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Criminal Tax Investigation

A tax investigation is an investigation by HMRC into your tax affairs and tax history. They have a broad remit to investigate a wide range of potential issues and the severity of these investigations will depend on the nature of the case.

There are a number of reasons why HMRC might launch a criminal tax investigation, but they are generally reserved for suspected instances of serious tax fraud.

Over the last few years HMRC have taken a more aggressive approach, as they seek to tackle the ‘tax gap’. This means that more individuals and companies are coming under scrutiny from the HMRC. The experience can be deeply concerning and life changing, with a range of potential pitfalls for the individuals or corporates under investigation.

Should you find yourself the subject of a HMRC investigation it is crucial that you get experienced legal support to help negotiate the procedure and increase your chances of a satisfactory outcome.

What kind of issues may lead to a HMRC criminal investigation?

Currently, the offences that the HMRC consider serious enough to launch a criminal tax investigation are:

• Systematic fraud, and attacks on the tax system by organised criminal gangs, where the fraud represents a significant loss to the tax base.

• Cases involving a person in a position of responsibility, such as a solicitor, accountant or barrister.

• Submission of materially false or misleading statements or documents during a civil investigation.

• Tendering of altered or false documents, or the misrepresentation of material facts in support of an avoidance scheme.

• Deliberate concealment, deception, conspiracy or corruption.

• The use of false or forged documents

• Importation or exportation involving breaches of prohibitions or restrictions.

• Money laundering.

• Repeated offenders who have committed similar offences previously.

• Theft, misuse, or unlawful destruction of HMRC documents.

• Persons or businesses that are linked to suspected wider criminality, whether domestic or international, involving non-revenue offences.

VAT Investigations

The UK government is putting increased emphasis on ending and prosecuting tax avoidance.

The HMRC has spent much of this century so far strengthening, and expanding its investigation into VAT fraud, recognising potential loopholes that have in the past made it a target for fraud.

This means that an increased number of businesses are likely to come under investigation for VAT fraud.  In the past large-scale VAT fraud has involved the creation of false invoices to harvest VAT payments, with some of the biggest cases involving complicated trading companies, often domiciled overseas.

In a typical fraud free VAT chain, a VAT registered business which buys and sells goods charges VAT to customers and is charged VAT by suppliers.

The business can then reclaim the VAT it has paid, so it passes the net VAT it collects to HMRC, or it claims any excess tax paid out from HMRC. HMRC frequently tries to recover lost tax by denying input tax recovery from innocent businesses in the supply chain.

This can create real problems for businesses who are entirely innocent of fraud, but who have inadvertently found themselves involved in fraud initiated by another company.

Missing Trader Intra-Community Fraud

Forming part of VAT investigations, Missing Trader Fraud, also known as Missing Trader Intra-Community Fraud (MTIC), is the abuse of the VAT rules on cross-border transactions within the EU. It relies on the fact that no VAT is chargeable on these transactions.

More recently we have seen HMRC deal with suspected MTIC Fraud via a quasi-Civil/Criminal investigation. 

HMRC apply and obtain Account Freezing Orders pursuant to s. 303Z1 of the Proceeds of Crime Act 2002.  These applications are usually made ex-parte.  The result could have a devastating effect on a business. 

Those who are subject to these Orders should seek legal advice, immediately.  Please see Richardson Lissack Account Freezing Order page for further advice and information.

PAYE & NI Investigations

HMRC have prioritised high-level tax avoidance for criminal investigations. This may be where they suspect a pattern of non-declaration, perhaps for a number of employees.

Cases in the past have involved PAYE being subtracted from the wages of employees but then being siphoned off, rather than being paid on to HMRC.

Corporation Tax

Investigations into Corporation Tax issues tend to focus on undeclared income, or the misuse of the various reliefs that are available.

If HMRC believes this has been done on a systematic and long-running basis, then a criminal investigation is likely.

Furlough Fraud

Since it was launched in April 2020, the Covid-19 pandemic furlough scheme has been utilised by over 1.2million employers across the UK.

The Coronavirus Job Retention Scheme is aimed at supporting employers in retaining employees through the economic challenges presented by lockdowns and restrictions.

The system is believed to be open to abuse, and over the coming months and years HMRC are likely to target applicants to the furlough scheme, looking for evidence of serious fraud.

There have already been successful prosecutions, with many investigations already underway.

How long do HMRC criminal investigations last?

If HMRC launch a criminal investigation it is because they believe there is evidence of serious fraud.

Due to the degree of evidence gathering required and the complexity of the cases, they are by their very nature lengthy, taking from anywhere between 2-10 years.

Pre-Charge Criminal Tax Investigations

HMRC criminal tax investigators have a range of high-level powers to pursue their investigation. These are similar to those belonging to other law enforcement agencies.

These powers allow them to:

  1. Apply for production orders that require information to be produced
  2. Apply for search warrants
  3. Make arrests
  4. Search suspects and premises following an arrest
  5. Apply and obtain Freezing Orders and Restraint Orders

In addition to these powers, interviews can be recorded under police caution, and searches and raids can take place at private and business premises, as they attempt to gather evidence.

Due to the portfolio of powers that the investigators have it can be an overwhelming and intimidating experience.

During this period, it is important to have legal representatives with the combination of skills and experience to provide the necessary levels of support and advice.

Some will themselves have internal experience of tax investigations with HMRC, enabling them to negotiate with those conducting the investigation.

A complex area of law

Even when a criminal tax investigation has commenced, it is sometimes possible to persuade HMRC to consider its position and move the investigation onto a civil footing.

Having successfully litigated cases in our client’s favour, as well as finding satisfactory conclusions without the need for litigation for numerous clients, we are well placed to advise you should you find yourself the subject of an investigation.

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