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Insight

High conviction rate for tax fraud prosecutions maintained

In September 2010, the Government pledged to make funding available to HM Revenue & Customs ("HMRC") to ensure that there was a five-fold increase in criminal prosecutions for tax evasion. In January 2013, a seven-fold increase in the number of prosecutions for non-organised tax crime was proposed. Despite reservations expressed by the National Audit Office (in December 2015), about the cost-effectiveness of this strategy, further funding in respect of criminal tax investigations was announced in Budget 2015; this time, the aim was that HMRC triple the number. The focus on more investigations and prosecutions has been maintained, notwithstanding the political maelstrom.

Whether HMRC have met properly the 2010 target (or will meet the 2015 target) is difficult to ascertain (for reasons that I explain below). But it continues to be the case that much more significant resources are being expended than hitherto on pursuing people criminally for tax evasion. The CPS and HMRC have had to work closely together with the aim of meeting these targets. The decision has been to push beyond what have previously been seen as the 'safe boundaries' (i.e. cases with an extremely high chance of conviction) and to investigate new categories of persons (such as investors in tax avoidance schemes). There has been a significant shift: HMRC will criminally investigate, and the CPS will proceed to charge, and juries will be prepared to convict, for tax offences much more frequently than was the case, say, fifteen years ago, or even five years ago.

This means that you - and/or your clients, if you are a professional adviser - are at much greater risk of criminal investigation, prosecution, and conviction than was historically the case.

In previous posts on this blog about HMRC’s criminal investigations activity, I have explained that there are a number of figures that Fieldfisher 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”);
  3. individuals prosecuted ("prosecutions"); and
  4. convictions for tax offences in the courts (“convictions”).

All four 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 often more than that between a decision to prosecute and trial. If a first trial leads to no result, and a retrial is required (not uncommon) the whole process can take four or five years.

We have obtained by way of a request under the Freedom of Information Act the complete figures for the six tax years from 2011/12 to 2016/17 using these definitions (these figures exclude tax credits offences).

 

Year                 Raids               Decisions        Prosecutions      Convictions

                                                to Prosecute

 

2011/12              657                   430                   364                   333

2012/13              787                   664                   471                   439

2013/14              784                   874                   713                   674

2014/15              759                   1247                 681                   617

2015/16              761                   1065                 843                   773

2016/17              752                   1063                 844                   767

 

The number of raids has remained fairly steady over the last five years, perhaps because the HMRC criminal investigations team has reached maximum capacity. It may be that, with the new money for staff announced in Budget 2015, the figure for raids increases for 2017/18 and beyond.

The number of 'decisions to prosecute' (which one can expect to lag 'raids' by eighteen months or so) remains around the 1000 mark,  having fallen back from the height reached in 2014/15, but still more than twice the 2011/12 figure.The number of prosecutions (which, again, one can expect to lag 'decisions to prosecute' by around 18 months) has remained stable at its new higher level (again, more than double what it was six years ago)

I have previously alluded to a concern that, absent a significant expansion in the numbers of properly trained HMRC criminal investigations staff, the drive to prosecute more people for tax fraud would (in reality) lead to the CPS taking more risks on prosecutions. The figures for 2014/15 did appear to bear out that previously-expressed concern. But, in 2015/16 and 2016/17 conviction rates appear to have risen above 90% again. This is unquestionably an impressive achievement for HMRC and the CPS, and they are to be congratulated on 'maintaining quality' in this way. Their 'gamble' of prosecuting more readily is paying off.

From the taxpayer point of view it is clear that if you are arrested on suspicion of having committed a tax offence, it is much likely than before that you will be charged, prosecuted and convicted. And the sentence will not be a slap on the wrist. The maximum sentence for cheating the public revenue, the often-charged common law offence, is life imprisonment. Custodial sentences of four to six years are now being seen fairly frequently.

Even if you avoid that, 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, you will 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, a jury acquits you. If the alleged offence relates to a conspiracy to defraud, with several co-defendants, it may take three or four years for the case to come to trial after your arrest. 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.

So: being charged with a criminal tax offence can mean virtual financial ruin even if you are acquitted. 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 us, under the protection of legal professional privilege, at the earliest possible opportunity.

 

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