In posts on the Fieldfisher 'Tax Deductions' blog we have previously explained that there are a number of figures that Fieldfisher tracks that reveal the extent of HMRC's criminal investigations activity, and the extent of its success (or failure):
- Search warrants executed by HMRC ("raids");
- Decisions by the CPS to charge for tax offences ("decisions to prosecute");
- Individuals prosecuted ("prosecutions); and
- Convictions for tax offences in the courts ("convictions").
All four are tracked because each arises at a different stage in the criminal investigation cycle. It often takes a year or more between a raid and a decision to prosecute, and often more than that between a decision to prosecute and trial. If a first trial leads to no result, and a retrial is required, the whole process can take four to five years. We are aware of examples where there has been a conviction more than seven years after the raid took place. Such variable time lags make interpretation of the data more difficult.
We have obtained, by way of a request under the Freedom of Information Act, figures for the nine tax years from 2011/12 to 2019/20 using these definitions (these figures exclude tax credits offences).
|Year||Raids||Decisions to Prosecute||Prosecutions||Convictions|
Since 2015/16 the number of raids has fallen year on year, but in 2019/20 the number of raids has nose-dived, down 63%. The 2019/20 figure is (by a very long way) the lowest since we started monitoring. We suspect that the effective suspension of HMRC compliance activity during the first lockdown will have very much impacted the figures for the last quarter of the tax year ended 5 April 2020.
Decisions to prosecute, as expected, also continue to fall. In previous posts on the Fieldfisher blog, we suggested that figures reflected declining trend seen in the number of raids. Figures for 2019/20 are clear evidence of a shift in focus and demonstrate that in 2019 we were correct to conclude that HMRC was reducing its focus on gathering information through raids as a precursor to criminal prosecutions for tax fraud.
With a reduction in the number of raids and fewer decisions to prosecute, it is no surprise that the number of prosecutions has also fallen for the second year, albeit from a high base and only by 8%. Figures also show that convictions are down by 6%, in line with the small reduction of prosecutions in 2018/19, but that conviction rates have, again, held up. Obtaining convictions for fraud is notoriously difficult and HMRC and the CPS are to be commended for maintaining the high quality of the cases that go to trial.
The continued year on year fall in numbers across each stage of HMRC's criminal investigation activities suggests that, again as we concluded last year, HMRC's prosecutions policy over the past decade has been successful in deterring sophisticated fraudulent tax 'schemes'. But we expect to see raids and prosecutions figures rise again over the next year or so as a result of investigations into overclaims and fraud relating to the Job Retention Scheme launched to help employers through periods of uncertainty.
HMRC say they have already identified over 8,000 potentially fraudulent Job Retention Scheme claims and have begun enquiries into a further 27,000 "high-risk" cases. The arrests began early, in July 2020.
As the Job Retention Scheme has been extended until 31 March 2021, we could see an increase in fraud and prosecution figures from that initiative alone for several years to come.
Fieldfisher has published extensively on, and set up a joint employment and tax disputes team specifically to address, Job Retention Scheme issues. Please contact Matthew Sharp or Christopher Kientzler to discuss with any specific concerns about HMRC interest in Job Retention Scheme claims that have been made. If you have wider concerns about the progress of an HMRC dispute or investigation please contact George Gillham or Philippe Freund to discuss this in more detail.
With special thanks to Ellen Austin, Solicitor Apprentice, for her contribution to this Insight.
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