This man was right all along

Patrick Cullinane’s life has been ruined by the Inland Revenue. The government department has bankrupted him, kicked him out of his home, and driven him to a mental breakdown. His brothers and sisters have walked away from him and he has been unable to find work.

His crime? You might think he had committed a major white-collar tax fraud or an offshore scam depriving the Revenue of millions. But Mr Cullinane was simply an ordinary working man, earning around £18,000 a year in the 1980s largely as a casual in the film industry.

Yet he became the victim of an Inland Revenue strategy to hunt down so-called “ghosts” in the film industry that the department believed were evading large amounts of tax. At one point the Revenue said Mr Cullinane owed £68,000 in unpaid tax.

But what makes Mr Cullinane’s case truly extraordinary is the revelations contained in confidential Inland Revenue documents now in the possession of Jobs & Money.

The documents show:

· During the period that Mr Cullinane was supposed to be evading tax he was on “emergency” PAYE, paying more tax than he really owed. Yet these Revenue records were some how missed or ignored by the department’s investigators.

· A Revenue assessment of his undeclared rental income was partly based on information from “an informant” and a list of former tenants of Mr Cullinane. The documents now reveal that the former “tenants” were really the previous owners of the property and unconnected to Mr Cullinane. Mr Cullinane has insisted throughout that he never earned rental income.

· The Revenue’s estimate for his undeclared rental income was £162,500 over eight years, or £1,700 a month. But this was for two rooms in a partly derelict semi in an unlovely part of north London in the 1980s. Local lettings agents describe the estimates as laughably high.

· Crucially, the documents reveal that a Revenue investigator himself believed that the department’s estimate was too high.

“As regards the lettings assessments,” he says, “[they] are indefensibly high when viewed against the broader background. Even if the commissioners do display an enthusiasm to determine appeals in a positive sum, I would hesitate to encourage anything above three figures. In essence, I simply want to dispose of the appeals. I would not be unduly distressed to hear that all years had been discharged.” That takes the assessment from £162,500 to zero. The commissioners, who referee tax cases, never saw this memo and at a subsequent meeting accepted the Revenue’s estimates allowing inspectors, who knew Mr Cullinane was broke, to prosecute the bankruptcy.

In the following years the Revenue persisted with his case, sending bailiffs and the police to repossess his house. After they sold it for £125,000 the Revenue took £18,000, other government departments helped themselves and accountants KPMG, appointed by the Revenue to look into the case, were paid £32,000. Mr Cullinane himself was left with nothing.

Mr Cullinane believes he was the victim of the Revenue’s desire to obtain a “scalp” in its investigations into tax abuse in the film industry. But he is also a victim of tax legislation whereby the Revenue can assume all taxpayers are guilty until proven innocent. The problem is that a court case in 1995, two years after he was found guilty of non-payment of tax, re-established this principle and also that it is the taxpayer’s job to provide information for an assessment, not the Revenue’s.

Inspectors can estimate income and call it an “assessment” of your earnings. The Revenue built up a case against Mr Cullinane even though he was supplying them with as much information as he could about when he worked, claimed benefit and went on holiday.

Now, after a four-year investigation by Jobs & Money, his case has been laid bare. More than 200 pages of documents sent to him last month by the Revenue, combined with leaked documents posted, he assumes, by whistle-blowing tax staff, reveal that he was, in his words, “fitted up”.

Memos from inspectors tell how Mr Cullinane had been identified by a newly created Film Industry Unit as their first investigation, and one they didn’t want to let go. He worked during the 1980s mainly for Warner Bros. From the mid 1980s, the Inland Revenue unit was pursuing the so-called “ghosts” in the film business – people who drifted in and out of work and were paid mainly in cash.

Mr Cullinane’s case is so disturbing that this week Barry Gardiner, the MP for Brent North, says he will be calling for an adjournment debate in the House of Commons questioning the “governance” of the Inland Revenue and its ability to investigate complaints made by taxpayers.

Mr Gardiner has already written a detailed letter to the chairman of the Revenue, Sir Nicholas Montagu, setting out all the inconsistencies in the case. The reply stated that all issues related to Mr Cullinane’s case have been dealt with in court. It refused to deal with the five specific points raised by the MP.

But Mr Gardiner says the most disturbing aspect of the case is the assessment for lettings income. Internal correspondence shows it was based on information from someone variously called a “source” or “informant”. Inspectors also said they had a list of residents, taken partly from the electoral roll, that substantiated their assessment. But the memos and leaked information now in Mr Cullinane’s possession show the only two names on the list of occupants were the previous owners. The informant, says the Revenue, passed on details about tenants. Inspectors accepted the information as reliable. This informant has never been forced to reveal him or herself, as would happen in a court of law.

A spokesman for the Revenue denies its investigations were based solely on the informant. “In addition to the informer’s information we had unexplained money into the bank accounts during the period; failure to make tax returns or provide accounts as he was required to do; Mr Cullinane’s own admission (made after strenuous denials) that he had let his property for some periods. Also no accounts/returns were made.”

Mr Cullinane denies that he let rooms to anyone at any time, and denies he ever made a confession to Revenue officials that he did. He says the payments in his bank account that are “unexplained” have been explained by his accountant and are only a tiny fraction of the Revenue’s rental income figures.

One might expect to find evidence of a champagne lifestyle from Mr Cullinane’s supposed lavish earnings. Yet there is no such evidence offered by the Revenue. MP Barry Gardiner, who has also been following the Cullinane case for many years, concludes: “What these memos appear to substantiate is what we have believed all along. This has been a terrible miscarriage of justice.”

Twenty years war with the Revenue

1982 Patrick Cullinane starts working at Elstree Studios as a stage hand for Warner Bros. He is put on emergency PAYE tax rate. Asks for a rebate, but is denied.

1983 Warner shifts entire workforce to PAYE. Mr Cullinane continues to be taxed on emergency rate. Asks for rebate but is rejected.

1986 Employs an accountant to pursue rebate. Revenue agrees to put him on basic tax, but refuses rebate.

1987 Without his knowledge, he becomes target of first investigation by the Revenue’s new Film Industry Unit. Revenue demands unpaid tax of £500.

1988-1991 Revenue demands escalate and Mr Cullinane becomes unemployed. He does not work again in the 1990s.

1992 Revenue inspectors estimate Cullinane’s unpaid tax bill as £68,000, based on an estimate of £17,500 a year rental income over seven years from two spare rooms in his home, plus £90,000 from self-employed income from 1984-1988. Mr Cullinane is not allowed to see documents.

1996 Revenue obtains bankruptcy order against Mr Cullinane.

1998 Mr Cullinane’s house is repossessed after bailiffs and police kick down his door.

1999 His house is sold for £125,000. The Revenue takes £18,000 while accountants KMPG, employed by the Revenue to look after Mr Cullinane’s assets, take £32,000. The Secretary of State takes £10,000, the mortgage lender takes back its £26,000, agents and valuers take £9,000, VAT is £10,000 and so on. Mr Cullinane is left with nothing.

2000 Mr Cullinane begins court action to obtain his tax documents from the Revenue, but loses. The Revenue says it is under no obligation to reveal internal documents to prove case, and four judges agree.

2003 In February the Revenue writes to Mr Cullinane saying it will now release “copies of our investigation folder”. In March he receives 200 pages of internal documents, which indicate that tax bills against Mr Cullinane were based on flimsy information or, in most cases, no information at all. Revenue denies wrongdoing.