Taxpayer who sent edited bank statements to HMRC loses appeal against Furlough clawback is an article relating to the case of Top-Notch Accountants Ltd v Revenue & Customs [2023] UKFTT 473 (TC).
Top Notch’s business was said to be as follows:
…accounting and auditing activities, book keeping activities, and tax consultancy.
An appeal was lodged against an Assessment issued by HMRC on 18 February 2021 following Top-Notch Accountants Ltd (“Top Notch”) receiving Coronavirus business recovery payments under the Coronavirus Job Retention Scheme (“CJRS”) (Furlough). This article does not concentrate on whether a party will need to repay the Furlough claims but instead looks at what happened in a case when edited bank statements were sent to HMRC.
Furlough claims not unlike HMRC Bounce Back Loan Investigations are being reviewed by HMRC in some cases.
To be eligible for claiming on the CJRS the employees had to be those for whom HMRC had received PAYE Real Time Information (“RTT”) by specific dates.
HMRC’s Request For Bank Statements
On 10 November 2020 HMRC requested copies of various bank statements after notifying Top Notch that it was operating a check of its Furlough payments.
On 16 November 2020 this was provided.
On 9 December 2020 HMRC told Top Notch that it was not eligible to claim Furlough pay through CJRS for an employee as he or she was not on RTI submissions prior to 10 March 2020.
On 26 January 2021 Top Notch told HMRC the bank statements had been downloaded and no changes made to them after being asked by HMRC if they had been edited.
Edited Bank Statements Sent To HMRC By Taxpayer
HMRC considered they had been amended. The Tax Tribunal noted:
The officer advised Mr Islam that the bank statements appeared to have been manipulated and included a number of transactions where the font had been varied and spelling mistakes made. Mr Islam disagreed and reiterated that he had obtained the statements directly from the bank. Latterly, he said that he had provided the wrong bank statements and said that he would send the correct ones. He suggested that the “errors” might have been caused when scanning the documents. The officer said that since those bank statements were not credible, further bank statements should be provided directly by the bank.
HMRC said they would issue a decision letter as to the amounts needing to be repaid.
Shortly thereafter an explanation was provided to HMRC as follows:
At 18:52 that evening Mr Islam emailed Officer Hunter and apologised for sending bank statements “erroneously”. He stated that he had checked all of the statements and thought that he had made mistakes when downloading them. He stated that:-
“The bank statements were downloaded in QIF format instead of PDF incorrectly, and I have tried to find employee’s payments by searching their name for marking, but I never thought that something is happened (sic) mistakenly in between. I believe the data was misdirected at that time.”
- He asked her to ignore those bank statements. He went on to state that:-
“I have never thought that the RTI was not submitted correctly. I was informed on April 20 when I had tried to submit the CJRS claim. Then, I called HMRC to resolve the issue. I got advice from them for resubmission of all previous RTI, and I did that on April 20. After resubmission (sic) the RTI, I have applied for CJRS claims. No one said from HMRC that my employee is not eligible for CJRS.”
29. Later that evening he forwarded new copies of bank statements. He sent numerous further emails in the course of that evening. Six enclosed copies of emails from HMRC acknowledging receipt of FPS submissions dated January to May 2019 inclusive and 20 April 2020.
The position put to HMRC was that Top Notch had made a simple mistake as the bank statements provided were for internal use only sent in error:
Mr Islam said it had been a simple mistake and that the statements that he had provided were from a bank reconciliation which he had edited to adjust for cash payments. He said that those had been intended for internal use only and had been sent in error.
He advanced an argument that he had downloaded the bank statements as a PDF and used Adobe to open these with Excel. He then made the relevant adjustments for cash payments that he had made to employees. He said that he then saved the documents again as a PDF.
The officer’s response was that she found that that was an incredible argument and it would have been more reasonable if he had sent the documents to her in an Excel format. The PDF statements which had been submitted showed only a handful of changes made directly to his employee and no other transactions appear to have been affected. She pointed out that it was highly unlikely in any event because the formulas are not retained in a PDF document and therefore he would have to input the formulas and drag that through the document which would mean that a balance would show in each row. It did not. She stated that she would require statements from the bank.
On 31 January 2021, Mr Islam emailed Officer Hunter with two versions of his bank statements. He said that:-
“…we usually download the bank statements from online in word & Excel formate (sic) every month. We do reconcile of its every transaction as necessary, and then we keep it in save folder in pdf format for our future use and annual accounts (sic).”
He also attached a spreadsheet with what he described as “a detailed clarification about the differentiated transactions between non reconciled (sic) and reconciled bank statements”.
In summary, he explained that the entries in the reconciled bank statements, being the original ones sent to HMRC, when compared with unedited or non-reconciled bank statements, showed a reconciliation of cash payments and payments for Microsoft 365.
HMRC’s Position
HMRC it seems did not appear convinced by Top Notch’s explanation and in its letter dated 18 February 2021 in which it raised the Assessment of £19,981.47 HMRC noted the creation date of the relevant PDF files:
(d) The creation date on the reconciled statements provided was between 27 January 2021 and 29 January 2021 so if the company did retain edited PDF documents to reconcile payments, as alleged, the documents supplied would be historic showing a creation date for each relevant month. As the documents were created following the telephone conversations it appeared to the officer that they had been created for the purposes of the enquiry and not for use in the preparation of accounts.
(e) The edited bank statements sent on 16 November 2020 covered the period April 2019 to October 2020 which did not reflect the statement that Mr Islam had made that the reconciled statements were downloaded and saved monthly. Further the PDF was created on 14 November 2020, so any edits would have been made months after they took place.
(f) Multiple payments to the Employee had been inserted into the bank statements which were not shown on the original documents. The most recent explanation was that that was due to cash payments made to the Employee. However, in order to maintain the bank statement balance, multiple transactions had been edited. The officer gave examples of payments to Companies House and payments from clients. She stated that it was not credible that clients had paid small amounts through the bank and then paid large sums in cash to exactly the value required to bring the bank balance back to its original value.
The Decision Of The Tax Tribunal
The Tax Tribunal agreed with HMRC as to the position on the edited bank statements:
The original bank statements have been very obviously altered. A mere glance demonstrates that…The appellant’s explanations and exhibits are inconsistent and lack credibility. In particular, we find that the “reconciled” bank statements were not an error and were deliberately manipulated by the appellant to ensure that the balance figures remained consistent.
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