments – Mr Poon claims the VAT assessments were out of time. HMRC argues there was deliberate tax loss allowing a 20-year assessment window. The VAT assessment time limits require consideration.
• Penalties – Mr Poon contends the penalties charged are excessive. HMRC applied mitigation for disclosure but claimed subsequent non-cooperation justified the penalties charged. The penalty levels and mitigation need to be evaluated.
• Rental income – Treatment of the omitted rental income declared by Mr Poon requires analysis.
• Capital gains – The disputed capital gain on one property sale based on Land Registry records versus Mr Poon’s claimed loss requires examination.
• PAYE assessments – Mr Poon disputes the PAYE assessments. HMRC argues they followed best practices given the limited information available. The validity of the PAYE assessments needs to be assessed.

The Tribunal’s Conclusions

The First-Tier Tribunal considered the issues and evidence extensively in coming to its conclusions:

• It accepted HMRC’s account that the COP9 interview was conducted properly with Mr Poon represented and assisted by his adviser, who could translate into Cantonese. The Tribunal found HMRC were entitled to rely on Mr Poon’s admissions.
• It upheld HMRC’s use of Land Registry records regarding the capital gain on the property disposal, as Mr Poon had provided no evidence about his claimed loss.
• It considered that HMRC’s rental income figures were adequately calculated.
• It agreed that the PAYE assessments followed best practices given the limited information.
• It found no issue with the time limits for the VAT assessments due to admitted deliberate inaccuracy of VAT returns.
• It concluded that the penalties were appropriate, given the initial disclosure and the lack of subsequent cooperation.
• It directed HMRC to adjust their tax calculations in two areas: (1) to deduct output VAT from the admitted undeclared cash takings used to pay staff wages, and (2) to give income tax relief for the PAYE liabilities assessed as a deduction from the revised business profits.

The Tribunal largely upheld HMRC’s assessments, subject to the abovementioned adjustments. It dismissed Mr Poon’s appeals against the assessments except for the directed adjustments.

Commentary on the Case

This was undoubtedly a difficult case, given that it centred on the reliability of admissions made by Mr Poon during the COP9 tax investigation interview. There was no absolute proof that those admissions were correct – the Tribunal had to judge the balance of probability.

Based on the evidence presented, the Tribunal was entitled to conclude that HMRC took appropriate steps to conduct the COP9 interview properly and document Mr Poon’s statements. The contemporaneous interview notes and presence of Mr Poon’s adviser/translator provided safeguards for an accused person’s rights. And MR Poon’s subsequent retraction of the admissions had to be considered self-serving once the reality of the tax bills sank in.

While relying solely on uncorroborated admissions during a tax investigation interview is not ideal, the Tribunal concluded HMRC had taken reasonable steps to verify information, such as obtaining Land Registry records. Mr Poon had opportunities to provide contradictory evidence but did not do so.

The Tribunal’s careful approach shows the importance of examining individual cases on their facts. While it upheld most of HMRC’s conclusions, it did direct reasonable adjustments to avoid double taxation on undeclared wages. This demonstrates the Tribunal reaching a balanced judgement rather than just endorsing HMRC’s position.

Despite the difficult evidential position, the Tribunal adopted a logical approach given the limited evidence available to it. The case illustrates how tax disputes often involve imperfect information, requiring courts to take a practical approach in weighing competing accounts. Here the Tribunal evaluated HMRC’s process and Mr Poon’s subsequent actions pragmatically in reaching its conclusions. Absent further cooperation or disclosure from Mr Poon, the adjustments upheld by the Tribunal represent a reasonable outcome.

Synopsis & Concerns

This tax investigation against Mr Poon raises serious concerns about reliance on uncorroborated admissions and the fairness of HMRC’s conduct.

Validity of COP9 Interview Admissions

The fundamental basis of HMRC’s assessments is Mr Poon’s alleged admissions during the COP9 interview. However, Mr Poon contends he did not understand the questions properly and was coerced into giving false answers by his accountant.

These allegations cast major doubt on the reliability of the admissions. The Tribunal did not adequately probe these issues. It simply accepted HMRC’s assurances that the interview was conducted properly. But no independent evidence supports this, such as interview transcripts, audio recordings or witness accounts. The Tribunal should have scrutinised the validity of the admissions more rigorously.

HMRC’s Investigative Process

HMRC’s investigative process seems deficient. As Mr Poon highlighted, the assessments lack a tangible evidential basis. HMRC should have conducted standard verification such as business observations, third-party interviews or reviewing robust documentation. Instead, they relied wholly on disputed interview admissions.

HMRC also denied Mr Poon appropriate deductions in calculating tax liabilities. Despite requesting, Mr Poon was given no deduction for the cost of sales on the alleged undeclared turnover. And HMRC’s refusal to deduct the assessed PAYE liabilities from taxable profits appears unreasonable and punitive.

HMRC’s flawed reliance on unsubstantiated admissions and denial of reasonable deductions suggest an unfair process against Mr Poon.

Excessive Penalties

The penalties imposed on Mr Poon appear disproportionately harsh, given the doubt concerning the admissions and lack of tangible proof of evasion. Even assuming some non-compliance occurred, the Tribunal gave inadequate consideration to whether maximum mitigation should have been provided against such severe penalties in the circumstances.

Right to Silence

The COP9 admissions formed the crux of HMRC’s case, yet their reliability could be better. This raises coercion concerns, given Mr Poon faced punitive tax assessments and penalties if he did not “cooperate”. In practice, he seems compelled to provide self-incriminating information of dubious accuracy. This violates Mr Poon’s right to silence.

Overall, there are credible concerns regarding HMRC’s reliance on unsupported admissions, conduct of the investigation, calculation of liabilities and oppressiveness of penalties. Mr Poon seems denied a fair process and opportunity to defend himself. A higher tribunal should rigorously scrutinise this case to uphold taxpayer rights and ensure justice is served.

For COP9 Tax Investigations, tax resolution or compliance, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.