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Tax Bulletin Issue 75


HM Revenue and Customs -Tax Authorities

Tax Articles
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February 2005


  • Use of the SDLT CD-ROM
  • Changes to Employer Supported Childcare


  • Stock dividends in discretionary trusts - appeal result


  • The Public Service Agreement 1 Delivery Team and what they do!
  • Putting Small Business at the heart of HM Revenue and Customs
  • Business Link
  • Prosecutions
  • Statements of Practice and Extra Statutory Concessions

Use of the SDLT CD-ROM

In December 2004, Stamp Taxes issued a CD-ROM version of the Stamp Duty Land Tax returns. The CD-ROM also includes interactive help in completing the returns and validation to help ensure that the returns are correctly completed. This article sets out the benefits of using the CD-ROM version of the returns and Stamp Taxes’ views on how it should be used.

The CD-ROM is a non-network product designed for use on Windows PC’s with hard drives and was developed to provide practitioners who do not use commercial Case Software Management (CSM) products a means of generating self-validating SDLT 1’s. There is a training function to help users gain familiarity with the on screen use of the product. Further supplies of the CD-ROM envelopes and payslips may be obtained from the IR Orderline (0845 302 1472).

We see use of the CD-ROM as having a number of strong advantages over completing paper returns. It incorporates:

  • interactive help updating and clarifying our current guidance,
  • ‘validation’ using many of the rules that the Inland Revenue IT system applies to check that returns are acceptable,
  • 2D-barcode technology to capture the information from the return without reliance on the very exacting optical character recognition parameters associated with scanning technology,
  • drop-down menu boxes from which to select the answers to certain questions and free-flow fields into which others may be keyed. Although users will find that they are limited to the same number of characters as on the paper form, this means that poor handwriting or difficulty in inserting written characters within the small boxes provided by the paper form will not delay the issue of a land transaction certificate,
  • a facility which enables the purchaser to opt to confirm that information on the SDLT1 is correct and complete apart from the effective date. The purchaser then authorises the agent to insert the effective date when known, to sign the full return and to submit it to the Inland Revenue.

The combination of these features means that, if used correctly, the CD-ROM will provide greater certainty that we will be able to process the return first time, resulting in a certificate being issued quickly and without the need to ask for additional information.

Special features


  • enables up to six of each supplementary form SDLT2, 3 and 4 to be printed for manual completion and submission with the SDLT1
  • provides for agent’s details to be prepopulated on successive SDLT1 returns.

Please note that it is expected that Case Software Management providers and legal forms suppliers will shortly be updating their products to incorporate 2D-barcode technology. Practitioners who already use these products or who are looking for additional features not found on this CD-ROM should keep our website under review. Names of commercial providers and suppliers will be published as their 2D barcoded products receive Inland Revenue recognition.

User trial CD-ROM

Last year a previous version of the CD-ROM was issued to selected practitioners in south west England. We are extremely grateful to all those who installed and used it and who reported to us difficulties and drawbacks in its application as well as advantages. We have worked hard in conjunction with our IT contractors to eliminate those difficulties and believe that this product which is distributed throughout the United Kingdom will prove a robust and practical tool especially for smaller firms and individuals.

Correct use of the CD-ROM

Included with the CD-ROM is a booklet advising on the key aspects. Further information on use of the CD-ROM is also available on our website at http://www.inlandrevenue. If users are still unable to find an answer to their query, Stamp Taxes Enquiry line is available on 0845 6030135.

The CD-ROM will not allow the printing of a final 2D barcoded return until the relevant validation rules have been satisfied. So for example, a final return cannot be printed until the ‘effective date’ question has been completed. This is because the Inland Revenue system will collect the data from the barcodes, not from the completed question fields. The software in the CD-ROM will automatically convert the data from the return fields into the barcode before printing. But a facility has been added to allow an “agent’s copy” to be printed without a barcode and without an effective date having been entered. This is for the purchaser to sign and the agent to retain.

We recognise that, in practice, many practitioners send the SDLT returns to their clients to complete the statutory declaration before the transaction has completed and before the ‘effective date’ is known. We also recognise that not allowing the final return to be printed and sent to the client until after the effective date eats into the 30 day filing period. Regulations have been introduced to allow some, very limited, flexibility in how the statutory declaration may be completed.

New regulations

Where the CD-ROM or other 2D barcoded methods of completing form SDLT1 are used, new regulations give practitioners the option of sending to their clients a copy of the form for signature prior to confirmation of the effective date. This copy is for retention by the practitioner, who can send us a fully completed return including a declaration that the effective date is correct and that the property purchaser has signified that all other information is correct.

The agent’s declaration option is only available where a method of completing form SDLT1 employs the 2 D barcode. The technology allows the form to be printed for signature by the purchaser when all relevant information has been entered except question 4, the effective date of the transaction. But this form, signed by the purchaser does not itself carry a barcode. It must not be submitted to the Inland Revenue and is intended for retention by the agent.

Only when the agent accesses on his computer the saved details of the return and completes the form by entering the effective date, will the technology permit the printing of a 2D barcoded return for signature and submission to the Inland Revenue. At that point the agent is able to choose if the final full return is to be signed by:

  • the purchaser,
  • the agent, (having received the purchaser’s signature confirming all the information on the return except question 4, and the purchaser’s authority to confirm question 4 by signing and submitting the return to the Inland Revenue).

A Land Transaction Return comprises form SDLT1 together with such supplementary forms SDLT2, 3 or 4 and schedules as may be required to make a full return. It is therefore essential that a purchaser when signing an SDLT1, either the full final barcoded form, or the “agent’s copy” (with question 4 blank) reads, understands and confirms as correct, all the information to be submitted in that Land Transaction Return.

The new form of declaration uses the term ‘agent’ as an ‘agent’ is somebody authorised by the purchaser(s) to act on their behalf. In practice we would normally expect this to be the solicitor, licensed conveyancer or other practitioner acting in respect of the property transaction, but anyone may be authorised to act as an agent. This authorisation is specific to the transaction being notified.

Why are we doing this?

The most common reason why we are unable to process SDLT returns is because the effective date has not been completed. To help ensure that property purchasers get a land transaction certificate as quickly as possible, a final 2D barcoded return is not printable until all relevant information has been included in the return. But we also want purchasers, who are the persons liable to penalties for late filing, to have as long as possible to get the completed returns to us.

It is our view that the use of this option has no bearing on the person who is liable to tax, interest and penalties. This remains the purchaser as defined in section 43(4) FA 2003. Where the agent’s declaration is used, we would expect the practitioner to have evidence that the purchaser has confirmed that the information in the return is correct. This would normally consist of a copy signed by the purchaser. Where we take up cases for enquiry, we would still normally expect to seek any additional tax, interest or penalties which may result, from the purchaser.

There is no obligation on practitioners to use the agent’s declaration. The CD-ROM works perfectly well when it is not chosen. However Stamp Office believes it is an additional option, which will allow users to get maximum benefit from the advantages offered by the CD-ROM.

Other things to consider

Correcting errors

An SDLT return for sending to the IR can only be printed if all necessary information has been completed on screen. If any manual amendments are made to the information, our capture process will not identify that change. So if for example the effective date is changed, our processes will calculate interest and late filing penalties by reference to the original effective date. Errors found on saved or open returns may be corrected on screen, but if an error is spotted after the form has been printed, that print must be destroyed. Reopen that return on screen, make the necessary corrections and print the corrected version for signature and submission.


The 2 D barcode which appears on each page of the SDLT1 form for submission has to be a complex pattern in order to reflect all the information that has been entered on that page. The detail of that complexity must be picked up when the barcode is “read” in an automatic process. It is therefore important that the printing of the form in your office is of a good standard.

Generally we have found that a well maintained laser printer, not low on toner, gives the best results. But a good quality inkjet printer can be successful provided that it has an adequate supply of ink which is allowed to dry without any contact resulting in smudging.

Supplementary form SDLT4

The CD-ROM features a revised version of supplementary form SDLT4. Guidance notes for this new version are available. Until the end of March it is permissible to use either this new form or the current version.

Submitting the final return

Before you send the completed 2D barcoded copy of the return to our processing centre at Netherton, you must ensure that:

  • the return is signed, and there are no manual amendments as this information will not be incorporated in the barcode and will consequently be ignored,
  • you provide the payment due or make direct payment using the Internet, telephone, BACS Direct Credit or CHAPS. See Further details about payment methods
  • any forms printed from the CD-ROM are stapled in the top left hand corner,
  • all forms are placed in the envelope unfolded.

Any SDLT1’s completed using this product will need a Unique Transaction Reference Number (UTRN) that can be found on the paying-in book payslip.

There is no in-built calculator on the CD-ROM, so we’ve provided a link to SDLT and Lease calculators on the Stamp Taxes website at /so/.

Feedback on the CD-ROM

We are very interested in receiving feedback from those using the CD-ROM. We should be grateful if all comments are forwarded by e mail to

But for any problems, either with the CD-ROM or with how the return should be completed, in the first instance, please refer firstly to our website or thereafter telephone the Stamp Taxes Enquiry line.

Changes to employer-supported childcare

The tax and National Insurance contributions rules for employer-supported childcare are changing from
6 April 2005. Section 78 and Schedule 13 of the 2004 Finance Act introduced the legislation for the change which amends Section 318 ITEPA 2003 and introduces new sections 318A – D and 270A. The National Insurance contributions rules are being revised by Regulations to take effect from 6 April. The main changes are:


  • the introduction of new tax exemptions up to the first £50 a week for employer-provided childcare
    vouchers or employer-contracted childcare subject to qualifying conditions;
  • the extension of the existing full tax exemption for employer-provided childcare to apply to persons
    not directly employed by the employer providing on-site childcare;


  • the NICs exemptions for childcare vouchers and contracted childcare will also be up to the first £50 a week for both primary and secondary Class 1 NICs (childcare vouchers) and Class 1A NICs (other childcare).

The 2004 pre-Budget report announced that childcare voucher administration fees would also be exempt, meaning that the full £50 a week limit can apply to the face value of the voucher.

Employers need to be aware of these changes if they are considering providing childcare benefits for the first time and if they currently offer childcare benefits. Employers providing any form of tax efficient childcare help to employees from 6 April need to be satisfied that the new conditions are met before applying the tax and NICs exemption. It is particularly important to ensure that:

  • the childcare used is registered or approved; and
  • the scheme is:
    • either open to all employees to participate or apply for a place
    • or open to all employees at the location where the scheme operates.

If employers continue to provide childcare or childcare vouchers where the qualifying conditions are not met (for example, childcare vouchers are provided to employees to pay for informal childcare) the cash equivalent of the benefit must be reported on the 2005 P11D.

Employers may wish to choose from a range of options to deliver childcare benefits. The main options are:

  • providing the benefit on top of existing cash salary;
  • offering the benefit as an option in a flexible benefits scheme;
  • offering the benefit in return for a reduction in existing cash salary (a salary sacrifice).

Offering a benefit on top of salary is the most straightforward option. The cost is the value of the benefit. Employers’ NICs is only payable if the exempt limit is exceeded. Providing a childcare benefit is considered a cost of employment and is tax deductible against the employer’s trading profits.

Employers who choose to offer benefits in a flexible benefits scheme or by a salary sacrifice must make sure that the salary reduction is properly reflected in the employees’ contracts or terms and conditions. It is advisable to obtain legal advice on the construction of such arrangements. The Inland Revenue is unable to offer advice on employment law and contract law.

Guidance on the new tax and NICs rules is being provided in the 2005 Employers’ CD-ROM in booklet E18 “How to help your employees with childcare”. Full guidance on the new tax rules can also be found in appendix 18 of booklet 480(2005). These documents and other relevant information, for example general guidance on salary sacrifice, can also be found on our Childcare pages.


Stock dividends in discretionary trusts - appeal result

A shareholder may be given the option to receive shares instead of cash dividends. These shares are known as stock or scrip dividends. As a matter of company law stock dividends may, depending on the circumstances, be income or capital in nature. Furthermore, some trust deeds require trustees to treat all stock dividends as capital, or give trustees discretion so to do. Section 249 ICTA 1988 deems stock dividends to be income for tax purposes. It has always been the Inland Revenue’s understanding of S249(6) ICTA 1988 in conjunction with S686 that, regardless of their company law status or the provisions of the trust deed, when stock dividends are received by the trustees of a discretionary trust (that is, one where the trustees can accumulate income or pay it at discretion) the stock dividends are taxable at the dividend trust rate, with a credit for tax at the dividend ordinary rate.

This position was challenged some years ago when a number of trustees self assessed on a different basis. Their view was that (because of their company law status and/or the provisions of the trust deed) the stock dividends were taxable only at the dividend ordinary rate, covered by the accompanying tax credit, and so in effect no tax was due on them. The arguments put forward in support of the taxpayers’ position were along the lines that the stock dividends were capital in trust law, and so could not be taxed at the dividend trust rate because S686 applied only to receipts that are income in trust law.

In response, the Inland Revenue opened enquiries. Some trustees decided to settle. But most cases are still open pending the result of the trustees’ appeal in the stock dividends case, Howell & anr (Trustees of the Robin Discretionary Settlement) v Trippier. That appeal was lost at the Special Commissioners in December 2003 (reported as Red Discretionary Trustees v Inspector of Taxes at [2004] STC (SCD) 132) and in the Court of Appeal in July 2004 (reported as Howell & anr v Trippier (HMIT) [2004] EWCA Civ 885 at [2004] STC 1245). The trustees then petitioned the House of Lords for leave to appeal. On 8 December 2004 the trustees’ petition for leave to appeal was dismissed. The Court of Appeal judgement is therefore final. The judgement can be found on the Bailii website.

The effect of the judgement is to confirm that all stock dividends received by trustees of discretionary trusts are taxable at the dividend trust rate, with a credit for tax at the dividend ordinary rate.

Any trusts affected by this judgement should either submit amended SA returns or contact their usual tax office.


The Public Service Agreement 1 Delivery Team and what they do!

Public Service Agreements (PSAs) are made between government and public bodies. The Inland Revenue has five PSAs. PSA1 is about how the public complies with its obligations and what the Inland Revenue does to help and support the public. Its objective is “To deliver year on year improvements in the number of individuals and businesses who comply with their obligations and receive their entitlements”.

The PSA 1 Delivery Team is based at Bush House in central London. It is a small team that through its three Group co-ordinators brings together business experts from throughout the department to look at results, analyse problems, and devise solutions. PSA1 covers NICs, Child benefit, Repayments, Tax Credits, Corporation Tax, PAYE & ITSA. This article concentrates on the Team that looks after Corporation Tax - the Company Group.

Christina Morton heads the PSA1 Delivery Team. Christina has both an operational and HR background. So is well qualified in the role, understanding as she does not only operational problems but also why people act as they do. Christina writes “Since I became PSA1 Delivery Planning Manager in the autumn of 2003, I’ve brought together under PSA1 several strands of complementary activity that have enhanced the department’s ability to meet these stretching targets. My colleagues on the PSA1 Group are skilled in
their fields and work well as a team, sharing talents and expertise”.

Craig Harris is the Company Group co-ordinator. He too has an operational background, in local services and in the Large Business Office.

The Company Group includes colleagues from Business Services, those that run the Company Tax computer system (COTAX). From Marketing and Communications, who help advertise the Group’s initiatives. From Revenue Policy, who provide technical advice. From Service Delivery, who consider the impact of proposed changes on the local office network. From Analysis and Research, who advise on the effect of policy changes and analyse the effect of interventions the group devises. From the Receivables Management Service, who collect any outstanding tax. From the Large Businesses Office, who advise on the impacts in the Large Business Sector. Last, but by no means least, representatives from local offices.

Craig writes, “It’s taken a year to build up this group. When I first joined the PSA1 Team, I was amazed by the enthusiasm I encountered. People in this department so much want the taxes and benefits they administer to work, and work efficiently. Colleagues greeted the new Company Group with open arms. Some even called me, wanting to be involved in the work we were about to do.”

Most recently, the group has successfully trialled a “flyer” insert, issued with the reminders which go to companies just a few weeks before the return is due. Michelle Patel of Marketing and Communications says “The skill here is to get the point across, in a line or two. You need to think about what the purpose of the flyer is, and resist the temptation to overload on detail, which might detract from it. These flyers are intended to tell people what they need to do and how - that’s the essential message.”

In 2004-05, for the first time, the Inland Revenue has set performance targets for Corporation Tax.

These (PSA1) targets are:

% of companies returns filed by due date 77
% of companies returns filed within 12 months of due date 89
% of companies that pay on time 58
% of companies that pay within 12 months of due date 93

Bespoke computer generated reports monitor progress against targets in real time. These reports allow changes to be spotted early and actions taken to keep on target.

A target for filing on time of 77% means that 23% of companies could be potentially liable to a late filing penalty. But the percentage of companies that are ultimately liable to a penalty is significantly lower. Why is there a large difference and what does it mean for companies, agents and the Revenue?

There is certainly no one answer but over the years several reasons have been identified:

  • accounting periods recorded on COTAX do not correspond to the actual accounting periods;
  • company is inactive;
  • registered office address has changed.

More often than not, the information about accounting dates, addresses or activity recorded on COTAX is wrong because details have not been supplied about changes, or no form CT41G came back from a newly incorporated company.

Since June 2003 flat-rate penalty notices have been automatically issued about 3 weeks after the filing date noted on the COTAX record. Previously penalty determinations were issued only after a return was received. Consequently, more notices are now issued, which are appealed. This causes extra work for companies, their agents and the Inland Revenue, that could be avoided. But, the early determination of penalties has been beneficial as it brings to light the fact that information is incorrect or that a company is no longer active much earlier than before. However, what would be more of a benefit to both the Inland Revenue and to companies, and their agents, is for information about changes to be promptly notified so that the records can reflect the correct position, thus preventing unnecessary penalty determinations being issued.

Like the other two PSA1 Groups (ITSA & PAYE), the Company Group tries to use existing output as this targets the correct audience. Reduced postage lowers the financial costs to the Exchequer and fewer documents being printed reduces environmental costs.

Promoting e-business is high in the Inland Revenue’s priorities. The Revenue has prepared the ground for Corporation Tax On-line and started to receive its first e-filed returns in 2003. The service was introduced in a low-key fashion to make sure that any teething problems were eliminated before launching it widely. Feedback from early users provided a number of ideas that were implemented. The Inland Revenue believes that e-filing of company tax returns is now proven to be reliable and, above all, easy to use.

Jeff Smith, who is handling CT e-business on the Company Group says “There are many advantages to agents when e-filing their clients’ returns. Apart from obvious savings on postage and stationary, there is the security of knowing that it has been delivered to the right place at the right time. Agents get an instant, automated email acknowledgement that confirms receipt. So there is no debate about whether the return was received on time.

After they’ve e-filed, agents can then view their clients’ liabilities and payments online.”

Before starting to e-file, agents must first register with the Inland Revenue. Although it’s a little time-consuming, (first you register on line, then you get a password by post, then you have to go on-line again to complete the process); but it’s all done to ensure the security of what can be very sensitive information.
Agents can register easily for online services. Visit the Corporation Tax Online pages. There is also a Helpline that you can call (0845 605 5999) for more information.

Extract from a recent News Release you may find helpful

Putting Small Business at the heart of HM Revenue and Customs (published 2 December 2004)

Details of a new small business unit that will transform tax administration for small businesses was announced recently by David Varney, Chairman of Inland Revenue and Customs and Excise.

The new unit will sit at the heart of HM Revenue and Customs (HMRC), and will champion the needs of small businesses. It will be charged with improving customer experience and compliance as well as reducing costs – for both businesses and HMRC - by eliminating unnecessary contact. It will ensure that the development and delivery of the tax system takes full account of the needs of small business and that necessary contact is handled effectively, efficiently and comprehensively.

A high-level advisory group with senior private sector representation will guide the work of the small business unit and ensure that the department harnesses the business community’s ideas for improved compliance at lower costs.

Announcing details of the new unit David Varney said:

“The Chancellor has challenged us to produce very significant improvements in the way the tax system is administered for businesses, particularly small businesses. I know from my own business experience that such a transformation can only be achieved through a strong emphasis on customer focus. That means we need to build on existing knowledge to achieve a much deeper understanding of our business customers: listening to them and responding to their needs, rather than assuming that we know best.”

The longer-term goal for HMRC is to enable its support and compliance staff to take a “whole view” of each customer, tailoring the services provided and minimising the burden of compliance.

The longer-term vision will require enabling legislation as well as the development of new information and IT systems and will take a number of years to build.

HMRC will be working closely with the small business team in HM Treasury to ensure that policy development is fully informed by its experience of providing services to small business customers and that gained from its compliance activities.

Business Link

Want an even better business?
Look no further than the Business Link website.

Whether you are looking to set up for the first time, reduce the time you spend on rules and regulations or improve your existing business there is now an easier way of increasing your chances of success – Business Link Website

The Business Link website, backed by government, gives you access to all the information, advice, funding/grants and training that can help your business start, grow and become more profitable.

As busy business people you may not have the time to explore all the guides and features that have been built to help you. So that you don’t miss out, below is a taste of the key business areas of interest and what’s available to help.

Create a statement of employment

By law, you have to provide your employee with a written document containing certain terms and conditions of their employment. Answer a series of simple questions and create a tailored statement of employment that will cover all the legal requirements including changes to 1 October legislation.

Spend less time on rules and regulations

Find out which rules and regulations your business needs to comply with using our online questionnaire.

Sign up for our Key date reminders and stay on top of tax

Each year small businesses lose hundreds of pounds due to missed filing and payment deadlines. Don’t get caught out – sign up for our Key date reminders. Answer a few questions about your business and we’ll create a list of your key tax related dates over the next 12 months. You can even get regular email reminders as each date approaches.

File online at

Did you know that you can use various government services online, including PAYE for employers? You may be entitled to up to £825 tax-free over five years by filing PAYE online. To find out more, visit us online.

Determine which licences and permits apply to your business

Save time – Fill in our simple questionnaire and receive a personalised, easy to understand list of licences and permits relevant to your business, helping you to stay on top of the legal requirements your business needs to trade.

Improve your effectiveness and efficiency

Learn from real life stories, access tools to benchmark the performance of your business against others and find Business Link advisers who can help you get the support to put best practice into your business.

Find the right sort of funding for your business

Use our guides to understand what finance you need and where to find help. Search our database of over 2,500 grants and schemes to see if there is any public funding available to support your investment.

Get more sales and find new markets

Create successful sales, marketing and pricing strategies whether in the UK or trading overseas using our extensive guides and direct access to services such as UK Trade and Investment.

Build your skills and the skills of your employees

Identify what skills you and your employees need and search a database of over 500,000 courses, seminars and events.

To find out more go online at or simply call on 0845 600 9 006.


The Inland Revenue has a policy of selective prosecution involving the most serious cases across the whole range of the tax system. The Board sees this as an important part of its strategy to deter fraud and evasion. As part of the wider publicity for this strategy, details of Revenue Prosecutions are occasionally published in Tax Bulletin.

John Gardner Braes Lamberton

History was made in Forfar High Court when John Gardner Braes Lamberton, a former Fife Council engineer, was sentenced to a seven-year prison sentence for embezzlement and fraud.

After a three-week trial, Lamberton was found guilty of embezzling £400,000 from his late aunt’s estate, defrauding his brother of £200,000 and defrauding the Inland Revenue of £163,000 Inheritance Tax.

Lamberton, 50, who previously resided in Luthrie, Cupar, took over responsibility for his aunt, Mrs A T S Paul’s, share portfolio. The portfolio had previously been managed by a bank and was valued at £402,000. When Mrs Paul died in June 1998, Lamberton, in his capacity as executor, became responsible for submitting her personal tax returns but he omitted to show the investments in the Estate Tax Returns for 1997 and 1998.

The investigation, which was carried out by the Inland Revenue Special Compliance Office in Edinburgh, ascertained that he then sold his aunt’s shares and opened a stockbroker account for himself into which the proceeds of the sale were moved.

Lamberton also set up a company called Targetrade Ltd, registered in the British Virgin Islands, with himself as the sole beneficial owner. The company had a bank account in the Isle of Man through which almost £400,000 passed from the UK to Guernsey, the Isle of Man and back to the UK.

Lamberton then moved from Cupar to Northern Ireland and then on to Spain, where he set up an estate agency and bought a house in the Alicante area valued at £250,000.

Crown Office arranged for Lamberton’s extradition under the 1957 Extradition Treaty and on 5 August 2003 he was arrested in Alicante, where he remained in custody until he was extradited to Scotland on 30 January 2004. On his return he was remanded in custody at Saughton.

During the trial Lamberton admitted that he had lied when interviewed by Inland Revenue investigators. His wife, son and brother all gave evidence against him.

In his summing up, his Honour Lord Hardie said:

“This was a despicable crime. You have not shown any remorse and have failed to make restitution. Your behaviour was a gross breach of the trust placed in you by an elderly relative.”

Inland Revenue investigator, Stephen Henderson said:

“This case is the first prosecution involving Inheritance Tax and shows that the Inland Revenue will investigate fraud in all areas. Lamberton left a money trail that we followed until we caught up with him. Leaving the country did not lead to an escape from justice – to us, ‘offshore’ does not mean ‘off limits’.”

A confiscation hearing will be taking place soon.

Mark Richard Baker

An Inspector of Taxes was recently sentenced to 3½ years imprisonment for fraud amounting to nearly £300,000. Mark Richard Baker, a married father of three, from St Andrews Ridge, Swindon, appeared before Swindon Crown Court.

Inquiries conducted by the Inland Revenue’s own investigations department revealed that over a 5-year period, Baker created 44 individual false identities and then proceeded to make tax repayments to himself totalling £293,334. He had previously pleaded guilty on 29 November 2004 to the offence of Cheating the Public Revenue.

In sentencing Mr Baker, His Honour Judge McNaught said:

“The defendant has misused his position over a long period of time and therefore I have to impose a sentence that reflects this.”

An Inland Revenue spokesperson said:

“Inland Revenue staff act with the utmost integrity almost without exception. A person like this is not only defrauding the exchequer, they are also cheating the public of money and show they have no respect for the community they serve.”

A confiscation hearing will be heard at a later date.

Stephen Lee Bowers

Stephen Lee Bowers, aged 55, director of Offerton Sand & Gravel Ltd of Stockport, Manchester, was sentenced at Manchester Crown Court to 12 months imprisonment and ordered to pay a £252,977 confiscation order.

The court heard that Bowers had used company money to renovate his family home, Shiloh Hall Farm, a farmhouse set in 4 acres of land. In doing so, he had taken steps to ensure that the invoices provided by his suppliers gave false or misleading descriptions of the work carried out and passed these off as legitimate business expenditure through his company.

The case was taken up by the Inland Revenue’s Special Compliance Office, Manchester, and the subsequent investigation discovered that more than £161,000 was spent on work at Shiloh Hall Farm.
In his summing up, His Honour Judge Jeffery Lewis said:

“Your problems stem from the purchase of Shiloh Hall Farm and the work carried out on it. Unfortunately the budget overran and you made the cardinal error of not agreeing a fixed price. You did not sit down with those who could give you proper advice.”

The resulting tax loss was calculated to be £70,000 but with the use of the Criminal Justice Act 1993 and Proceeds of Crime Act 1995, the benefit to Stephen Bowers was in excess of £250,000. This is the amount the judge ordered to be confiscated and to be paid by 31 March 2005. If it is not paid, then Bowers is ordered to serve a further period of 5 years in default.

Inland Revenue spokesman Richard Boyes said:

“The Inland Revenue will always seek a Confiscation Order in criminal cases for the full amount due in law. In certain circumstances, the amount confiscated can be significantly more than the tax evaded, as demonstrated in this case.”

John Edward Lewis

John Edward Lewis, a Chartered Accountant, was sentenced to 12 months imprisonment at Kingston Crown Court recently. He had pleaded guilty at an earlier Court hearing to eight counts of cheating the Public Revenue, contrary to common law.

Lewis (53), of London Road, Stanmore, Middlesex, commenced the fraud in May 1994. He traded as John Lewis & Co and evaded payment of PAYE and National Insurance Contributions (NICS) deducted from wages of his employees. Lewis gave his staff wage slips that indicated he no longer employed them. He used various names on the wage slips including JL Ltd and Fiscal Engineering Ltd.

Some of the company names used did not exist, others were simply shelf companies that had never traded but were controlled by Lewis.

The wage slips showed deductions of tax and NICS from employee salaries, but Lewis did not pay these deductions over to the Inland Revenue. Instead, he informed the Revenue that the companies had no employees. He managed to evade PAYE and NIC of £124,000 by the use of these companies.

Lewis also failed to make any self-assessment tax returns of his profits as a Chartered Accountant.
The total amount evaded, including interest, amounted to £200,000.

In February 2001, the Inland Revenue Special Compliance Office (SCO) carried out search operations at Lewis’ accountancy premises at Burnt Oak Broadway, Edgware and his home in Stanmore. Lewis was arrested by the police and interviewed under caution by investigators from SCO in connection with the suspected tax fraud. It became clear that over the years Lewis had invested in expensive assets, including a Rolls Royce, a BMW and two boats. He also managed his own extensive investment portfolio.

In sentencing, His Honour Judge Hucker said he had no doubt that Lewis realised the wholly dishonest nature of counts 1 to 6, (relating to unpaid PAYE tax and National Insurance Contributions):

“The evidence points to serious dishonesty for which there is no excuse and no defence.”

Judge Hucker added that he had taken into account the eventual pleas of guilty and the total loss of Lewis’ professional career.

The sentence was 12 months imprisonment for each of the first six counts, to run concurrently.
Inland Revenue SCO investigates cases of tax fraud which are considered serious enough to warrant
criminal prosecution.

The Inland Revenue places great reliance on the honesty and integrity of accountants, solicitors and barristers. When evidence is obtained of tax frauds where such a person is involved, prosecution is likely.

John Hamilton, James Downes, Muhamed Smajlovic and Farzana Rashid

On 21 January 2005 at Southwark Crown Court, four individuals were sentenced to a total of 8½ years for their roles in a tax fraud, which cost the public purse £500.000.

Between October 1997 and January 2001, John Hamilton, James Downes, Muhamed Smajlovic and Farzana Rashid, all from London, created false documents based on individuals supposedly employed in the construction industry.

Smajlovic and Rashid, who were employed by a firm of accountants in Walthamstow, East London, were responsible for submitting false paperwork to the Inland Revenue who subsequently issued tax repayments to the firm. The tax repayments were based on non-existent individuals.

Hamilton and Downes received the bulk of the £500,000 from the accountancy firm, with Downes laundering the money through a number of bank accounts.

Inland Revenue procedures identified the fraud and this resulted in a number of individuals being arrested and properties, both business and private, being searched.

For their parts in the fraud, James Downes received 3 years imprisonment, Muhamed Smajlovic 2 years, John Hamilton 18 months and Farzana Rashid was given a two year suspended sentence.

In sentencing them, His Honour Judge Goymer said:

“Cheating the public revenue is a serious offence. It is unjust and offensive to the vast majority of public citizens who pay their tax. It becomes more serious when offences take place over a prolonged period.”

Confiscation hearings have been set for a later date.

Inland Revenue Statements of Practice and Extra-Statutory Concessions issued between 01/12/2004 to 31/01/2005.

Extra Statutory Concessions

There have been no Extra Statutory Concessions for this period

Statements of Practice

There have been no Statements of Practice for this period

You can get copies of SPs and ESCs by telephoning on 020 7147 2363.


The content of Tax Bulletin gives the views of our technical specialists on particular issues. The information published is reported because it may be of interest to tax practitioners. Publication will be six times a year, and include a cumulative index issued on an annual basis.

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Article Published/Sorted/Amended on Scopulus 2006-11-04 13:52:48 in Tax Articles

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