We are 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.
What the taxman considers as criminal conduct
- HMRC say criminal conduct is behaviour 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.
- Tax fraud is a not in a special or lower category compared to other crimes. If it is suspected that an offence of tax fraud, false accounting, common cheat, or theft from the public purse has been committed against the tax authority then it can be prosecuted.
Main Tax Crimes
HM Revenue & Customs operate a selective prosecution policy, and therefore only take criminal charges against a relatively small cross-section of taxpayers. Where HMRC does prosecute the usual charges are: the common law offences of Cheat; Conspiracy to Defraud; False Accounting; the general statutory crime of Theft; and two specific statutory tax crimes: Knowingly Concerned in the Fraudulent Evasion of Income Tax (which can be tried in a Magistrates court) and (from September 2017) Failure to Prevent the Facilitation of Tax Evasion. Most of these offences carry maximum custodial sentences of between 7 – 14 years. In guilty verdicts, HMRC nearly always also take proceedings under the Proceeds of Crime Act to confiscate the estimated lost tax. Failure to pay a Confiscation Order automatically leads to a further prison sentence! The courts sometimes charge exemplary financial penalties too, and can award costs against the convicted tax fraudster. Failure to Prevent the Facilitation of Tax Evasion is different. It is a “corporate” offence applying to employees, agents and associates. There is no prison sentence involved; rather unlimited fines, Confiscation Orders, and Prevention Orders.
Can Tax Avoidance be Criminal Conduct?
HMRC’s chief tax inspector famously quoted a judge as saying the “the difference between tax avoidance and tax evasion is the thickness of a prison wall”! Which is to say that the first might be unlawful (i.e. it doesn’t achieve its intended results; and so you have to pay more tax), but the latter is criminal (i.e. you can go to prison for it!).
However, increasingly HMRC are trying to re-categorise attempted tax avoidance as actually being tax fraud. “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 small proportion of the people who have fiddled their tax get prosecuted in the UK each year. HMRC prefer to obtain civil settlements (i.e. to collect the money), usually under the Contractual Disclosure Facility procedures. It is usually only those few people who fail to properly handle a tax enquiry who end up with a criminal investigation.
How Can Lynam Tax Investigation Specialists Help me?
Lynam Tax Enquiry Experts have a vast amount of practical experience in managing all types of 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 (which can also result in lower, or non-custodial, sentences).
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. We will help you get the best possible 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