NCA’s Annual Report 2019-20: a focus on recovering the proceeds of crime and asset denial
With the issue of tax evasion a political priority and firmly in the media spotlight, the Public Accounts Committee kick-started 2016 with an evidence session with top HMRC officials as part of its inquiry into: Tackling tax fraud: how HMRC responds to tax evasion, the hidden economy and criminal attacks.
The NAO report
The National Audit Office report published at the close of last year estimated that HMRC losses to tax fraud amount to £16 billion each year. This is nearly half of HMRC’s estimate of the tax gap (£34 billion): the difference between the amount of tax HMRC should collect each year and the amount it actually collects. The report confirms that whilst reducing the amount of tax that is lost due to tax fraud is a high priority for HMRC - to do this it needs to make better use of its data and further develop its analysis. In addition, the report set out the biggest tax fraud risks citing two groups – “smaller businesses and criminals” – as responsible for 17 of the 21 biggest tax fraud risks. Of these, 8 relate to organised crime and 9 involve medium-sized, small or micro-businesses.
The Public Account Committee’s inquiry assesses HMRC’s performance in tackling different types of tax fraud. It focuses on HMRC’s use of prosecutions, how it assesses risk and uses data, and its shifting strategy to place more emphasis on measures to prevent losses rather than relying so much on investigating them afterwards. HMRC witnesses called on 13th January were: Dame Lin Homer, Chief Executive and Permanent Secretary, Jennie Granger, Director, General Enforcement and Compliance, and Simon York, Director, Fraud Investigation Service. Officials from the National Audit Office were also in attendance.
MPs were very keen to learn how much of the “the £26 billion-plus” that is collected by HMRC can be allocated to sanction and recovery from tax evasion. Indeed, the NAO report confirms that HMRC has only partial data on how much of the total yield is derived from its work to counter tax fraud and it has more complete information on its work to tackle organised crime than tax evasion.
At the evidence session HMRC officials acknowledged that they “cannot very finely spilt out the £26 billion-plus that we collect”. That said, breaking down “tax fraud” into three broad headings - tax evasion, the hidden economy and criminal attacks – allowed HMRC to tackle different aspects of tax fraud and target resources. Citing aspects of their approach as “leading edge”, HMRC officials highlighted the various avenues taken to tackle tax fraud including a combination of campaigns (Plumbers and Professionals), publicity and education, alongside investigations and prosecutions.
The discussion in the committee highlighted how HMRC are taking a strategic approach to prioritisation of risk -assessing both the biggest financial risk alongside emerging trends or new type of behaviour. Trends identified included monitoring the growth in microbusinesses and online trading – often with an off-shore element.
Coming up in 2016 – “making it easy to comply and tough not to”
With an emphasis on digital service we can expect the mantra of “making it easy to comply and tough not to” to be one that shapes HMRC’s approach as it seeks to maintain a downward trend in the tax-gap. Moreover, with emphasis on reducing the tax-gap, HMRC is under growing pressure to consider more actively the criminal route – which more readily allows for punitive penalties – as a means of resolving tax disputes.
Alongside the legislative programme relating to criminal sanction for tax evasion (see our related blog), with a significant investment in staff resources to expand the complex and wealthy investigations area of work, the focus is on increasing the number of investigations leading to prosecutions of wealthy individuals and corporates. Up to 100 by 2020 from a current figure of around 35 per annum. Indeed, HMRC published internal guidance on criminal prosecutions on 23rd December 2015.
Advisors and individuals need to be alert to HMRC's new emphasis on criminal investigation and the increasing use of criminal powers - including interviews under the criminal caution (PACE), arrest, search and seizure and restraint. Anyone who finds themselves subject to a criminal investigation should seek specialist advice as soon as possible.
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