back to article Architect of tech contractor tax fraud scheme jailed for at least five years

The co-founder of a company that left IT contractors unpaid has been jailed for seven-and-a-half years. This story started in May 2017 when The Register heard of Australian IT contractors going unpaid by the third-party service they used to process payrolls and handle other aspects of their affairs. The service concerned, …

  1. Mark192 Bronze badge

    “That’s really soft,” said one.

    5 years of prison time... should've added up all the 'time' they'd stolen off the contractors.

    "Others ... wondered if they would ever receive funds they are still owed."

    Ha! I bet you the shirt off your back that the government takes any money left in the business to pay off tax owed :(

    1. Cynic_999 Silver badge

      Not sure I understand exactly what the scheme involved, but the way I understand it, the theft was from Inland Revenue rather than the contractors. i.e.. they deducted the correct amount of tax from the contractors' payments, but then failed to hand it to the government. The contractors lost as a result of the police suddenly freezing the assets of the company, leaving any outstanding payments unpaid. Defrauding the contractors was not (IIUC) the intent of the criminals, only defrauding the government.

      I suspect that the company had enough money in its bank to pay the contractors, but because inland revenue will be a preferred creditor and so take most of it, it will leave the contractors out of pocket. IOW the government gets to reclaim its losses, but not the ordinary person.

      1. Rustbucket

        The tax was owed by the original contractors, so I wouldn't be surprised if the tax department says that they still owe that amount.

        It's not the tax office's problem if the contractors gave their money to a bunch of crooks to pass it on, rather than looking after that detail themselves. If the contractors are lucky the tax office will forego making them pay penalty charges as well.

        1. Anonymous Coward
          Anonymous Coward

          Hmm, depends on the precise nature of the relationship contractually. My employer deducts my tax at source (PAYG) - pretty sure I'm not on the hook if they don't pass it on.

      2. Precordial thump

        What the perpetrators withheld from the contractors was probably their employer-funded superannuation (which is compulsory here in the upper hemisphere, and often rorted by shady employers).

  2. Mark192 Bronze badge

    Probably thought the business made its money by showing ads when people checked their pay slips.

    Makes me think, as this kind of business can be largely automated, could you make money out of the delay between you deducting the tax and paying it to the government?

    1. Natalie Gritpants Jr

      These people certainly did. Probably you can't legally given the current interest rates

    2. Cynic_999 Silver badge

      Many companies make money by deliberately delaying payments or delaying the passage of money that it is merely passing through. It is perfectly legal to do so. Not the least being most (all?) banks. A money transfer to a person in a foreign country takes seconds when done through many online money transfer sites (e.g. Western Union, Remitly, even PayPal), but a bank-to-bank transfer takes around 5 working days. Plus a transfer fee about 25 times higher than most money transfer services (except PayPal).

      1. Jimmy2Cows Silver badge

        Some civilised countries (I use the term loosely) have a thing called Faster Payments where people can send money between banks usually pretty much instantaneously, max 2 hours.

        There's also BACS. Even CHAPS is only 3 working days. This is UK banks though. Don't know about banks of other countries.

        1. BebopWeBop Silver badge
          Thumb Up

          Certainly fast p[ayments in the UK have been very welcome, and as you say, almost instantaneous. In my limited experience of 5 banks paying to/being paid from.

        2. katrinab Silver badge
          Happy

          And I stress, 2 hours is the maximum. It is usually between 3-10 seconds.

    3. katrinab Silver badge
      Meh

      Don't know about interest rates in Australia, but in the UK, Switzerland, and Eurozone, banks are more likely to charge you for keeping money in their accounts if you have more than about £100,000/€100,000/Fr100,000.

  3. Mike 137 Silver badge

    So much for 'umbrella' services

    HMRC should take note, as contractor tax fraud is clearly not always conducted by the contractors. I guess nothing will change their position though as it's never been based on evidence.

    1. vishal vashisht

      Re: So much for 'umbrella' services

      HMRC don't seem to give 2 shits. One of the biggest scheme owners whose clients have been hammered by the Loan Charge, several of which have committed suicide is currently in the process of getting a building named after him by the Prince of Wales Trust.

      The lesson with HMRC is make the crime big enough and they won't even bother coming after you. Miss out £50 and they'll fine you until the cows come home

      1. joewilliamsebs

        Re: So much for 'umbrella' services

        Something I've been curious about since seeing Loan Charge paperwork flying around - how were these schemes marketed?

        I've found it difficult to believe that people were genuinely thinking they'd be able to just... Not Pay Tax and get away with it.

        1. katrinab Silver badge
          Flame

          Re: So much for 'umbrella' services

          It was.

          Pay it into an offshore account. Route it via a web of offshore trusts, give us a cut of the money, and you get it tax free.

      2. Doctor Syntax Silver badge

        Re: So much for 'umbrella' services

        HMRC don't seem to give 2 shits

        FTFY

  4. lglethal Silver badge
    Facepalm

    You have to wonder

    You really have to wonder what was going through their heads? I mean did they really think $100m was not going to be missed?

    Stupidity and greed, such a painful combination...

    1. Dinanziame Bronze badge

      Re: You have to wonder

      I suppose it's a gamble that they would be able to retire in time to a country without extradition treaty... Or hide enough of the money to retire after the stint in jail.

      1. Cynic_999 Silver badge

        Re: You have to wonder

        "

        Or hide enough of the money to retire after the stint in jail.

        "

        Which they may well have achieved.

  5. Michael Hoffmann
    Thumb Up

    Thanks!

    With everything else down here, this has been totally under-reported in the Aus media. Thanks Simon and ElReg!

  6. Pascal Monett Silver badge

    Lesson to learn : beware of free

    Hindsight is always 20/20, but you have to wonder what is going on when only one company on the market does not charge you for its services.

    I readily understand the people who subscribed to the service, why go pay somewhere else when here it's free ?

    Well, now we know. It was free because it was fraud, and apparently many people are going to be out of pocket through no fault of their own.

    1. Cynic_999 Silver badge

      Re: Lesson to learn : beware of free

      We have all become accustomed to a plethora of "free" online services, so no, it does not ring alarm bells any more than it is suspicious that El Reg does not charge us for its service.

      We know that these "free" services are in fact being paid for by advertisers and/or by selling our personal data. Most people will have decided that seeing a few adverts while collecting their money is better than losing a percentage of that money in transfer fees.

      1. Cliffwilliams44

        Re: Lesson to learn : beware of free

        As a Yank, I find these arrangements quite odd. Here is the US there are 2 situations for an IT contractor.

        1. You work for an employment service who farms you out to a business. You are effectively an employee of the employment service, and no, you do not have to pay them for this. They make their money from the client business. Charging X% above what they are paying you. Any employment service that asks you to pay them to find you work should be avoided at all cost as they are most likely quite unscrupulous.

        2. You are hired on as what we call an "Independent Contractor" either through a service company or by yourself. In this scenario you, the contractor, are responsible for paying your own taxes and Social Security (payroll tax) which includes both the employee 7.5% + the employer 7.5%. It can be quite a burden so you have to make sure you are getting paid enough to cover these expenses. The one upside is that any expenses you encounter related to your work at tax deductible. Do contractors get into trouble for non-payment? For sure they do, but that falls solely on them.

    2. Doctor Syntax Silver badge

      Re: Lesson to learn : beware of free

      "why go pay somewhere else when here it's free ?"

      Because if it seems too good to be true it probably is.

  7. gnasher729 Silver badge

    Better stay in jail

    With that much money lost by so many people, statistically it would be likely that someone is waiting outside with a shotgun when they leave jail.

    1. LucreLout Silver badge

      Re: Better stay in jail

      I'd imagine the odds of that will increase markedly if the taxman decides to make the contractors pay the tax they've not actually paid to date. I realise its not the individual contractors fault, but does the tax collector?

      1. Cynic_999 Silver badge

        Re: Better stay in jail

        Exactly. After the tax man has taken all it can get its hands on from the company (leaving nothing left for the contracters to get what they are owed), they would be legally entitled to go after the contractors for the outstanding amount, on the basis that it is the contractors who owe the tax. The same as employees can be made to pay income tax if a company does not pass on the PAYE it deducted from their salaries, even though the employees were not responsible for that failure and will effectively be paying the tax twice.

        1. Mark 65

          Re: Better stay in jail

          Tax man take it all? Not with a big 4 doing the liquidation. There'll be plenty of investigation and fees mounting for that effort I can assure you.

  8. Doctor Syntax Silver badge

    "The service concerned, Plutus Payroll, was technically the contractors’ employer,"

    That should have been a warning. If you're freelance* work through your own company, not someone else's. Engage an accountant to do the sums ifyou wish but ensure the money comes into, and taxes go out of, the company's account where you or the CoSec can control it.

    * and not a sole trader

    1. Pin1OnU

      Well that might work for you. However, anyone who has contracted in the UK will know about umbrella companies. Mostly they offer services that mean you aren't saddled with all the expense and paperwork concerned with running a small limited company, e.g. Payroll, Income Tax, Corporation Tax etc for a small fee. They became especially popular after the Blah government introduced the IR35 legislation.

      Many people operate successfully under them.

      1. Doctor Syntax Silver badge

        I did contract in the UK prior to retirement. I knew of umbrella companies. I avoided them. I let an accountant do most of the stuff for a fee, CoSec or I did the rest. Increasingly after IR35 came in I managed without agencies as well.

        One of the major attractions of freelancing was the degree of control I had. You see the work and costs of running the company as the price of that, I see them as the means.

    2. Anonymous Coward
      Anonymous Coward

      Doesn't work like that in Australia. You need to pass a test to convince the tax man you are not a personal services company - income from multiple separate sources amongst other things. Most contractors I've come across in Oz operate through a provider. Typically the end client doesn't want to deal with multiple end-points either.

    3. Pin1OnU

      This appears to be an umbrella company. They are well known in the UK dating back to the introduction of the poxy IR35 legislation introduced by Tony Blah's government. One of the attractions has been minimal paperwork involved. This is a perfectly legitimate way to operate and can take the hassle out of running a company out of a contractors hands. You also don't have to set up a company.

      What should have rung alarm bells was the fact it was free. Did they advertise how they made their money? Most umbrellas take a fee for the services provided.

      BTW Fraud like this can happen to permanent employees. An employer deducts tax but doesn't transfer it to Inland Revenue. The employee is left owing thousands to the taxman.

  9. Great Southern Land

    Wrong Tax Man

    It's not HRMC copping the flack - it's the Australian equivalent (Australian Taxation Office, or ATO).

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