What is HMRC’s criminal investigation policy?
The aim of HMRC’s Criminal Investigation Policy is to secure the highest level of compliance with the law governing direct and indirect taxes.
HMRC is not responsible for criminal prosecutions. In England and Wales, the decision whether to prosecute is made by the Director of Public Prosecutions at the Crown Prosecution Service (CPS).
HMRC’s normal policy is to deal with fraud by use of its more cost-effective civil fraud investigation procedures, called HMRC Code of Practice 9 (COP 9). You can read our article about COP 9 here.
HMRC’s criminal investigation powers are used in the most serious cases, where HMRC wants to send a strong message to other wrongdoers, or where the conduct is so serious that only a criminal sanction is appropriate.
The number of criminal prosecutions for tax fraud is on the increase.
In the year to April 2018 HMRC took in £608.5 billion in tax revenue, a nominal record, saying it had won nine in every 10 prosecutions it initiated, or 78% after appeal, gathering £37 billion which would have otherwise gone unpaid.
A further £6.2 billion in revenue was protected by actively preventing non-compliance, it added.
Why is HMRC using the criminal prosecution route more often?
As tax gets more complicated, and HMRC get more aggressive, a growing number of people are finding themselves under criminal investigation.
In recent years, HMRC has been given a bigger budget and more powers to chase unpaid tax and to pursue and penalise those responsible for non-payment. This approach is popular with the public and gets good headlines for politicians, so it is likely to continue.
The reality is that the difference between the amount owed to the Treasury and how much it actually collects is believed to be between £35 billion and £70 billion.
This also results on more pressure on HMRC to be seen to more actively consider the criminal route in order to resolving tax disputes.
As part of this, and in addition to being given more money, HMRC has been set targets for the number of prosecutions to be brought per year. This of course creates pressure to hit those targets, and raises concern that HMRC may choose to prosecute in cases where previously the civil procedure would have been followed.
What happens if I am criminally investigated by HMRC for Tax Fraud?
HMRC has also changed its procedures meaning that if you are suspected of tax fraud you effectively have just two options when HMRC formally approach you with the allegation.
If HMRC’s allegations are based on a misunderstanding or mistake, there is no third option, meaning you essentially have little choice but to invite a prosecution before you can begin to try and demonstrate the error or misunderstanding.
A recent Freedom of Information request showed the increase pressure this has placed on the judiciary as the number of people willing to go to court to contest HMRC orders rose to 122 judicial reviews sought in 2017 versus 90 in 2016. It is anticipated that this rise will continue.
When will HMRC will carry out a criminal rather than civil investigation?
HMRC’s Criminal Investigation Policy, includes several examples of where it will generally consider commencing a criminal, rather than civil, investigation. These include:
What powers does HMRC have to investigate tax fraud?
HMRC has several powers similar to other law enforcement powers to counter tax fraud. It has powers to:
However, HMRC does not have all of the powers that other law enforcement agencies have. For example, HMRC officers cannot take fingerprints or charge suspects. This has to be done by the police at a police station.
Some of the powers are modified for HMRC. For example, a search warrant may allow HMRC to search persons found on the premises, without the need for arrest. This allows HMRC to search a bookkeeper who may have evidence in a briefcase or laptop when a company’s premises are searched, but who is not considered a suspect.
The criminal investigation powers can be used only by authorised officers.
Can HMRC use Intrusive surveillance?
In the case of serious crime only, HMRC can apply to use intrusive surveillance powers. The most significant powers are:
The interception of communications has to be approved personally by the Home Secretary. The use of this power is overseen by the independent Interception of Communications Commissioner.
Could I go to prison for tax offences?
It depends on the matter being investigated. HMRC can and will prosecute in cases of deliberate fraud and particularly in cases where large amounts of PAYE and VAT are concerned. It is possible to go to prison for tax offences
If you believe or suspect you are to be the subject of an HMRC criminal investigation, we strongly recommend that you seek urgent legal advice. If you wish to discuss any matters and talk with one of our experts, please call +44(0)1908 414990.