CPS to Launch Prosecutions for Tax Avoidance (and not just Tax Evasion)

The Director of Public Prosecutions has announced that the Crown Prosecution Service (CPS) is going to massively increase the number of prosecutions it undertakes in relation to tax evasion. And in a new twist he also announced that HMRC and the CPS are going to start prosecuting people involved in dodgy “tax avoidance” schemes.

Traditionally, tax evasion has always been considered illegal. From the smallest type of tax fraud – such as a market trader putting a £10 note in the back pocket – Her Majesty’s Revenue & Customs have always considered the deliberate under-statement of profits to be criminal behaviour. Tax avoidance has normally been considered to consist of a careful dance around the tax laws; and has always been considered legal – if sometimes somewhat immoral. However, the DPP says that an increasing number of tax avoidance schemes actually rely on concealment, deception or dishonesty in order to achieve their stated objectives. The CPS and HMRC say that where they discover such schemes they will now consider criminal prosecution.

This January The Director of Public Prosecutions ,Keir Starmer QC, made the following comments in a major speech about tax fraud.

“The people I want to talk about today are those who dishonestly and fraudulently evade tax. They choose to hide their income and wealth to evade tax, claim tax relief to which they are not entitled and subvert the tax and excise systems to make money for themselves. They are criminals.

Tax evasion has to be dealt with robustly all the time. But in a recession, when ordinary law-abiding tax payers are suffering real hardship, the need to deter, detect and prosecute those who evade tax is greater than ever.  The latest estimate by HMRC suggests that tax evasion costs the UK economy £14 billion a year. That is the equivalent of £530 from every household, or £769 per family.

The criminal justice response to tax evasion
The criminal justice response to tax evasion is being ramped up. A stronger fraud prosecution capability has been developed. In April 2010 an expert team from RCPO combined with an expert team from the CPS to form a new Central Fraud Division within the CPS, providing a specialist national prosecution and advisory service for all Revenue fraud cases investigated by HMRC.  In conjunction with HMRC, a strategic decision has been taken radically to increase the number of tax evasion cases prosecuted. HMRC and the CPS have now demonstrated that it is possible successfully to prosecute those who set up sophisticated but dishonest tax avoidance schemes.

At the same time, senior judges have made it clear that, when it comes to large scale tax evasion, even those without previous convictions can expect significant custodial sentences.

Increasing the volume of cases
In 2010 HMRC was allocated additional resources (£900 million over 4 years) to tackle the problems of tax evasion and avoidance – strengthening HMRC’s Criminal Investigation Directorate by 320 investigators to tackle tax fraud.  HMRC will increase the number of criminal prosecutions fivefold.

HMRC will refer sufficient cases to the CPS to enable prosecutions for non-organised tax fraud to rise from

  • 165 individuals in 2010/11, to
  • 565 individuals this year (2012/13), to
  • 1,165 individuals in 2014/15.

In 2010-11, the CPS successfully prosecuted 200 tax and excise evasion cases; by 2011-12, that number had risen to 550. This financial year to date, 86% of cases originating with HMRC have resulted in conviction.

We have restructured the way work is allocated to increase the number of prosecutors with the expertise to undertake HMRC prosecutions.  The mix of cases is important. It is no secret that among HMRC’s strategies for deterring tax evasion are taskforces to target “high risk” areas of work. One of the taskforces will be looking at lawyers, but grocers, retailers and restaurant owners will also be under scrutiny.

Prosecuting dishonest tax avoidance schemes
An important breakthrough has been the ability of HMRC and the CPS to successfully prosecute those who devise and operate sophisticated schemes to abuse direct tax regimes: dishonest tax avoidance schemes.

These cases typically involve highly intelligent individuals, not infrequently skilled professionals with close knowledge of the tax laws, who go to great lengths to dress up a dishonest and fraudulent tax evasion scheme as a legitimate investment scheme attracting tax relief or other tax advantages. The schemes often use extremely complex financial instruments and corporate entities to create a subterfuge. Long and complicated audit trails are then used to disguise the scheme. But an experienced investigator and a skilled prosecutor can spot the tell-tale signs of dishonesty, whether that be false or misleading documents, false turnover figures, hidden trading transactions, or payments that do not reflect commercial reality.

We demonstrated this last year when we successfully prosecuted the first ever large scale dishonest tax avoidance scheme case: a case known as Operation Reciprocal, which involved a scheme devised and operated by so called expert tax consultants to claim tax relief for high earners.

The aggravating features of tax and excise evasion for sentencing purposes include:  first, the sophisticated nature of the fraud; second, the exploitation of a scheme; third, a breach of trust; fourth, the fraudulent obtaining of money pursuant to the scheme coupled with the suppression of profits; fifth, the amount of loss to the Revenue; sixth, the personal benefit to each defendant; and, seventh, the concealment of the fraudulent nature of the claims at audit.

In Operation Reciprocal The Court of Appeal also made it clear, that when it comes to large scale tax evasion, even those without previous convictions can expect significant custodial sentences.

Tax evasion is not a victimless crime. It is not a “fiddle” in some sort of legal grey area. It is ordinary fraud involving dishonesty and greed.  At the heart of any complex fraud is one simple notion and something that any jury member can understand – dishonesty.

A scheme might be devised by an experienced – but corrupt – tax professional. It may be clever and complex. And it may seem to offer easy wins. But no scheme is too clever or complex to be detected, to be put before a jury and to be found to be illegal”.

How can Lynam Tax Investigation Experts help me?
Lynam Tax partners have a vast amount of practical experience in managing tax investigations and tax enquiries.    We can advise you on the best course of action and if appropriate, help you manage any necessary disclosures, 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
or Andrew Nutbrown on 07718 778710