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Insight

Decisions to prosecute for tax fraud up, but convictions down

In September 2010, the Chief Secretary to the Treasury, Danny Alexander, pledged to make funding available to HMRC for a five-fold increase in criminal prosecutions for tax evasion. In January 2013, the incumbent Director of Public Prosecutions, Kier Starmer QC, said, in respect of non-organised tax fraud, that the Crown Prosecution Service (“CPS”) was aiming to prosecute seven times as many people in 2014/15 as it had done in 2010/11.

I have always been uneasy with the concept of ‘targets’ for prosecutions. Absent a five-fold increase in staffing in HMRC’s criminal investigations team (which was unlikely ever to happen; not least because it takes years to train a good investigator) and a five-fold increase in the number of criminal investigations and raids, a five-fold increase in number of prosecutions also could be achieved by HMRC and the CPS ‘lowering the bar’ on the chances of a conviction for the purposes of decisions to charge. If this were happening we would expect to see lower conviction rates for tax evasion offences going forward.

In previous posts on this blog about HMRC’s criminal investigations activity, I have explained that there are a number of figures that we track that reveal the extent of HMRC’s criminal investigations activity, and the extent of its success (or failure):

1. warrants executed by HMRC (“raids”);
2. decisions by the CPS to charge for tax offences (“decisions to prosecute”); and
3. convictions for tax offences in the courts (“convictions”).

All three are tracked because each arises at a different stage in the prosecution cycle. It often takes a year or more between a raid and a decision to prosecute; and a similar period again between a decision to prosecute and any conviction. If a first trial leads to no result and a retrial is required (not uncommon) the whole process could take four or five years.

I have now expanded this to include individuals prosecuted (“prosecutions”).

I have obtained by way of a request under the Freedom of Information Act the complete figures for the four tax years from 2011/12 to 2014/15 using these new definitions (these figures exclude tax credits offences).

Year                       Raids     Decisions to prosecute Prosecutions      Convictions

2011/12                657                         430                         364                         333

2012/13               787                         664                         471                          439

2013/14               784                         874                         713                          674

2014/15               759                         1247                        681                          617

As I noted last year the indications are that the HMRC criminal investigations team has reached maximum capacity, with the number of raids falling in both 2013/14 and 2014/15. However, the number of decisions to prosecute has continued to rise – almost doubling in two years and trebling in four years.

I have previously expressed a concern that, absent a significant expansion in the numbers of properly trained HMRC criminal investigations staff, the then DPP’s drive to prosecute more people for tax fraud would (in reality) lead to the CPS setting the bar lower than before when deciding whether or not there was a ‘realistic’ chance of securing a conviction. The figures set out above would appear to bear out that previously-expressed concern. Conviction rates would appear to be dropping sharply – both statistically and anecdotally.

So, the bad news is that if you are arrested on suspicion of having committed a tax offence, it is more likely than before that you will be charged.

If you are a regulated (SRA, FCA, ICAEW or the like) professional and are charged with a criminal tax offence, because these are dishonesty offences it is inevitable (at the moment) that you are going to have your licence to practise suspended, and thus will lose your means of earning a living, for at least a year. This is regardless of whether, in due course, the jury acquits you. If the alleged offence relates to a complex conspiracy to defraud, with lots of co-defendants, it may take two, three or years for the case to come to trial. If you are acquitted, even if your previous professional firm will have you back again, getting back the money that you could have earned in the meantime, and getting back all the money that you have spent on legal fees, will be all but impossible.

Being charged with a criminal tax offence can mean virtual financial ruin for a regulated professional. If HMRC show an interest in you, and you have a concern that something is, or might be perceived to be, open to question or to an adverse interpretation, talk to a lawyer, under the protection of legal professional privilege, at the earliest possible opportunity.

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