What happens in an HMRC criminal investigation

HMRC has wide-ranging criminal investigation powers. In this blog we discuss HMRC's criminal investigation processes and the important practical considerations you should bear in mind when responding to such an investigation.

This blog is based on an article which was first published in Taxation magazine on 8 April 2024. That article can be accessed here: https://www.gov.uk/government/publications/criminal-investigation/hmrc-criminal-investigation-policy

Introduction

There have been recent reports in the media about the number of HMRC's criminal investigations declining in number.  However, HMRC's Fraud Investigation Service are still very much active and are strategically investigating cases that are of higher value and complexity, rather than focusing on the smaller less complex cases. By way of example, the response to a Freedom of Information Act request confirms that HMRC raids increased by more than 40% in 2022/23, compared to 2021/22.  In addition, the number of decisions to prosecute has jumped from 336 in 2021/22 to 431 in 2022/23.   HMRC also reached one of its highest settlements ever when former F1 mogul, Bernie Ecclestone, paid £650m after pleading guilty to fraud by false representation in respect of his failure to declare to HMRC the existence of overseas assets worth over £400m.   

In the Government's Economic Crime Plan 2: 2023 to 2026, it is stated that: tackling [tax fraud] remains an economic crime priority for Government as it is still one of the highest proceeds of crime generating public sector fraud risks. Robustly bearing down on evasion ensures individuals and businesses continue to believe there is fairness in the tax system. Many of the Plan’s actions will have positive consequences in tackling tax crimes". 

Tackling tax fraud is still very much a focus for HMRC and it is important to understand how to respond to a HMRC criminal investigation and ensure you are fully prepared should the unthinkable happen. The consequences of mismanaging a criminal investigation can have serious financial and reputational consequences and can lead to lengthy custodial sentences for individuals.  On this basis, it is important to obtain specialist legal advice from the outset. This article explores HMRC's criminal investigation process, the far-reaching powers it has at its disposal and the important practical considerations to consider when responding to such an investigation. 

When does HMRC choose to pursue a criminal investigation rather than a civil investigation? 

HMRC's published statement of its criminal investigation policy was most recently updated in July 2021 (https://www.gov.uk/government/publications/criminal-investigation/hmrc-criminal-investigation-policy). Its stated policy is to deal with fraud by use of the cost effective civil fraud investigation procedures under Code of Practice 9 (https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9) wherever appropriate, and “criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate”. Such cases include:

• cases of organised criminal gangs attacking the tax system;
• where an individual holds a position of trust or responsibility;
• where materially false statements are made, or materially false documents provided, during the course of a civil investigation;
• where reliance is placed on a false or altered document;
• where there is suspicion of deliberate concealment, deception, conspiracy or corruption;
• cases involving importation or exportation breaching prohibitions and restrictions;
• cases involving money laundering with a particular focus on advisers, accountants, solicitors and others acting in a professional capacity, who provide the means to put tainted money beyond the reach of law enforcement bodies;
• where the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action;
• cases involving theft, or the misuse or unlawful destruction of HMRC documents;
• where there is evidence of assault on, threats to, or the impersonation of, HMRC officials; and
• where there is a link to suspected wider criminality, whether domestic or international.

What are the key phases of an HMRC criminal investigation

1. Intelligence gathering

Prior to notification of a criminal investigation, HMRC will gather intelligence.  It obtains documents and information from various third parties (such as banks) by using its information gathering powers, the most common being by way of a production order. 

HMRC can apply to a circuit judge for a production order under section 9 and Schedule 1, Police and Criminal Evidence Act 1984 (PACE). A production order compels a person, who appears to be in possession of material to which the order relates, to produce this material to HMRC. HMRC may also apply for a production order under section 345, Proceeds of Crime Act 2002 (POCA).

For cases involving suspected serious crime, HMRC can also apply to use the intrusive surveillance powers contained in the Regulation of Investigatory Powers Act 2000, and The Police Act 1997.   As might be expected, such surveillance, due to the level of intrusion involved, is highly regulated.  Surveillance can be conducted in a number of ways and in a variety of locations ranging from observations of people in a public place through to recording a person’s activities in their private residence. While investigating tax fraud, HMRC may carry out surveillance, for example, of business premises, and make recordings of any activity or conversations which occur. HMRC may also monitor those entering or leaving  premises.

As well as powers to conduct surveillance, HMRC can, under the Investigatory Powers Act 2016, request data held by telecommunication operators, including the time, duration and location of a telephone call, together with the number dialled. However, it cannot, without the authority of the Secretary of State, ascertain what is being said on such a call. When investigating suspected fraud, HMRC may also obtain records of text messages and media (including images and links) sent to and from specified phone numbers.

2. Suspect notification

Unlike civil investigations, where notification of the opening of an investigation is given to a taxpayer, it is often the case that a suspect under criminal investigation by HMRC does not know that they are under criminal investigation. The first time most people find out that they are under criminal investigation is when HMRC execute a search warrant (often referred to as a "dawn raid") and/or they are either requested to attend a voluntary interview under caution or are arrested.

Following interview under caution, it is likely that the suspect will be released under investigation pending charge and HMRC will continue to conduct its investigation. This investigative process can take many years.

3. Charging decision  

Although HMRC is responsible for investigating crime involving all of the taxes and other regimes it administers, it is not responsible for criminal prosecutions. The decision whether to bring a criminal prosecution is made in England and Wales by the Crown Prosecution Service (the CPS) and in Scotland by the procurator fiscal (for ease of reference, we only refer to the CPS below as the process is similar in relation to the procurator fiscal). 

The final stage of a criminal investigation is the referral to the CPS for a charging decision. HMRC will prepare a file for the CPS summarising all of its allegations and providing all of the evidence that it has gathered. To issue a charge, the CPS has to be satisfied of the following two things:

(1)  there is sufficient evidence to provide a reasonable prospect of conviction; and

(2)  bringing the case to court is in the public interest.

In reaching its decision, the CPS will take into consideration any submissions that the suspect wishes to make concerning whether they should be charged. These can be in relation to:

• the sufficiency of the evidence;
• the lack of public interest in the prosecution; and/or
• the suspect will not receive a fair trial.

Once the CPS has reviewed the file and considered any submissions made on behalf of the suspect, it will decide whether the suspect should be charged. If it determines that a charge should be laid, the suspect will then be given a date to appear in court.

What criminal investigation powers does HMRC have? 

Routine criminal investigation powers are mainly contained in PACE.  The principal powers available to officers of HMRC are: 

• the power of arrest for all indictable tax offences (section 24);
• the power to search premises (often referred to as a 'dawn raid') (section 8 and Schedule 1);
• the power to apply for production orders for special procedure material (section 9 and Schedule 1);
• the power to enter and search premises to effect an arrest (section 17);
• the power to enter, search and seize evidence on premises occupied or controlled by a person who is under arrest, subject to authorisation by a senior ranking investigating officer (section 18);
• the power to seize material found on premises on which an HMRC officer is lawfully present, including power to require production of electronic matter in a readable form (section 19); and
• the power to search an arrested person for evidence and to enter, search and seize evidence on premises where an arrested person was found immediately before arrest (section 32).

The above criminal investigation powers can be used only by HMRC officers authorised to use such powers. PACE provides that some powers can be exercised only by officers of a particular grade. Not all the powers contained in PACE are available to HMRC. For example, HMRC may not take fingerprints, or charge or bail suspects; these procedures must be carried out by a police officer.

Tips on how to respond to a HMRC criminal investigation 

A HMRC criminal investigation is very different to a civil enquiry conducted by HMRC, and it is important that businesses, and their professional advisors, know how to respond to a criminal investigation being conducted by HMRC.   

Preparation is key.  All businesses should have a detailed 'dawn raid' policy in place so that they can quickly act if they find themselves the subject of a raid.  Key staff should be trained (including reception and security staff) on how to respond to a raid and the specific actions they need to take. 

When responding to a raid or production order, it is important to ensure that HMRC only obtains what it is lawfully entitled to obtain under the warrant or production order.  In addition, it is necessary to ensure that only material that is within the scope of any warrant or production order is uplifted or provided to HMRC.   HMRC does not have the power to request, examine or seize material which is subject to legal professional privilege (LPP). This is material that is subject to either legal advice privilege i.e., communications between a lawyer and their client in the context of seeking or giving legal advice, or litigation privilege i.e., communications between a lawyer and their client and/or third party for the dominant purpose of being used in communication with actual or pending litigation.  It is important to ensure that HMRC's criminal investigators do not obtain LPP material.

Both arrest and interview under caution are serious matters which require specialist legal advice and assistance.  An arrest can have serious repercussions on someone's life, such as a refusal of a visa to visit certain countries such as the United States. It is therefore important to be familiar with HMRC's powers in this regard.  HMRC's powers of arrest may only be used if the officer has reasonable grounds for believing that it is necessary to arrest the person in question (section 24(5), PACE). HMRC often contend that an arrest is necessary to enable the prompt and effective investigation of an offence.  However, if a suspect agrees to attend a voluntary interview under caution, an arrest is not necessary.  On this basis, it is important that the necessity for arrest is challenged when it is appropriate to do so.  

In respect of attending an interview under caution, a decision will need to be made with legal advice as to whether to: (a) answer HMRC's questions at an interview; (b) answer 'no comment'; or (c) a mixture of the two by providing a prepared written statement. 

If you are in any doubt about how to respond to a HMRC criminal investigation, you should seek expert legal advice from a lawyer with the appropriate experience in tax law and financial crime. 

A dawn raid is one of the most stressful events a business can experience – in part, because getting it wrong can have such serious repercussions (including significant financial consequences and reputational damage).

We have therefore developed a market-leading dawn raid response tool – RPC Raid Response.

The RPC Raid Response toolkit houses all the guidance needed to successfully navigate a raid in one easy to use interactive app which is supported by a 24/7 helpline. It is available to download for free via the Apple and Google Play stores.