Does the taxman see tax fraud as a crime?

March 27th, 2009

I’m frequently asked if HMRC consider tax evasion and tax fraud to be criminal offences.  The simple answer is: Yes, if they consider the behaviour of the fraudulent taxpayer to amount to criminal conduct.

So what does the taxman consider to be criminal conduct?

HMRC say criminal conduct is conduct which:

• Constitutes a criminal offence in any part of the United Kingdom; or if it occurred abroad, would have been an offence in any part of the UK, if it had occurred here, and that
• Tax-related offences are not in a special category. The issue for tax offences, as for other offences, is whether the conduct would constitute a criminal offence in the UK.  If it is suspected that an offence of tax fraud or false accounting has been committed against a revenue authority then it could be prosecuted.

Main Tax Crimes

HM Revenue & Customs operate a selective prosecution policy and therefore only take criminal charges against less than 100 traders typically each year.  Where HMRC does prosecute the usual charges are:  the common law offences of Cheat; Conspiracy to Defraud; False Accounting; Theft; and a statutory tax crime: Knowingly Concerned in the Fraudulent Evasion of Income Tax (which can be tried in a Magistrates court).  Most of these offences carry maximum custodial sentences of 7 years and are usually accompanied by HMRC seeking the seizure of all monies obtained by “the proceeds of crime” plus costs and sometimes exemplary financial penalties too.

Can Tax Avoidance be Criminal Conduct?

HMRC’s chief tax inspector famously quoted a judge as saying the “the difference between tax evasion and tax avoidance is the thickness of a prison wall”!

He went onto spell out that HMRC will try to categorise tax avoidance as actually being tax fraud wherever it can: “If an ‘avoidance’ scheme relies on misrepresentation, deception and concealment of the full facts, then avoidance is a misnomer; the scheme would be more accurately described as fraud, and would fall to be dealt with as such.  Where fraud is involved, it cannot be re-characterised as avoidance by cloaking the behaviour with artificial structures, contrived transactions and esoteric arguments as to how the tax law should be applied to these structures and transactions.  Fraud is fraud, common cheat is common cheat and the application of tax law to ‘pretend’ situations is something of an irrelevance.” (John Gribbon, Tax Journal 22/9/97)

What does this mean for me?

Only a very few people who have fiddled their tax get prosecuted in the UK each year.  HMRC prefer to obtain money settlements, usually under the Civil Investigation of Fraud procedures.  It is usually only those few people who fail to properly handle a tax enquiry who end up with a criminal investigation.

Lynam Tax partners have a vast amount of practical experience in managing tax investigations and tax enquiries.  We have successfully persuaded HMRC to drop criminal charges in a number of cases and also assist specialist defence solicitors in cases which do end up in court; when we have been able to substantially reduce the amounts of money being sought by HMRC.

We can advise you on the best course of action and if appropriate, help you manage any necessary disclosures or obtain first class legal representation, in order to obtain the optimum outcome for you, your business and your family.

For a free, private, no obligation consultation, call Paul Lynam today on 0845 643 9997