HMRC will consider a criminal investigation from the outset where they suspect that a significant amount of revenue has been lost by way of fraud or another form of deliberate conduct. They will also conduct a criminal investigation, rather than a civil inquiry, when they want to send out a strong deterrent message or where they regard the alleged conduct to be so serious that it is necessary.
Criminal investigations are likely to occur when HMRC suspects:
- Deliberate filing of inaccurate Tax Returns or VAT Returns including income tax evasion;
- Deliberate failure to file Tax Returns or VAT Returns;
- Use of false or forged documents;
- Concealment, deception, or corruption;
- Failure to provide full and accurate disclosure in an investigation or settlement;
- Money laundering;
- Conspiracy with others to evade tax or duty;
- Involvement of a professional (tax adviser, accountant or lawyer), particularly if they advise or act for taxpayers (as they will be viewed as ‘a source of infection’);
- VAT Missing Trader Intra-Community (MTIC) or carousel fraud;
- VAT ‘bogus’ or ‘hijacked’ registration repayment fraud;
- Breach of import or export prohibitions or restrictions (‘sanctions busting’);
- A Contractual Disclosure Facility (CDF) has been offered under Code of Practice 9 (COP9) but the taxpayer has chosen to reject/ignore the offer.
HMRC has strong investigatory powers, with the ability to carry out dawn raids (search and seizure) at homes and business premises, which is often accompanied by the arrest of the taxpayer. Routinely, HMRC will also covertly obtain warrants and court orders to require banks, advisers and even accountants to provide records and financial information about a taxpayer.
HMRC also has the power to apply without notice for a Restraint Order under the Proceeds of Crime Act (POCA) to freeze all the assets of the person being investigated until the outcome of the investigation and any subsequent court proceedings.
In recent years, HMRC has brought hundreds of tax fraud prosecutions resulting in severe prison sentences for those convicted. HMRC tough stance has been demonstrated by cases involving relatively minor tax evasion, VAT evasion, and duty evasion (tobacco and alcohol smuggling, and fuel duty).
Following a successful criminal prosecution, HMRC will always consider seeking a Confiscation Order under the Proceeds of Crime Act (POCA) to recoup the benefits of the taxpayers criminality. A confiscation order is backed up by a default sentence of imprisonment should the tax payer not pay the confiscation order within a set period (in addition to the original sentence).
HMRC have created a Fraud Investigation Service which will actively maintain a high rate of investigations and prosecutions.