How to prepare for an HMRC dawn raid

One of the most stressful moments for a business is HMRC officers demanding access to your premises, so it is vital to have plans in place in the event of a dawn raid.

HMRC’s most feared power is its ability to conduct a dawn raid. The phrase ‘dawn raid’ (which is not used in the legislation) refers to an unannounced search of premises, usually early in the morning, by HMRC officers. HMRC carries out dawn raids when it suspects tax evasion and there is a likelihood that evidence could be destroyed if HMRC arranged a visit, or requested the information in the course of correspondence.

The risk of a dawn raid is an ever real one and it is important that businesses are properly prepared for such an eventuality.

Given the stressful nature of a raid and the complexity of HMRC's powers, costly mistakes can be made which could affect the business successfully defending its position and even its commercial viability, if it has failed to properly prepare.

The Police and Criminal Evidence Act 1984 (PACE) allows HMRC to apply to the Crown Court for authority to enter and search a premises to investigate suspected tax fraud.

HMRC must satisfy the Court that there are reasonable grounds to believe that:

• an indictable offence has been committed;
• there is material on the premises which is likely to be of substantial value to the investigation of the offence;
• the material is likely to be relevant evidence (ie, evidence which is admissible in evidence at a trial for the offence); and
• the material does not consist of or include items subject to legal privilege, excluded material or special procedure material.

One of the following conditions must also be satisfied:

• it is not practicable to communicate with any person entitled to grant entry to the premises;
• it is practicable to communicate with a person entitled to grant entry to the premises but it is not practicable to communicate with any person entitled to grant access to the evidence;
• entry to the premises will not be granted unless a warrant is produced; or
• the purpose of a search may be frustrated or seriously prejudiced unless a constable arriving at the premises can secure immediate entry to them.

Once HMRC is granted a search warrant, it will prepare to execute it. The search warrant will specify the locations HMRC is permitted to search, which could include coordinated dawn raids at a variety of premises.

This means HMRC could (and often do) simultaneously conduct dawn raids at a taxpayer’s home address, business premises and the premises of their external professional advisers.

Often, this early morning ‘knock at the door’ will be the moment a taxpayer or their adviser first becomes aware of an investigation into the taxpayer’s affairs.

PACE permits HMRC to use reasonable force to gain access to the premises which are to be searched.

Once HMRC has gained access to the premises, it can examine, copy or remove any material covered by the warrant, unless it is subject to legal professional privilege (LPP).

Dawn raids can be very difficult for businesses to manage, being disruptive, stressful and highly pressurised. As with most things in business, advance preparation is key. This is especially true for professional advisers, whose clients could come under HMRC scrutiny and may then themselves be drawn into an investigation, despite having done nothing wrong.

Fortunately, businesses can proactively prepare for a dawn raid. It is crucial that businesses have a comprehensive dawn raid policy and protocol in their crisis management plans, which cover how their staff should respond during a dawn raid.

The policy should affirm the importance of remaining calm, courteous and professional, as well as not taking any actions without the agreement of the business’ legal team.

This will not only minimise stress levels it will also reduce the risk of staff behaving inappropriately, such as attempting to deny HMRC access or volunteering information beyond the scope of the warrant and which they are under no legal obligation to provide.

The business should have sufficient trained staff who will be available to ‘shadow’ each HMRC officer in the event of a raid. The purpose of each ‘shadow’ is to monitor the search undertaken, make a note of all questions asked/answered and take a copy of all documents examined, copied or removed by the HMRC officer they are observing.

It is very important that HMRC officials are not allowed to simply wander around unsupervised. Members of the shadow team should raise concerns with the business’ legal team if it appears that HMRC’s search may be going beyond the scope of the warrant, or officers wish to copy or remove material that might be subject to legal professional privilege. They should also keep a note of the questions asked by HMRC and any answers provided.

Certain staff have key roles in responding to a dawn raid and will require additional training. Reception, security and IT staff should receive specific additional training. It is likely that reception and security staff will be the first people to greet the HMRC officers when they arrive to execute a warrant, which will normally be early in the morning.

They should be trained to check and record the IDs of every member of the HMRC dawn
raid team, assure the officers that the business intends to cooperate, before contacting the business’ crisis management and legal teams.

IT staff should be made aware of the need to keep a record of everything accessed or searched by HMRC officials on the company’s IT systems and mobile devices. They must also obtain a copy of all documents copied, imaged or removed by HMRC.

Beyond trained staff, it is crucial to have experienced dawn raid responders available who can be contacted and who can attend the relevant premises. Matters such as the precise scope of the warrant or legal professional privilege determinations, require difficult judgement calls and it is important that suitably experienced lawyers, with the necessary expertise in this area, are consulted.

The business’ dawn raid plan should include the contact details of experienced external lawyers who have agreed to be on call in the event of a raid. HMRC is entitled to refuse a request that the search not be commenced until the business’ external solicitors arrive, so delays in identifying and contacting an appropriate solicitor can be costly.

Given the ever-increasing regulatory landscape, the risk of a dawn raid is a real one. It is therefore essential that all businesses are fully prepared should they find themselves subject to a dawn raid. To assist businesses in their preparation, RPC has developed RPC Raid Response. This is an app toolkit featuring all the guidance needed to successfully navigate a dawn raid, including a live report incident button which connects you to RPC’s specialist lawyers. It is free to download from Apple Store and Google Play.

This article was originally published in Accountancy Daily.