Category: Legal Articles

DBT & Partners are currently advising a number of clubs in the area of R&D Tax Fraud Investigations for Football Clubs.

If you are involved in the management of a UK football club that is currently in receipt of R&D tax relief from HMRC or have made a claim for R&D, we highly recommend that you stay abreast of the authority’s current R&D tax fraud crackdown – and ensure you avoid any activities that may lead to an investigation.

Scrutiny of R&D claims in football has recently intensified, with £90 million being recovered from clubs found to be at fault over the last year alone.

There is a far higher likelihood of your club’s R&D tax break being investigated and challenged at present if certain perceived “red flags” are seenby HMRC.

In this article, the R&D tax claim investigation experts at DBT & Partners provide a clear and practical overview of what triggers HMRC investigations, helping you to avoid the stress and complication of an investigation and a tax assessment with penalties applied.

Routine activities vs genuine innovation – where clubs go wrong

The point of R&D tax relief is to facilitate activities seeking advances in technology and science, which promise to “have physical consequences” and/or represent “an increase in overall knowledge”.

These advances should not be “easily worked out by a professional in the field”,and should require work to overcome technological or scientific uncertainty.

This means that any areas of focus that HMRC may perceive as routine rather than innovative may attract scrutiny. Some applications of this kind will be considered ineligible for relief and will therefore be rejected immediately, while others may be approved – only to become the subject of a football club HMRC investigation further down the line.

While matters such as training, nutrition, and analytics are ripe for the type of innovation and exploration that falls squarely into qualifying categories for an R&D tax break, they are also a football club’s bread and butter.

This means that, unless your application for relief explicitly states how the activities you have listed are innovative and unique – and clearly reflect the conditions explained above – HMRC may have cause to begin a tax investigation into your claim, particularly in relation to r&d claims in football.

Red flags HMRC looks for with R&D claims in football

The nature of activities listed in an R&D tax claim represents just one of the numerous potential signifiers of investigation.. Other areas of an application may also pique the interest of HMRC.

Use of templates

HMRC may begin to look into your club if it is believed to have used a template technical narrative – where the evidence or reasoning presented bears a dubiously strong resemblance to a previous successful application from another party. This is why it is important to tailor everything clearly and carefully to your club and its operations.

Weak evidence

Weak evidence is another red flag for HMRC. Vague statements often seem suspect, as they may suggest insufficient research, or that the claim has no specific purpose. For this reason, precision is key. Be sure to provide exact references regarding why the tax relief is required, where money will be spent and how your club will operate while pursuing planned R&D activities.

Over-claiming

Over-claiming can also arouse suspicions, as investigators may view it as an attempt to compensate for a genuine application application. Try to be self-aware of the level at which you are working and the scale of the results you expect to see.

Where possible, consult with a specialist/Competent Professionalin the field before you make your claim, as they may be able to provide guidance on what to expect. You can then use that information as part of a more realistic approach.

High or unusual pay

It’s important to note that it isn’t just the wording or presentation of a claim itself that has the potential to raise HMRC alarm bells as part of their crackdown against potential football clubs tax avoidance.

If the body considers that player wages – or anyone else employed by your club – are being apportioned that are significantly higher than average for the level at which you operate, that may trigger an investigation into your R&D claim.

The likelihood of HMRC investigations in R&D claims in football is currently high – and penalties for violations are severe. As mentioned in the introduction to this article, in the last year alone, £90 million has been recovered from clubs across the UK – with 12 football clubs, 16 agents and 90 players investigated.

What to do if HMRC opens an enquiry into your club’s R&D claim

If you have received correspondence from HMRC about a potential upcoming investigation, or if you are aware that your club’s finances are currently under scrutiny, it is vital that you move quickly. If you do not, you may face fines to the tune of 100% of any apparent understated tax liability, and interest may be charged on top of this.

First and foremost, we recommend that you get in touch with DBT & Partners for a confidential review and legal advice. From there, we can help you to review and strengthen the evidence you have provided for your claim.

If any mistakes have been made, we can help you to rectify them if there is still time to do so before the deadline – or, if there is not, we can assist you as you consider the use of HMRC’s voluntary R&D Disclosure Service or Contractual Disclosure Facility (CDF).

If you do not believe a disclosure is the correct route, we will help you to defend your claim, ensuring the best possible outcome for your club. Our specialist solicitors are highly experienced in working discreetly and with urgency when defending R&D claims in football and supporting clients through a range of business tax-related investigations.

An application can be made to the Court seeking an order that an individual or a company stops doing, a prohibitory injunction, or to do, a mandatory injunction, a particular act or thing. Anyone that breaches an injunction can be held in contempt of Court which in some circumstances can lead to imprisonment.

An injunction may be obtained before a case goes to trial. This type of injunction is known as an “interlocutory” or “interim” injunction. It can remain in force for a specified period of time or it can remain in force until the matter comes to trial or the Court makes any further order. When the case comes to trial, the Court will decide whether or not to make a “final” injunction.

An application for an injunction can be made before or after Court proceedings have been issued. The Court can grant an injunction before the start of Court proceedings where the matter is urgent or if it necessary in the interests of justice. In some instances, the injunction can be applied for on ex parte basis. This is a Latin phrase which means that the application is applied for without notice being provided to the opposing party. This can be done where there is a real and serious risk that the party against whom the injunction is being sought will dissipate assets or destroy evidence if they had notice of the forthcoming application.

The Courts are extremely cautious in such circumstances and the onus is on the applicant and his legal advisors to make full and frank disclosure of all of the relevant facts to the Court, including any matters that may go against the applicant’s case. Any failure to do so will lead to the injunction being dismissed and costs being awarded against the applicant. The Court could also award any damages that the other party may have suffered as a result of the injunction.

Where an application is made on an “inter partes” basis, the Court will hear submissions from both parties.
In cases that are not so urgent, the application for the injunction may be made “ex parte on notice”. This is where the opposing party may be allowed make limited representations.

Principles of an Injunction

The following general principles are applicable to all injunctions:

1. The party applying for the Injunction must have a valid underlying claim. The applicant must be able to show that it has a substantive cause of action (i.e. one capable of founding an action before the Court).
2. Injunctions are a discretionary and equitable remedy. Accordingly, the Court is not obliged to grant an injunction and will use its discretion to only grant an injunction where it appears to be just and convenient to do so.
3. There should not be any delay in applying for an injunction. The Court may refuse to grant the injunction if there is any significant delay.
4. The party applying for the injunction must come with “clean hands” (i.e. they must have acted properly themselves).
5. Damages must not be an adequate remedy

The Court will not grant an injunction if an award of financial compensation would be an adequate remedy (i.e. if the party applying for the injunction can be redressed in full, simply by an award of damages).

If an “ex parte” injunction is granted the Court will then fix a return date for a further hearing where all parties can attend to present their cases. The interim injunction will continue until the return date hearing. The Court may allow the interim injunction to last indefinitely until the final hearing of the matter, but with a provision that the opposing party can apply to the Court to vary or discharge the undertaking.

One of the normal conditions imposed by the Court for anyone applying for an injunction is that they provide to the opposing party a “cross- undertaking in damages”. This is in general terms a promise to the Court and the other side that the applicant will pay any damages caused, if the Court should decide at a later date for whatever reason that the injunction should not have been granted or should be discharged. The party giving such an undertaking may also have to prove to the Court that it has the means to be able to pay such a liability. This will be a factor that the Court will take into consideration when deciding on whether to grant the injunction.

If an application has to be made on an urgent basis there may not be time to issue proceedings or issue the application in the normal. In these circumstances, the applicant will have to undertake to the Court that the proceedings and the application will be issued urgently after the injunction is granted. Any application for an urgent injunction must usually be supported by evidence in the form of a witness statement or affidavit. There is no need for any witnesses to attend the hearing, it will be dealt with on paper only.

Applying for or resisting an injunction is, without doubt, expensive as the legal team will have to act on an urgent basis putting aside any other work and proceeding on many occasions out of normal office working hours. Costs can easily run into many thousands of pounds. The costs will be determined by the individual facts and circumstances of each case subject to matters such as the complexity of the issues involved, the number of witnesses and how quickly the injunction is required.

It is extremely important that anyone considering an application seeking an injunction should obtain legal advice before proceeding.

For More Information

If you would like to discuss any matters in this article or require any advice in relation to business litigation or injunctions please contact Shahid Miah or Taj Barring.

The UK Government, in its bid to soften the unprecedented and devastating impact on the UK economy of the Covid-19 pandemic, has amongst other measures temporarily placed restrictions upon the use of Statutory Demands and winding up petitions. The provisions for this have been set out in the Corporate Insolvency and Governance Act 2020 (the “Act”) which came into force on 26 June 2020.The Government had previously on 23 April 2020 announced restrictions on the use of Statutory Demands and winding up petitions during the COVID-19 pandemic. The Bill was pushed through an accelerated Parliamentary process.

Corporate Insolvency and Governance Act 2020

The Act applies to any debt owed by a company and does not just apply to rent or other commercial lease liabilities. The provisions do not apply to financial services companies, insurance companies and banks.

The relevant dates are that any Statutory Demands served between 1 March 2020 and 30 September 2020 cannot be used as the basis for representing a winding up petition after 27 April 2020.

It is important to note that the Act does not provide a blanket ban on the presentation of winding up petitions. The criteria to be considered is either the COVID-19 pandemic has not had any financial impact on the debtor company or that the company would not have been able to pay its debts irrespective of the pandemic. The petitioning creditor will need to include a statement setting this out in the winding-up petition.

If the Court finds that the pandemic has had a financial impact on the debtor company then the winding up petition will be dismissed. If the Court is satisfied that the debtor company would have been unable to pay its debts regardless of the pandemic then the petition will proceed. The Court will consider carefully if the COVID-19 pandemic had a financial impact on the company and if its financial position has become worse as a result of the pandemic. It would appear that petitioning creditors will have difficulties in proving that no financial difficulties have been caused to most debtor companies as the economic crisis in the UK deepens and worsens for many sectors. It will not be sufficient to argue that the debt was incurred before the pandemic. It may influence the Court if the petitioning creditor can provide evidence that the debt is significantly old and has never been disputed.

The cost will be awarded against the petitioning creditor in the event that the Court orders the dismissal of the winding up petition. Accordingly, creditors must take extra care when considering the Statutory Demand and winding up route. It is highly recommended that specialist insolvency legal advice be taken before deciding to serve a Statutory Demand.

The Act can also apply to winding up orders that have been made before 25 June 2020, the Court has the power to make the order void if it believes that it does not meet the requirements set out in the Act.

The normal route to challenge a Statutory Demand served upon a company or the presentation of a winding up petition is to seek an injunction from the Court to restrain the presentation of the winding up petition or to restrain the presentation of the advertisement of the petition. There have been a number of relevant reported cases this year.

In Re A Company [2020] EWHC 1406 (Ch) the injunction was granted by Mr Justice Morgan to restrain the presentation of the winding up petition. The Court decided that the COVID-19 pandemic had had an impact on the financial standing of the company.

It should be remembered that the Act is only temporary and many companies will find themselves in difficulties once the provisions set out in the Act come to an end, unless they are further extended. Companies that find themselves in financial difficulties should sensibly use this time and other financial support being provided by the Government in restructuring and taking proper legal advice and thereby avoiding insolvency.

For More Information

For advice and assistance please contact:

Shahid Miah

Tajinder Barring

14 July 2020

The impact of the coronavirus (COVID-19) is currently being felt all over the world not only from a health point of view but the strain that is being placed upon the world economy. The economic impact has been unprecedented and Anthony Guterres, the Secretary General of the United Nations, recently stated that the current coronavirus outbreak is the biggest challenge for the world since World War II. He said it could bring a recession, “that probably has no parallel in the recent past“. His warning came amid dire predictions about the possible economic impact of measures imposed to fight the virus. Many countries, including the United Kingdom, face not just a recession but potentially a depression. In the UK household names such as Debenhams have been placed into administration with many other businesses and individuals facing insolvency.

The Chancellor of the Exchequer, Rishi Sunak, has made substantial funds available to different sectors of the UK economy to try and assist in softening the blow of the Coronavirus.

The UK government recently announced new insolvency measures to prevent businesses unable to meet debts due to the impact of the Coronavirus from being forced into insolvency. Alok Sharma, the UK business secretary, said that the wrongful trading law would be suspended to protect directors during the pandemic.

Section 214 of the Insolvency Act 1986 states, “ If in the course of winding up of a company it appears that: the company has gone into insolvent liquidation and at some point before the commencement of the winding up of the company that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation and that person was a director of the company at that time. The court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company’s assets as the court thinks proper unless the court is satisfied that that person took every step with a view to minimising the potential loss to the company’s creditors as he ought to have.”

With the problems that the UK faces the coronavirus pandemic, many directors would find themselves in breach of section 214. As a result, this section has for the time being been suspended.

However, this should not be seen as an indicator that all personal liabilities for directors now do not exist. It is important for directors to understand how to properly and lawfully extract funds from the company during this time in order to avoid other personal liabilities in the event that their company in the near future is placed into any kind of insolvency process.

There are currently three ways in which directors can normally extract funds from a company, these are as follows: –

1. By way of a salary through the payroll;
2. By way of dividends;
3. By way of director’s loans.

Directors must be careful in relation to remuneration and personal liability.

The safest way currently for directors is to receive payment via a salary. As long as the company continues to trade the directors can receive reasonable salaries according to market rates.

Directors should be extremely careful about taking remuneration by way of director’s loans from the company. If the company subsequently falls into some sort of insolvency process it is highly likely that payments taken by way of director’s loans by the directors may well be challenged. These payments may be challenged in two different ways:

1986. a) Preferences pursuant to section 239 Insolvency Act 1986. These are payments made by the company to a director at the time when it was insolvent and there was a desire to prefer the party who received the payment.
1987. b) Misfeasance pursuant to section 212 Insolvency Act 1986. This is where a director beaches his fiduciary duty to the company and causes a loss to the company. He may be personally liable to pay the amount of that loss.

It would be extremely difficult to argue that the payment of director’s loans was not a preferential payment.

In relation to dividends, this may be considered unlawful and subject to clawback if:

– The company did not have sufficient distributable profits to make the dividend; or

– The payment of those funds left the company insolvent; or

– The company had not taken proper steps to declare the distribution in accordance with the appropriate legislation.

If a director has any doubts about extracting funds from a company, the safest method currently is by way of a salary in line with market rates for his role.

There may well be further changes to the insolvency legislation during this pandemic. If there are, we will continue to provide the relevant updates.

In these uncertain times it is highly recommended that if directors are in any doubt about the insolvency of their company, personal liabilities or any other issues relating to insolvency matters they should seek professional advice urgently.

For More Information Contact DBT & Partners Today

If you require any advice in relation to this article please contact:

Shahid Miah – shahidmiah@dpp-businesstax.com

Tajinder Barring – tajinderbarring@dpp-businesstax.com

0207 416 6745

28 APRIL 2020

 

 

 

Border Force has been ordered to pay for 100% of the defendants costs after the seizure of more than 16,000 litres of wine over fears of customs evasion was ruled unlawful.

Tajinder Barring, DBT & Partners, acted on the case for an established drinks supplier from whom Border Force seized a full lorry.

May 2018

Back in May 2018, Border Force officials at Anglesey Port stopped and inspected a vehicle carrying over 16,000 litres of wine coming from Ireland.

The officers believed there was a possibility of an attempt to evade excise duty, as they suspected the vehicle was not destined for France, as the driver had suggested.

Border Force contended that “an offence had been committed in respect of the goods by a person who had knowingly been concerned in the taking of steps with a view to the fraudulent evasion of excise duty” and therefore the wine was liable to forfeiture.

June 2019

A District Judge at Llandudno Magistrates court ordered the wine to be confiscated and disposed of last June.

Cork-based Euromax Commodities, the company who organised the shipment, appealed against the decision, with the help of DBT & Partners.

“There was no suggestion duty would be evaded”

After a three day hearing in Caernarfon Crown Court, Border Force’s case was roundly rejected. The Court ruled that the seizure of a shipment of wine should not have happened, and there was no suggestion that duty would be evaded.

Judge Huw Rees said, upon announcing the court’s decision, that Euromax Commodities was a reputable company and the decision to stop the vehicle was because it had been seized previously.

Since then, the vehicle has been sold and the ownership of the vehicle and the company’s operating license was questioned, but was not relevant to the ruling.

The court has ordered the UK Border Force to pay the costs of the appellant, which could include compensation of wine that was now out of date or disposed of.

 

Are you being accused of excise or duty evasion? Has HMRC or the Border Force seized your goods? Contact the experienced solicitors at DBT & Partners. to see how we can help you get the best possible outcome.

Source: North Wales Live

Photo © Malcolm Neal (cc-by-sa/2.0)

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