HMRC Criminal Investigations

HMRC is the UK’s principal body responsible for collecting taxes and has extensive powers to investigate suspected tax fraud. These powers are granted under various legislative acts, allowing HMRC to ensure that individuals and businesses comply with tax laws and regulations.

When HMRC suspects tax evasion or fraud, it can initiate either a civil or a criminal investigation, depending on the severity and nature of the alleged wrongdoing.

While civil investigations are more common and seek to recover unpaid taxes with penalties, criminal investigations are pursued in more serious cases where prosecution might be deemed necessary.

Examples of HMRC’s powers include:

• Issuing Information Notices: Under the Finance Act 2008, HMRC can require individuals or businesses to provide information or documents that are reasonably required for tax purposes.
• Conducting Inspections: The Finance Act 2008 also allows HMRC to enter business premises to inspect business assets and documents. However, this doesn’t permit them to search the premises.
• Search and Seizure: Under the Police and Criminal Evidence Act 1984 (PACE), HMRC has the power to search premises and seize evidence if they have a search warrant.
• Arrests: HMRC officers can arrest individuals suspected of tax fraud under the provisions of PACE.
• Freezing Assets: Under the Proceeds of Crime Act 2002, HMRC can freeze assets if they believe the assets are the result of criminal activity.
• Recovering Debt: The Finance Act 2008 grants HMRC the power to recover tax directly from debtors’ bank accounts if certain conditions are met.

It’s essential to be aware of these powers and to seek legal advice if you find yourself under investigation by HMRC

Could I Go To Prison For Tax Offences?

Individuals can face imprisonment for tax offences in the UK. Tax evasion, which involves the deliberate act of not paying taxes owed, is considered a serious crime. For instance, if someone is found guilty of evading large sums of VAT or PAYE, they could be prosecuted and, if convicted, sentenced to prison.

The sentencing guidelines for tax evasion vary based on the severity of the offence and the amount of tax evaded. For minor offences, penalties might include fines or community service.

However, for more severe cases, especially where large amounts of money are involved or there’s a pattern of persistent fraudulent activity, individuals can receive prison sentences of up to 7 years or even more. It’s crucial to be aware of these potential consequences and to ensure compliance with tax regulations to avoid such outcomes.

What Is HMRC’s Criminal Investigation Policy?

HMRC’s Criminal Investigation Policy is designed to ensure the utmost adherence to laws related to both direct and indirect taxes. However, HMRC doesn’t hold the authority for criminal prosecutions. In England and Wales, the decision to prosecute lies with the Director of Public Prosecutions at the Crown Prosecution Service (CPS).

Typically, HMRC prefers to address fraud through its civil fraud investigation methods, known as HMRC Code of Practice 9 (COP 9). The more severe powers of criminal investigation are reserved for the gravest cases, either to set a robust deterrent example or when the alleged misconduct is so egregious that only criminal penalties would suffice.

There’s a noticeable rise in criminal prosecutions related to tax fraud. In the fiscal year concluding in April 2018, HMRC collected a staggering £608.5 billion in tax. This amount is unprecedented, and HMRC had a success rate of 90% in the prosecutions it pursued. This led to the recovery of £37 billion that might have otherwise been lost. Additionally, proactive measures prevented a potential loss of £6.2 billion due to non-compliance.

Why Is HMRC Using The Criminal Prosecution Route More Often?

With the increasing complexity of tax regulations and HMRC’s intensified efforts, more individuals are facing the prospect of criminal investigations.

Over the past few years, HMRC has been allocated a larger budget and enhanced authority to track down unpaid taxes and take action against those evading payment. This aggressive stance is generally well-received by the public and garners positive attention for policymakers, suggesting its continuation in the foreseeable future.

Estimates indicate a disparity ranging from £35 billion to £70 billion between the amount the Treasury is owed and what it successfully collects. This gap further propels HMRC to lean towards criminal proceedings to settle tax disagreements.

In line with this, HMRC, besides receiving increased funding, has been assigned specific prosecution quotas annually. This inevitably exerts pressure to meet these objectives, leading to concerns that HMRC might opt for prosecutions in situations where a civil approach would have been more appropriate in the past

When Will HMRC Will Carry Out A Criminal Rather Than Civil Investigation?

The Criminal Investigation Policy of HMRC outlines various scenarios where it would typically lean towards a criminal investigation over a civil one. These scenarios encompass –

• Instances related to money laundering activities.
• Situations where organized crime groups exploit the tax system.
• When an individual in a trusted or authoritative position is involved.
• In cases where there’s suspicion of deceit, collusion, or corrupt practices.
• The employment of counterfeit or tampered documents.
• Breaches related to importation or exportation regulations.
• When the offender has a history of prior violations.
• Cases that involve theft, unauthorised use, or intentional destruction of HMRC’s documents.

Conclusion

Criminal investigations carried out by HMRC play a pivotal role in upholding the integrity of the UK’s tax system. These investigations, reserved for the most severe cases of tax evasion and fraud, underscore the government’s commitment to ensuring fairness and compliance.

While most tax discrepancies are addressed through civil procedures, the existence of criminal investigations serves as a deterrent, signaling the gravity with which tax offenses are viewed.

Individuals and businesses are thus reminded of the importance of adhering to tax regulations, knowing that deliberate misconduct can lead to significant legal repercussions.