Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 240 - 259)



  240. It is not a criticism, it is your system and I want to make sure I fully understand it.
  (Mr Martin) I think it is fair to say that looking at companies, for example, we would scrutinise the accounts of each company to some extent and if there was something which looked odd about it in the local office, Naomi Ferguson's people, that would start ringing a bell and it might precipitate an investigation. If it was large enough eventually it might be taken over by the Special Compliance Office.

  241. Now we are coming to it. Does Ms Ferguson's office look at all the company returns before they go to Manchester and Liverpool?
  (Ms Ferguson) I will start perhaps from exactly what happens when accounts come in and take us through the process, if that would help?

  242. Yes, please do.
  (Ms Ferguson) Accounts and returns are received in all of the offices throughout our offices in ten towns across Northern Ireland: Newry, Londonderry, Belfast, Enniskillen, Coleraine, Ballymena, Lisbon, Antrim and Banbridge off the top of my head.

  243. That is nine, you are doing well.
  (Ms Ferguson) That is nine, I am doing well.

  244. Do not worry.
  (Mr Moore) And somewhere else.
  (Ms Ferguson) And somewhere else, Craigavon. Anyhow, they receive them. We have two specialist teams now established who analyse the information which we hold, both in those returns and accounts as they are received, in past accounts and returns and potentially information from third parties which could be bank, building society information received under statutory provisions, information from Customs, information potentially from the police or simply from a third party. They will scrutinise all of that information and assess it to identify potential cases where we believe there to be a tax risk. We do not look for cases where there is any sort of illegal activity as such or any criminal activity, organised crime. Our responsibility is to find tax at risk. Once we have identified potential cases like that they will then be passed to a local investigator to start an inquiry. They will undertake that inquiry. They will perhaps call for the books and records, speak to the individual, speak to the accountant and if within the course of that inquiry certain trigger points are met, such as the amounts of money which appear to have been evaded, false documentation, any form of collusion, we would then refer the case to the Manchester Special Compliance Office to ask for advice on how to proceed. We may continue the case ourselves, we may work it jointly with the Special Compliance Office. They may take the case on, it will depend on the facts of that case at that point in time.

  245. Do you have regular contacts both ways with the Police Service in Northern Ireland, Special Branch?
  (Ms Ferguson) No.

  246. You do not?
  (Ms Ferguson) Any requirement to talk with the police would be handled through the Police Liaison Unit at the Special Compliance Office. All of our local tax offices in Northern Ireland or elsewhere operate under very clear guidance that where we think there is a potential need to have such contact we discuss that with the Special Compliance Office and it is handled through the Police Liaison Unit and through standard procedures. That is the situation across the UK and our officers in Northern Ireland follow that.

  247. I am aware that is the situation across the United Kingdom. I am just trying to get at the very real danger that because you are operating in a standard UK way, if I can put it that way, you might not be as aware as perhaps we would like you to be, or I would like you to be, of the special circumstances in Northern Ireland where there are quite a lot of regular businesses, let us put it that way, dealing in petrol, for example, diesel, for example. Does a warning bell ring that this is a well known area where there is fraud and where paramilitaries are involved and do you then go to the police for help or do they come to you? I am a little surprised to hear that you have no direct contact. Who in the Revenue has contact, for example, with the Terrorist Finance Unit, as was, which is now a special unit of the Police Service in Northern Ireland?
  (Mr Moore) That would be our office in Manchester on the Criminal Investigation Group there.

  248. Which is a long way down the line. You do not get any prior warning from the intelligence sources, which are considerable in Northern Ireland, that here is a business that looks very fishy, although they may not have the evidence to arrest and convict?
  (Mr Moore) You made particular reference to oil smuggling. The main interest in that would be with Customs and Excise and the police would liaise with Customs and Excise. We have very good liaison with Customs and Excise and where they find some suggestion of an Inland Revenue interest in such a case then they refer that to us. We have recently concluded one such case. The difficulty with what I think you are suggesting you would like us to do, which is—

  249. I am not suggesting anything, I am asking you what you do in these very special circumstances.
  (Mr Moore) The thrust of your questions is if we were investigating and we were to find evidence of some paramilitary links or terrorist finance within the information that we discover that we could make some use of that to counter terrorism. Until December, if we discovered information of that kind there was nothing that we could do with it, we could not disclose that information to the police, the gateway was not there. From now on that gateway is there and we may well be able to do something with that type of information. That is why we are joining the Organised Crime Task Force to facilitate that for the future when the possibility is there that we can actually use that information.

  250. Would you say that your relationship with Customs and Excise is better and closer than it is with the Northern Ireland Police Service, Special Branch?
  (Mr Moore) Certainly because there is a free gateway between us in terms of information. We have done joint prosecutions and joint investigations with the Customs and Excise.

  251. Would you like it to be the same with the police?
  (Mr Moore) Certainly.

Mr Clarke

  252. Can I just follow that analogy one step further. We started talking about oil, petrol or diesel smuggling and you quite rightly said that the interest initially would be with Customs and Excise, but take into account the vast majority, it would seem, of garages within an area such as South Armagh that are running on smuggled petrol. Diesel and car use has gone up 15 per cent and yet legal petrol sales have gone down by about 50 per cent. The vast number of those garages must be evading income tax because there are queues at these petrol stations and they could not possibly declare all of their income because it would clearly show that the amount of their legal sale in did not match or comply with their sale outlets. Could I ask the question in terms of how many investigations have there been on individuals owning petrol stations within the South Armagh area?
  (Mr Moore) That I do not know, but the whole of the profit within that type of business is in the evaded duty.


  253. Which is a Customs' matter rather than a tax matter?
  (Mr Moore) Yes.

Mr Beggs

  254. In the course of carrying out Inland Revenue procedures, what would cause you to suspect a link between a taxpayer and a paramilitary organisation in Northern Ireland? How would you confirm such a link?
  (Mr Moore) The usual way in which we come to suspect such a link is on the basis of local knowledge from the districts suggesting that we might benefit from checking that individual with the police. Our mechanism for doing it is to simply contact the police in Northern Ireland through an established link to confirm whether they think that it would be safe for us to do certain things.

  255. Bearing in mind the reluctance of individual householders to give information, even anonymously, to a government body, would Inland Revenue accept reference to a specific lifestyle of an individual in the street who had been identified by neighbours as living way beyond their means if that reference was made to you from the public and elected representatives?
  (Mr Moore) Yes, we will consider information from whatever source. As I said earlier, the first thing we do is attempt to corroborate that information. Certainly if somebody comes along anonymously with information on lifestyle and can give some specific details which we are able to check and confirm and compare with the declared income then that would be considered for investigation as part of the normal investigation programme.

  Mr Beggs: Thank you.

Mr Bailey

  256. Can I just follow on the theme of some of the questions. We have talked about individuals and organisations that have got links with paramilitaries but do you have any expertise built up to investigate those who to a certain extent have got links but are essentially the victims of paramilitaries? I am talking about those companies that are the victims of protection rackets. There seems to be a considerable body of evidence, particularly small traders, shopkeepers, etc., in some parts of Northern Ireland who regularly have to contribute to the paramilitaries. I would have thought in their annual accounts a skilled investigator would be able to detect this. Has any work been done on this?
  (Ms Ferguson) I am not quite sure that a skilled investigator would be able to detect it because I think potentially some businesses and accountants around Northern Ireland are quite skilled at ensuring it is not detectable. Payments under such arrangements as protection money are specifically disallowed in the Taxes Acts and, therefore, a business will describe them perhaps as insurance or general expenses and unless we specifically ask for a break down of that expenditure we would not identify it. In accounts where that would be asked for, perhaps as part of a wider inquiry or specifically because of the size of the deduction there, if the accountant came back and advised that it was some form of protection money it would be disallowed for tax purposes.

  257. But there are no steps to, if you like, look at a particular area, a type of business, and think that there is a high probability that incorporated within these accounts could be protection money which is disallowed? There is no investigation done with the accountants of these individuals or these small companies?
  (Ms Ferguson) It would not be specifically one of the areas that we would look at. We would look at it as well as looking at other factors to find amounts that were non-tax deductable.
  (Mr Moore) The other likely scenario is that the money never appears in the accounts at all. Cash that goes into the tills simply comes out of the tills to pay those contributions or protection money, however they are described. In those circumstances there is only one way in which we could find out about that and that is if the trader told us that was what was happening with the money. How would we come across that? If we were looking at a business, for instance, and in a normal review the business appears to have a lower gross profit rate than it should have for that type of business and we challenge the taxpayer "what has happened with the additional cash we would expect in your turnover?", the explanation may be given, I suppose, "I pay some protection money". Unfortunately, as Naomi has explained, that is not an allowable deduction and, therefore, it is unlikely to be put to us as an explanation as to where the funds have gone.

  258. Basically you do not conduct any investigations in areas that might be highly suspect for this sort of activity?
  (Mr Martin) I think it is fair to say, Mr Bailey, that if we are investigating a case in Northern Ireland this is undoubtedly a factor that the investigator would have at the back of his mind. What you are referring to is very well known amongst our people and it would be an area in which they would want to ask questions if there were any suspicions at all.

  259. You do not look at, say, an investigation in one in 20 submissions or anything like that?
  (Ms Ferguson) Not specifically for that reason. We do risk assess all of our cases and work within a number of sectors: income tax, corporation tax, etc. and determine a level of coverage that we are going to enquire into businesses generally. We would be looking for factors more around apparent wealth not being substantiated by the drawings, etc, or the gross profit rates. As Robin says, if we pick something up and we start asking about it, for any of my inspectors that would be an obvious question to ask but it would be unlikely that would be the reason why we would take a case up.

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