Author: Azizur Rahman
14 June 2013
4 min read
A multi-million pound tax fraud involving a low-budget film has led to heavy sentences for five people. Here, Aziz Rahman looks at how the failed scheme was carried out and how to defend yourself against tax fraud accusations.
As frauds go, it apparently had all the ingredients of a cracking film – talk of A-list stars, supposed big, overseas financing and a plot that relied heavily on shady dealing. Which is ironic bearing in mind the lengths a group of five went to in a bid to disguise their fraudulent tax activities. The five actually produced and released a film, called appropriately “A Landscape of Lies’’, to cover their trail. But it appears unlikely that there will be a sequel, seeing as the film-loving five have now been given hefty sentences for tax fraud.
“A Landscape of Lies’’ looks, at first glance, to be like many low-budget British films that never really prick the national consciousness. It scores 5.4 out of 10 on the Internet Movie Database ratings and features a former “Eastenders’’ star, a presenter from ITV’s “Loose Women’’ and a gaggle of other faces you may have seen pop up in soap operas and early-evening dramas. The tale of a Gulf War veteran’s challenges on returning to civilian life was released straight to DVD two years ago; although to its credit it did win an award at last year’s Last Vegas Film Festival. Now, however, a lot more people know about it because it was devised entirely as a tax dodge.
The five men behind it have been convicted of using the film as a way of gaining £2.8M in tax relief from HM Revenue and Customs (HMRC). Southwark Crown Court heard that the five claimed to be creating a British film with A-list actors and £19M funding from Jordan. But it was actually a sham project. There was no film. The whole thing was a ruse, designed entirely to help the five claim nearly £1.5M in tax back for work that had not been carried out on the non-existent film as well as a further £1.3M under a government scheme allowing filmmakers to claim back up to a quarter of their expenditure as tax relief.
HMRC told the court that the five had already received £1.7M back when checks showed that the work had not been done and many so-called suppliers knew nothing of the five or the film they were supposed to have made. The five were arrested on suspicion of tax fraud in April 2011. They then decided that, at that stage, they would actually have to make a film as quickly as possible as an attempt to evade detection. Neither the cast nor scriptwriter knew the real motive for the film being made. It was promoted in film industry magazines and appeared as normal as any other non-blockbuster film release. But instead of the supposed £20M budget, the five cobbled their moment of silver screen glory together for just £84,000 – roughly 0.4% of the cost they had told the tax man they had incurred. The result was the five making crime rather than celluloid history. They have become the first people convicted for trying to defraud the British Film Commission’s tax relief scheme.
The moral of this tale is, therefore, that tax fraud comes with heavy penalties. Any application on this scale is audited thoroughly. After all, there is no way a government is ever going to be keen to hand back any money it has raised from taxes. That is a fact – not the stuff of films.
Recently, HMRC has been keener than ever to chase down tax evaders, avoiders and those suspected of fraud. They want people to know that they have to put their affairs in order or pay a very high price. If the HMRC starts to scrutinise your business affairs, the best defence is to have a fully-documented and recorded accounting system in place. If the tax man has suspicions then having everything in clear, black and white and auditable form will be the clearest indication that everything is above board.
But any accounting system can only be a firm defence against prosecution if it is fully legally compliant. To make sure that is the case requires the assistance of a solicitor familiar with compliance issues – only such a legal expert can advise which measures have to be introduced to make sure a company is functioning completely within the confines of the law. Taking such pre-emptive action will be the only way to avoid prosecution, jail or financial punishments, not to mention potentially huge damage to a company’s trading levels or reputation.
Rahman Ravelli represents companies and individuals whose tax affairs are under investigation. To represent someone successfully in such an investigation requires knowing how to deal with investigators and knowing which is the most appropriate course of action. Whenever someone finds themselves attracting HMRC’s attention they have to get the right legal representation, gather all the relevant information and documentation and let the legal representative handle the negotiations. HMRC can now use its powers under Code of Practice 9 (COP 9) to force companies to disclose any underpayment of tax; which further highlights the need to act correctly and seek the best legal representation from the very first hint of an investigation. HMRC wants to track down what it sees as unpaid tax and weed out those it suspects of tax fraud. Yet at the same time, it wants greater transparency from individuals and companies regarding their tax affairs. It believes people should be encouraged to report their own wrongdoing when it comes to tax and yet penalties can vary massively for those who admit or are found to have committed tax offences. This means that deciding if any wrongdoing has been committed and what action should be taken are both issues with major consequences.
Taking the wrong step – which is very possible without the right legal advice – can prove very costly.
Taking the right step, which involves seeking the best legal advice possible, is the only way to protect your interests.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.