Insights

We always try to stay vigilant and warn readers about scams and fake emails. A new one has been doing the rounds, which is targeting small business owners.

This time, the email is promoting a fake tax scheme which is playing on SMEs’ fears about falling foul of GDPR (general data protection regulations) and possibly having to pay expensive penalties. Please watch out for this scam and do not be taken in by it.

GDPR legislation in brief

Firstly, be aware of your legal obligations under the Data Protection Act 2018, which includes the GDPR regulations. The ICO (Information Commissioners Office) is the government body that takes responsibility for enforcing penalties under GDPR. GDPR states that all individuals have the right to be forgotten and any data held by an organisation should only be retained for as long as it is required, or for a legal minimum period if in a regulated industry e.g. financial services or healthcare.

The maximum financial penalty for misusing data under GDPR law is the higher sum of either 4% of the organisation’s worldwide annual turnover, or a fixed amount of £17.5m. The standard maximum penalty that can be imposed for breaches of the administrative requirements of GDPR is the higher sum of either 2% of turnover, or a fixed £8.7m fine.

Clearly, this equates to a lot of money and any small business that finds itself in breach of GDPR will be in serious financial trouble.

How the GDPR tax scam works

GDPR tax scammers are playing on this fear, but also offering a possible tax rebate. They are purporting to provide a service that checks the likely risk of being fined for a GDPR breach and suggesting that their service costs can be covered in full through a corporation tax refund, which they will also help the company secure.  The refund amounts are promoted as being substantial, so on the face of things, it appears well worth following up. But it’s not.

As with everything that’s too good to be true, it is. It’s a fake scheme and there is no potential corporation tax refund opportunity. More concerning, there are also negative consequences of following these emails up.

The fake GDPR tax scheme being promoted to SME companies includes five stages:

• So-called “GDPR experts” compile a report outlining the likely financial penalties for GDPR non-compliance;
• Scammers then falsely suggest that the penalty amount proposed could be offset against corporation tax as a ‘GDPR fine provision’ and then the amount reclaimed as “GDPR tax credit” - this is untrue;
• The company may also be asked to adjust its accounts for up to three previous years to account for the GDPR tax credit and reduce taxable profits across other accounting periods;
• Earlier tax returns are then adjusted to reflect lower taxable profits, which triggers a tax repayment;
• The scammers expect a fee of 30% of the ‘tax repayment’ due for this ‘advice’, plus VAT.

Risk of a tax enquiry

Company directors should be aware that the scheme being promoted is completely fake - there is no opportunity to claim any GDPR tax relief and there never has been. Apart from the scheme not living up to expectations and being a complete waste of time and money, there are other implications.

If a company doesn’t realise it’s fake and goes through with all the scammer’s recommendations, they run the risk of an HMRC enquiry being opened into their tax affairs. This is because HMRC is likely to pay the tax relief claim initially, but then after realising the company has used the fake GDPR tax credit scheme, they will open a tax enquiry.

Any tax repayment will have to be repaid in full together with interest and the company may also be fined a penalty for filing an incorrect tax return. Fees paid out to scammers cannot be recouped as an allowable trading loss, and will of course be irrecoverable.

Be on the lookout for organisations promoting this scheme and don’t be tempted by the offers being made. As always, the only way to reduce your tax liabilities is through considered tax planning, using HMRC approved tax advantaged policies. If you would like advice on proactive tax planning, please contact us by emailing partners@rjp.co.uk.