More criminal prosecutions planned for tax evasion: investors beware, there is no ‘fuzzy line’

23 January 2013

Keir Starmer, the Director of Public Prosecutions (DPP) has been on a publicity offensive this week to announce that the Crown Prosecution Service (CPS) intends to substantially increase the number of tax cases it takes on with a view to criminal prosecution. 

HM Revenue & Customs (HMRC) investigates tax avoidance and evasion in the UK and then passes the files to the CPS to make a decision on charge and criminal prosecution. The target is for the CPS to increase the number of tax files it handles fivefold, to 1,500 a year by 2014-15.  The increase in resources devoted in this area will enable the CPS to prosecute highly complex tax avoidance schemes that are ‘dishonest’.

It has long been HMRC's policy to deal with fraud “by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate” with criminal investigations historically reserved for cases where there are particularly aggravating features such as organised criminal gangs attacking the tax system, where there is fraud involving false or forged documents, misinformation or destruction of material, or fraudulent behaviour by individuals holding positions of trust or responsibility. Clearly, in order for the CPS to increase in cases, the types of cases that HMRC will criminally investigate will have to expand.

Over the last 12 months the trend has been for HMRC to move their focus from the organised crime rings (who generally pay no tax) to the easier targets of tax payers with undeclared income or who been involved in tax mitigation arrangements that are not to HMRC’s liking.    Not only the architects of dishonest schemes, or the tax consultants who promote them but also the professionals who invest in them are therefore at risk of being embroiled in a criminal investigation. 

When asked in interview  about the ‘fuzzy line’ where individuals who have tried to legally avoid tax and find out that the scheme went too far, the DPP stated that by focusing on the  words ‘dishonest’ or ‘fraud’, it stops being a fuzzy line. For individuals who have relied on professional advisers, this may be more difficult to prove than it at first appears.

The professional sector and high net worth individuals are clearly in HMRC’s spotlight, with many focused HMRC campaigns on certain sectors, such as medics, plumbers, tutors and coaches but also highlighted by the HMRC’s current recruitment drive to appoint an additional 100 tax inspectors to its “Affluent Unit”, with a remit to examine the tax affairs of those with more than £1 million in private wealth.  It could be a challenging time ahead.

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