Examination of Witnesses (Questions 240
WEDNESDAY 13 FEBRUARY 2002
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
(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
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
(Mr Moore) Certainly.
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.
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
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.
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
(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.