Crown Prosecution Service announces major expansion of prosecutions for tax fraud

As announced in the national press this week (see e.g. the Financial Times Monday 21 January 2013) the Crown Prosecution Service ('CPS') has announced that it will increase five-fold the number of tax cases that it considers for criminal prosecution.

Ramping up tax prosecutions

The Director of Public Prosecutions, Keir Starmer, is determined to "ramp up" the number of tax prosecutions and to draw into the net those who may previously have considered their activities to be legitimate and legal tax avoidance, rather than unlawful tax evasion. Speaking to the Financial Times Mr Starmer said:

"Tax consultants who push dishonest schemes – and the professionals who invest in them – are central targets in the strategy.  There have been some cases involving lawyers, some involving tax  consultants and some plumbers … within the ramped up volume, it's intended we will select cases to send a clear message as to the breadth of our coverage."

A chilling new initiative

Mr Starmer's announcement represents an historic shift in HMRC's policy towards criminal prosecutions. Generally, HMRC uses its Civil Investigation of Fraud procedures in cases of suspected tax fraud and reserves criminal investigations for a narrow range of matters including attacks on the tax system by organised criminal gangs or fraudulent behaviour by individuals holding positions of trust or responsibility. This is no longer the case.

Dishonesty?

A key element in criminal offences involving tax fraud is dishonesty on the taxpayer's part. It is easy enough to see where the dishonesty lies if, for example, a taxpayer knowingly and with intent to deceive, withholds documents from HMRC, or submits false documents, or makes false representations to an HMRC officer. But HMRC appear to be going further than this. We have seen a number of instances recently where individual taxpayers who have entered into tax mitigation arrangements have been summoned to interviews under caution with HMRC criminal investigators. These individuals are taxpayers who, in good faith and upon taking professional advice, had entered into arrangements which they believed to be legitimate tax planning. They now find themselves as suspects in a criminal investigation. Certainly, in the cases in which we are involved, it is very difficult indeed to see why such individuals are being treated as suspects in this way. It would appear that the announcement by Mr Starmer is the latest stage in the Government's relentless drive to maximise the tax yield and ensure that everyone pays their 'fair share' of tax.

Comment

The Government has already invested £917 million in HMRC up to 2014-15 to tackle tax avoidance and tax evasion. An additional £154 million is now being provided to expand HMRC's compliance activities, with £77 million of this focusing on evasion and avoidance by 'wealthy individuals and multinationals'. This will enable HMRC to recruit an additional 100 inspectors into its Affluent Unit which will now target individuals who earn more than £150,000 or who have assets valued in excess of £1 million. These are clearly challenging times for taxpayers.

Individuals who are targeted by HMRC and/or the CPS need to ensure that they obtain  appropriate professional advice at the earliest opportunity as a criminal investigation is a serious matter which calls for expert legal advice. In particular, it is important for a client to be able to seek and obtain confidential advice from a lawyer who has the necessary expertise in this area and whose advice will enjoy the protection of legal professional privilege.