HMRC undertake criminal investigations, with a view to prosecution by:
- the Crown Prosecution Service in England and Wales,
- the Crown Office and Procurator Fiscal Service in Scotland, and
- the Public Prosecution Service Northern Ireland.
Identifying those to be targeted for criminal investigations arises from a number of sources including:
- Tipping off.
- Anti-money laundering reports.
- National Crime Agency.
- Exchange of information from overseas territories.
- Open source material.
- Those identified through risk analysis undertaken through the collection of data by Connect, HMRC’s risking tool that cross references over 22 billion lines of data.
Tipping off generally derives from taxpayers who witness the operation of defrauding the Revenue and can come from a number of sources: employees, ex-spouses, ex-business partners, competitors, and maybe even a neighbour.
Professionals are required to report suspicious activity involving or potentially involving the proceeds of crime. Tax evasion is a crime and therefore professionals in possession of a suspicion should make a report (and cease to act for the client).
The National Crime Agency will share appropriate information with HMRC.
Organised and serious crime often involves the use of multiple entities in multiple jurisdictions to either ‘clean’ money or to hide it. The exchange of information between overseas territories has now opened up a pathway to more easily identifying perpetrators although it is reported that HMRC do not have enough resources to investigate the 5.7m pieces of information about overseas bank accounts held by 3m British citizens. The information provided is not limited to citizens and extends to the residents of the UK (and similarly to other jurisdictions).
HMRC state they “may observe, monitor, record and retain internet data which is available to anyone. This is known as ‘open source’ material and includes:
- News reports.
- Internet sites.
- Companies House and land registry records.
- Blogs and social networking sites where no privacy settings have been applied.”
HMRC’s Connect software is believed to even trawl the web for relevant information. Connect itself is a beast of a data warehouse collecting information from both open sources, sources available through other Government offices (Companies House, Land Registry, licenses, electoral role etc.) and that collected through the use of Sch 23 Finance Act 2011 information request and Sch 36 Finance Act 2008 notices. Schedule 23 notices are to data handlers and was originally for 16 broad categories although this has been extended. Schedule 36 notices may be to the taxpayer, a third party or the right to inspect premises.
HMRC made 18,464 requests to access communications data such as telephone records and web browsing histories to aid its criminal investigations according to the 2019 annual report of the Investigatory Powers Commissioner.
The vast information collated by HMRC, inevitably means they may target their approach with a high level of certainty. HMRC has stated they will be targeting those who have committed furlough fraud, those who used or are using avoidance schemes, which often involves an offshore element and as previous articles have indicated, they are already targeting those with offshore interest through nudge letters.
HMRC’s policy to tackle fraud adopts a cost effective approach through the civil fraud investigation procedures under Code of Practice 9. In some cases, HMRC will investigate purely with a view to prosecute and such cases will include ones where the perpetrator has a history of continual non-compliance after a previous investigation. Criminal investigation is generally reserved for cases where HMRC wishes to send a strong deterrent message or where the conduct warrants, a criminal sanction is appropriate. Being prosecuted for tax evasion resulting in a custodial sentence does not result in the tax liability going away.
HMRC are more likely to start a criminal investigation include those involving:
- Organised crime.
- Systematic frauds.
- Where the perpetrator holds a position of trust (accountant, solicitor, trustee etc.)
- The making of materially false statements.
- Providing materially false documents.
- Where an avoidance scheme is used and reliance is placed on a false or altered document.
- Where facts relating to an avoidance scheme are misrepresented to enhance the credibility.
- Deliberate concealment, deception and conspiracy.
- False or forged documents.
- The breaching of import and export prohibitions.
- A perpetrator who is a repeat offender.
- Theft or unlawful destruction of HMRC documents.
- Assault or threats to HMRC officers.
- Impersonation of officers.
- A link to wider criminality.
HMRC used to target high profile figures for prosecution although this resulted in belief by the public that only those figures would be prosecuted. The approach nowadays is to target those where the impact is greater i.e. where other taxpayers perceive a genuine risk that they could be the subject of a criminal investigation and subsequent prosecution.
The Financial Times reported following a Freedom of Information request that in 2019/20, 548 individuals were charged for tax evasion. The figure in 2015/16 was 1,067. 32 of those charged in 2019/20 were wealthy individuals (net worth of more than £10m). No companies were charged with corporate criminal offences in 2019/20.
Whilst the 2019/20 figures seemingly indicate that HMRC did not keep to its mandate and have reduced prosecution activity, it may be better explained by the approach taken during the pandemic. HMRC have taken a more caring approach to tax investigations not wishing to increase taxpayers anxiety during the pandemic. However, since the creation of HMRC’s Fraud Investigation Service in 2016, 76,000 civil investigation case have been launched, more than 4,000 criminal investigations and 3,700 criminal convictions.
Recovery of lost Revenue will be a more prevalent topic after the pandemic. It may take a while for the machinery to work but investigations are predicted to increase significantly from this year onwards. Damage limitation will be the best option for many and taking a proactive approach towards making a disclosure could save money as well as protect from prosecution.