From HMRC to Family Form E: A Forensic Accounting Journey

Article written by IDR member, Kevin Humphreys with comments from William Hogg, Laurus Law.

It’s almost 30 years to the day that I enrolled on HMRC’s Accounts Investigator training course, to qualify as a Tax Inspector. I soon learned that regardless of technical accounting competency or ability to navigate legislation, if you lacked one key quality, you would never truly revel in the role. You had to possess a natural scepticism. My terrifying tax tutor was constantly drumming in to us three words: “NEED TO KNOW!�? “NEED TO KNOW!�? Of course, he was right to emphasise and re-emphasis. If you weren’t a critical thinker; a natural investigator, then you wouldn’t identify all the risks, let alone have the drive or know-how to unravel them.

Now ex-Civil Service and four years in private practice but as sceptical as ever, I see so many parallels in analysing the reliability of a Tax Return to testing the accuracy of a Form E. There is, and always will be, a natural propensity for some people to omit or understate income or assets on a formal declaration because they don’t want to part with what is legally due – whether it’s to pay tax duty, fulfil a duty to an ex-partner or both. Because dishonesty in divorce can and often does unravel dishonesty with HMRC too, particularly in matters where discrete offshore companies are discovered during proceedings and the corporate veil ultimately pierced to reveal those exercising control.

It is imperative to evaluate all available intelligence and information in order to prioritise areas of risk on a declaration from the outset. Having had a long career in Government, I was somewhat spoilt with access to a treasure trove of third party intelligence to test means and trawl for financial accounts and hidden assets. Registered boats, planes, UK & overseas property are all kept on databases – once you had identified that risk. In divorce matters it can be a harder slog to the end game but far more rewarding because of it. Initial risk can often be determined from the knowledge or information held by the client in relation to their partner. Company assets, an overseas nexus, offshore interest or maybe cryptocurrency accounts. Any lead, however tenuous, can avoid fishing expeditions, keep proceedings cost-effective and help focus the investigation to prioritise areas of concern. Ask yourself ‘what can’t you see from what you can see?’ The ability to thoroughly test what you have been told is just as essential. A tenacious approach will ultimately reap dividends rewarding to the investigator, legal team and most of all, the client.

Divorce proceedings are often deeply stressful and traumatic times for those involved. Fighting to help secure a client’s rightful share in those proceedings is immensely rewarding and can be life-changing for the client. They absolutely ‘need to know’ what’s been hidden from them and whilst those terrifying tax tutorials may still give me nightmares, they help many a client sleep a lot easier going forward.

William Hogg of Laurus Law commented: “Forensic accounting is yet another resource that family lawyers can use to gain greater intelligence in cases, substantiate areas of knowledge and information, and keep client costs down to a minimum. I have instructed forensic accountants on behalf of clients on numerous occasions, and can attest to their efficacy and insight. As this article makes clear, when it comes to divorce, clients ‘need to know’; forensic accounting is a powerful tool for developing greater clarity in proceedings.�?