HMRC targets enablers of tax evasion

HMRC is increasing its efforts to tackle professional enablers of tax evasion. However, determining what constitutes tax evasion and the 'enabling' of tax evasion, is not always straightforward. We consider  these questions below, together with HMRC's strategy in this important area.

This blog is based on an article first published in Taxation magazine on 12 October 2020. A copy of that article can be found here.

Introduction

Tax evasion is becoming ever more complex and international in nature.  Those that are complicit in tax crime often need the assistance of third party enablers.  Perhaps not surprisingly therefore, HMRC's Fraud Investigation Service is now focusing on all links in the tax evasion supply chain, coming down just as hard on those enabling or facilitating tax crime as on those committing the crime.    

On 14 May 2021, in response to a Freedom of Information Act 2000 request, HMRC confirmed that it was currently investigating 153 suspected 'enablers of tax evasion', which included unregulated tax advisors among other professionals. 

It is often thought that those who facilitate or enable tax crime consist of accountants, lawyers and financial institutions. However, HMRC's Fraud Investigation Service have made it clear in public statements¹ that they are casting their net much wider to include, for example, software developers, storage and distribution facilities and logistics businesses.  

What constitutes enabling tax evasion?

There is no statutory definition of an 'enabler' of tax evasion.²  

Under the criminal law, 'enabling' tax evasion would generally fall under accessory liability which criminalises the aiding, abetting, counselling or procuring of an offence, or in more modern language, assisting or encouraging the offence. The accessory must at least know the essential elements which constitute the offence³ and have intended to assist in the commission of the offence.⁴ It is also necessary that the accessory intended to bring about the result with the requisite mens rea.⁵ 

What this means is that in order for an enabler to be criminally liable as an accessory, they must:

(1) know the essential factual elements of the evasion;
(2) know that the principle is being dishonest; and
(3) intend to assist in/encourage evading tax.

As can be seen from the plethora of case law surrounding the law of accessory liability, what an accessory must be aware of and what they need to intend are complex legal questions necessitating careful analysis. 

HMRC's strategy for addressing enablers of tax evasion 

In an OECD report, dated 25 February 2021, entitled Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes,⁶ (the Report), the OECD highlighted the importance of professional enablers to the facilitation of tax and other so-called white collar crimes, such as fraud, bribery, money laundering and corruption. 

Professional enablers were described in the Report as being differentiated from the majority of professionals who "are law-abiding and play an important role in assisting businesses and individuals to understand and comply with the law and helping the financial system run smoothly"⁷ and instead comprising "a small set of professionals who use their skills and knowledge of the law to actively promote, market and facilitate the commission of crimes by their clients" making it easier "for taxpayers to defraud the government and evade their tax obligations, such as by offering non-transparent structures and schemes to conceal the true identity of the individuals behind the illegal activities undertaken".⁸

The Report further notes that there is great variation in the definition of 'enabler' between countries, some choosing a broad definition which includes those that know, or have reason to believe, that their services are being misused, whereas other countries require an enabler to perform a specific service intending to aid their client or customer in carrying out a tax offence or other financial crime.⁹

The Report adopts a wide definition of 'enabler' being "skilled professionals who use their knowledge for facilitating the commission of tax and economic crimes, usually in large scale and through sophisticated means". This definition is broad and catches both professional enablers of tax crime who are actively and knowingly enabling the commission of tax offences and facilitators of tax crimes who are less cognisant of their complicity (either because they have chosen to be wilfully blind or because they are unaware of the risk that is posed).

Simon York CBE, Director of HMRC's Fraud Investigation Service, in a statement made on 26 March 2021, confirmed that the potential for enabling of tax evasion was not limited to lawyers, accountants and financial institutions, but also encompassed "non-financial services like storage and distribution facilities, construction, software development – the list is endless".¹⁰  

York referred to the inception of HMRC's focus on the enablers of criminality programme, commenced in April 2017, which has included new approaches for identifying potential enablers and confirmed that, since that date, there have been more than 60 prosecutions under the programme. York also noted that there has been a variety of outcomes from education for those who are unwittingly complicit in criminal activities (and who would be unlikely to be able to be criminally charged). Others have faced criminal investigation and potential prosecution.

Commentary 

HMRC has in recent years increased its effectivness in identifying traditional tax crimes with the result that would-be evaders are increasingly turning to third parties to assist them. Those who commit tax crimes have become significantly more sophisticated and international in their approach, in an attempt to conceal their conduct from the tax authorities.¹¹   Historically, HMRC has struggled to obtain information from its overseas counter-parts which made it easier for criminals to manipulate and exploit the system.   As a part of its enablers of criminality programme, HMRC has also increasingly looked to international cooperation to bolster its domestic anti-tax evasion policy. To that end, in 2018 the Joint Chiefs of Global Tax Enforcement – known as the J5 - was created, bringing together the tax authorities of the UK, US, Canada, Australia and the Netherlands, to cooperate in combating international and transnational tax crime and money laundering, focusing in particular on enablers.  Since its inception, the J5 has been sharing intelligence amongst its members and working on joint operations to crack down on those that enable tax crime.  The first major operational activity of the J5 took place on 22 January 2020, with a global day of action in respect of suspected tax evasion and money laundering involving more than £200m in the UK alone.  The action related to a Central American financial institution whose products and services enabled tax evasion and money laundering for its customers across the globe.¹²  

This international and cooperative focus ties in with the UK government's Economic Crime Plan 2019-2022, which sets out the strategic priorities for the UK in combating economic crime, including tax evasion. Strategic Priority 7, specifically highlights the importance of international strategy, cooperation and sharing best practice. Indeed, part of the UK government's commitment involves HMRC considering "international engagement and assistance in their business planning to facilitate the sharing of best practice with overseas supervisory counterparts and … the development of links between professional body supervisors to share understanding of risk, best practice and the UK’s experience in regulating professionals …".¹³

HMRC's announcement of 153 live criminal investigations into the activities of enablers indicates that it has broadened its focus significantly and is considering seriously the actions of a wide range of enablers who it suspects of assisting others in carrying out tax evasion.   If HMRC suspect that you are assisting your clients to evade tax, it may use its wide-ranging criminal powers against you.   

The many potential actions and behaviours which might constitute enabling tax evasion, should give most professionals pause for thought, particularly given the wide definitions referred to by the OECD in the Report which contemplate a far lower standard of criminality than that previously seen in the criminal law in the UK.