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This case study is based on an actual Code of Practice 9 investigation and report prepared by our accounting firm. All names, businesses, and locations have been changed to protect privacy.
Accounting irregularities and financial fraud are an unfortunate reality in the business world. When such complex cases arise, meticulous investigation by experienced professionals is key to unearthing the truth. This was demonstrated aptly in a recent case by our COP9 Specialist Accountants.
The case involved an in-depth investigation into the financial records and tax affairs of two individuals – Amanda Wilson and Nick Rogers – and the restaurant business, Tony’s Pizzeria, following suspicions of tax evasion by the national tax authority. Our COP9 Accountants carefully analysed several years of financial statements, tax records, and bank statements and interviewed the involved parties to unravel a web of undisclosed income and irregular accounting practices. Their diligent efforts eventually uncovered tax liabilities amounting to over £550,000.
We will summarise this intricate investigation undertaken by our forensic accounting team and their systematic approach that brought the financial irregularities to light.
Background of Case
In October 2018, HMRC initiated a Code of Practice 9 (COP9) investigation into Amanda Wilson and Nick Roger’s tax affairs. Amanda owned and operated Tony’s Pizzeria, while Nick was briefly a director and investor. HMRC suspected large-scale tax evasion and issued COP9 Investigation Letters to both parties to disclose irregularities. Nick and Amanda approached our firm for representation and investigative assistance.
Amanda had started Tony’s Pizzeria in 1987 with another partner in Milton. Later she opened branches in Danford in 1993 and Winston in 2003. However, the Winston branch ran into losses and debt forcing her to declare bankruptcy in 2007. Around this time, her estranged husband, Nick Rogers, came to her aid as an investor. He paid off Amanda’s debts to the bankruptcy receivers and formed a new company NRZ Ltd, to take over and operate the Danford Tony’s Pizzeria branch. Though Nick was named a director, Amanda continued to manage daily operations while Nick handled accounts and payroll.
The case came under the scanner when HMRC suspected Tony’s Pizzeria of suppressing sales, accounting for purchases made in cash, and paying staff undeclared cash wages. Two preliminary investigations in 2016-17 by the Revenue officers could not conclusively establish evasion. The case was transferred in October 2018 to the Fraud Investigation Service (FIS), which initiated the COP9 proceedings. Though Nick and Amanda were separated, the Revenue believed their dealings were linked and necessitated joined proceedings.
Approach and Methodology
Our COP9 Accountants recognised this was a complex case potentially involving intricate financial manipulation. Meticulous sifting of records and a focused investigative approach were needed to unravel the knotty issues. They began by thoroughly examining all available financial statements, tax records, bank statements and other documents pertaining to Tony’s Pizzeria, Amanda, and Nick for 2007-2018. The team made multiple visits to the restaurant to understand daily operations. Detailed interviews were conducted with Amanda and Nick to gain insights into the accounting practices followed. Information was also gathered from the previous Revenue inquiries. Some key aspects of the investigative methodology included:
- Analysing sales and purchases from VAT records maintained for Tony’s Pizzeria by Nick.
- Comparing disclosed wages and salaries to estimated worker hours to identify undeclared cash payments.
- Tracking cash deposits in Amanda’s numerous personal bank accounts to identify potential unaccounted income.
- Inspecting Nick’s bank statements, tax records, and other financial affairs for any irregularities.
- Reconstructing the convoluted transactions between Amanda and Nick to delineate financial connections.
- Consulting with the investigating Revenue officer to agree on a reasonable settlement approach considering the impact on the business.
Our approach helped uncover that Amanda had suppressed sales income over several years and paid staff undeclared cash wages too. However, Nick was found to have no significant irregularities based on the records available. Upon being confronted with the thoroughly gathered evidence during the investigation, Amanda readily admitted to her actions.
Key Findings: Our team was able to quantify the following financial irregularities perpetrated by Amanda over 11 years from 2007 to 2018:
Undeclared Sales Income:
- Cash deposits of £166,000 were made into Amanda’s bank accounts, representing undeclared sales income from the pizzeria.
- Estimated undeclared cash wages of £560,000 paid to staff were considered additional undeclared sales.
Unremitted VAT: Based on undeclared sales, VAT liabilities of £91,345 were calculated. Applicable VAT rates for each year were considered.
A shortfall in PAYE/NI Contributions:
- For cash wages paid, the estimated PAYE/NI shortfall was £113,000, assuming a reasonable 15% rate as provisionally agreed by the Revenue.
- This was treated as a prior period expense in the years wages were paid. Hence, corporation tax liabilities for each year were recomputed.
The findings showed Amanda had accumulated significant undisclosed income over the years through undeclared sales and cash payments. Fortunately, Nick’s role in the irregularities was limited despite being a director and investor in the business. Our team found no evidence of Nick suppressing company sales or purchases in his records. His finances also showed no glaring irregularities barring a few inadvertent clerical discrepancies.
Summary and Conclusions
In conclusion, our investigation systematically unveiled Amanda’s financial misdeeds by thoroughly examining the tangled transactions between various entities. The team showed great diligence in piecing together evidence from disparate sources to quantify the tax liabilities. Their regular communication with the Revenue also enabled pragmatic settlement considerations. When presented with irrefutable evidence, Amanda acknowledged her actions. Considering the adverse business impact, We recommended she fully cooperate for a reduced penalty and a realistic time frame for paying dues.
This case demonstrates how meticulous investigative work by skilled accounting professionals is vital to unravel complex financial frauds. By adopting a focused approach, assembling evidence from multiple sources, and exercising great care, our Tax Accountants were able to get to the bottom of a tricky situation that had flummoxed even tax authorities for years. This showcases the tenacity and technical expertise required in forensic accounting to see beyond tangled ruses and uncover the truth. Proactive resolution of such cases also helps boost public confidence in the fairness of the taxation system.
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.