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Parents jailed for tax fraud

By Adrian Huston

Two Northern Ireland parents were jailed on Friday 26 February 2010 for evading tax leaving them owing HM Revenue & Customs over £4 million.

Leaving children aged 10, 16 and 18 this should serve as a warning to anyone fiddling their taxes on a large scale. HMRC means business, and having children at home will not keep you out of jail.

Having sat though much of the court proceedings, and being present when Mr Justice Hart delivered the damning sentence, I thought readers might be interested in some background to the case.

Gerry Small (Patrick Gerard Small) of Cullenrammer Road, Dungannon, aged 56 was jailed for 3.5 years after pleading guilty. The judge said this sentence was substantially reduced “as an act of mercy” in the light of Mr Small’s ill-health. Medical evidence pointed to a list of 10 conditions which Mr Small suffered from. Mr Small had tried to pin the blame for the tax offences on Mrs Small – a tactic which the judge described as “dishonest and unedifying”.

Mary Small – his wife of the same address – aged 50 was jailed for 2.5 years. Her sentence was reduced to reflect her prompt guilty plea and the fact that she did not play games with the legal system once she pleaded guilty. (By way of contrast Gerry Small pleaded not guilty, then guilty, then said he wanted to back to not guilty. Finally he abandoned that tactic and so remained at guilty!) The judge acknowledged the difficulty and distress that jailing a mother of a 10-year-old would have, but felt he had no alternative but to send her to jail as well as her husband.

The case revolved around that most basic of tax offences – not declaring all one’s business income to the tax-man. This resulted in false accounts, false tax returns, low VAT returns and false claims to tax credits.

One of the things which seemed to agitate HMRC most was the fact that while sitting on millions of pounds worth of money and property the Smalls claimed they earned £27,000 and claimed tax credits to help raise the kids. In the tax year before they were arrested the bank interest earned on their hidden bank accounts was £89,926.

More information about how the Smalls masterminded their tax fiddles can be found on a video on my YouTube channel or by clicking here.

So how did the partners in Greystone Builders Merchants in Dungannon end up owing £4 million after 17 years of suppressed takings?

They failed to declare cash paid to the business – instead sending it to the Isle of Man or spending it building over 20 properties, without mortgages. (By 2005 their properties were valued at £6.7 million).

They opened bank accounts offshore to take undeclared takings.

They opened bank accounts in Northern Ireland, lodged takings there, but hid them from their accountant, often then sending the money offshore.

They cashed cheques, rather than lodging them to the main business account, then used the cash to spend on properties or to purchase bank drafts – sending those to the Isle of Man.

Tax investigators had to use some cumbersome tactics to pin down just how much money had been hidden. They went to customers who had paid cheques and used formal powers to obtain the details. This then allowed them to establish which cheques were kept hidden from the business books. This was a very time-consuming tax investigation so the investigators will have been pleased to bring in £4 million as well as having jail sentences handed down.

Having been in the tax world for 23 years I am fairly hard to shock. The tactics employed by Mr & Mrs Small were cunning, but not earth-shatteringly clever. Lots of people across the country evade their taxes using some or all of these methods. What was surprising, even for me, was the video.

When you have a fortune invested with the Isle of Man banks they do house calls, you know. I know this from tax disclosures we have handled for clients. This happened with the Smalls. What was unusual was that, unknown to the bank official, the meeting was videoed. A camera recorded the meeting when the bank official visited Mr & Mrs Small. When HMRC searched the premises in 2005 they found the video. They must have thought all their Christmases had come together!

On this video it becomes absolutely clear that both Mr & Mrs Small knew exactly what they were doing in hiding money on the Isle of Man to keep it away from the tax people. What makes the video compelling viewing is that the bank official promises them that, short of a Manx court order, they will deny the Smalls even have accounts with his bank. He goes on to advise the couple how funds could be sneaked back into the UK by using a foreign-based friend or relative as a conduit.

In the video the banker is told that Mrs Small worked in the Ulster Bank in Cookstown. The banker said the Revenue had been through all the NI branches (looking for signs of transfers offshore). He thought that if HMRC were to find (incriminating evidence on) the Smalls then they would have been in touch by now. Gerry Small then said “Of course Mary worked there, and whatever was there, she took it with her” – then he laughed.

The banker’s advice about the tax evasion and how to continue to remain un-noticed by HMRC makes me wonder why he was not prosecuted. That question remains unanswered.

If the jailing of Gerry and Mary Small tells us one thing it is that, as my wife’s Granny used to say, “Long runs the fox.” They understated their income for 17 years, but the day of reckoning came and all the tax now has to be paid, plus interest.

For anyone who has a tax skeleton in their closet my advice is to come clean to HMRC before they get to you. Using a tax investigations specialist is worthwhile. Coming forward voluntarily almost always keeps people out of jail, and the tax penalties will be lower too.

A drian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co –

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