When tax bites back

Ever wondered ‘what is tax?’ Many celebrities have. And now is a good time to be asking. Only this week Jimmy Carr has been named as the largest beneficiary of a Jersey-based accountancy arrangement said to shelter £168m a year from the taxman. He’s not the first celebrity to get embroiled in a tax row, as Steven Perryman discovers

Tax. It’s a short word with big impact.

And it will never have a higher profile than right now. Earlier this year we had the trial of football manager Harry Redknapp’s for tax evasion and this week The Times has started a series of exposes on tax avoidance.

As has been well documented, there is a fine line between tax avoidance and tax evasion. Just ask Tony Blair. The former Prime Minister came under the spotlight earlier this year for paying only £315,000 of tax on earnings of £12m. The surprisingly low amount has been attributed to his company channelling millions of pounds through a complicated web of companies.

The fine line between right and wrong is nothing new. Former Labour chancellor Denis Healy once famously said that the difference between tax avoidance and tax evasion was ‘the thickness of a prison wall’. Timely words more than 20 years on, given that from earlier this year individuals will no longer be protected from receiving both hefty fines and prison sentences if found guilty of tax offences.

So in honour of all this, here are some of our favourite – and most famous – tax cases:

Sport

2012: Harry Redknapp

Harry Redknapp appeared at Southwark Crown Court alongside co-defendant Milan Mandaric, currently Sheffield Wednesday FC chairman.

Both men faced two charges relating to payments of $145,000 and $150,000 alleged to have been made by Mandaric to Redknapp when they were chairman and manager respectively at Portsmouth FC.

The money was alleged to have been paid into a Monaco bank account opened by Redknapp. After a long, public trial both men were cleared of any wrongdoing.

1987: Lester Piggott

In 1987 the champion jockey was sentenced to three years in prison after failing to declare income of about £3m. Piggott, whose fortune at the time was estimated at £20m, was said to have used different names to channel his earnings into secret bank accounts in Switzerland, the Bahamas, Singapore and the Cayman Islands. The judge said that Piggott had ‘even misled his own accountants’.

The nine-times Derby winner was prosecuted in what was then the biggest individual income tax-dodging case ever brought in the UK. The sentence was thought to be the highest to be passed for a personal tax fraud. Piggott resumed his riding career when he was released from jail and retired in 1995, having won more than 4,000 races.

Other notable mentions include boxer Chris Eubank, who was declared bankrupt for owing £1.3m in unpaid taxes. Not forgetting newly-crowned PDC world darts champion, Adrian Lewis, who has had to use his £200,000 winners cheque to pay off his tax bill. Twice.

Film & TV

2009: Nicolas Cage

Three years ago Cage reportedly owed $6,617,550, including three old claims filed between 2002 and 2004, as well as $6,257,005 in back taxes from 2007.

Cage blamed the negligence on his former financial manager and said that he was just a victim. Cage’s manager, on the other hand, said it was his client’s reckless spending habits that caused the situation.

Regardless of whose fault it was, the IRS and state of Nevada took ownership on Cage’s multimillion-dollar Las Vegas home in November 2009, subsequently selling it for $4.9m. Leaving Las Vegas indeed.

2008: Kerry Katona

Katona was declared bankrupt at the High Court in London after failing to pay the final £82,000 of a £417,000 tax bill.

Rather predictably Katona blamed her accountant, not her excessive spending, and decided to storm his offices in a rage.  The resulting confrontation ended in much screaming and throwing of hot tea. Katona was subsequently arrested on suspicion of assault and spent eight hours in a cell before being released on bail.

Other notable mentions in this category include comedian and feather-duster impresario Ken Dodd, who in 1989 was charged with 11 counts of tax evasion.  He won the resulting court case.

More recent cases include Lindsay Lohan, who still owes a reported $93,000 in income tax from three years ago. As celebrity website TMZ notes: ‘if Lohan refuses to pay the debt … the government can go after anything that belongs to her … including homes, cars and bank accounts … assuming she has any of those things.’

Hall of fame

1931: Al Capone

In spite of a number of alleged bloody and brutal crimes, Al Capone, one of the most famous gangsters of the 20th century, was eventually sent down for tax evasion.

The man who for years was the US public enemy number one was pursued for four years by Elliot Ness and his squad of ‘Untouchables’. But in the end it was a former accountant, Frank J Wilson, a special agent for the US Internal Revenue Service, who avoided the attentions of Capone’s gunmen and snaffled the boss of the Chicago Outfit.

Capone was sentenced to 11 years for tax evasion in 1931. And Wilson? He went on to become chief of the US Secret Service.

2006: Walter Anderson

He may not have the celebrity status of some of the others, but American Walter Anderson is responsible for one of the largest cases of personal tax evasion ever.

The former telecommunications executive hid his earnings in a web of aliases and offshore bank accounts. In 2006, he admitted hiding $365m worth of income in the 1990s. He was sentenced to nine years in prison and fined nearly $400m in back taxes, penalties and fees.

Steven Perryman is AAT Comment's former Content Editor.