Media accountancy firm Christopher Lunn & Company is subject to an ongoing tax investigation by HMRC. Up to 7,000 of its clients are affected.

HMRC wrote to the clients in September asking them to make voluntary disclosures of any accounting irregularities. Originally it set a deadline of 30 November 2010, HMRC has now extended this to 28 February 2011. 

Evidence was seized from the firm following a raid by HMRC, and many clients have had difficulties in accessing their records and uncovering what has been claimed in the accountants’ working papers. 

Whilst Lunn & Co may face criminal proceedings by HMRC, the position for clients will depend on several factors:

It is clear that “one size” does not fit all and each case will need to be considered on its merits. A special interest group has been formed with a view to representing those affected, although it remains to be seen whether HMRC will be willing to make some type of group settlement. On the face of it this will may not be cost-effective for many of the freelancers affected.

The case is also of interest in this case from a “Working with tax agents” perspective: HMRC want to bring in new civil powers in order to make it easier to prosecute what is views as rogue firms (the firm in this case was not regulated by a professional body). 

Christopher Lunn’s lawyers are locking horns with HMRC in defending the firm. It is a very costly process for all concerned. The firm is innocent until proven guilty: criminal proceeding requires a higher standard of proof compared to civil.

Tax director, Nichola Ross Martin comments: 

"You can see why most accountants agree that a higher standard of proof is an essential safeguard when it comes to giving HMRC new powers. Note that HMRC already has the power to ruin a firm very quickly. It is understood that it has  taken the Lunn and Co off its agents’ list thus preventing it from acting. 

Meanwhile HMRC has redrafted its proposed legislation for working with tax agents..."