HMRC Fraud Investigations: What to Expect

There are few things HMRC takes more seriously than tax fraud, so if you find yourself the subject of an official HMRC Fraud investigation, it would be wise to take professional advice immediately.

We are not lawyers and cannot assist with deliberate large scale frauds such as carousel fraud but we can help small businesses in financial difficulties where directors are being looked at by HMRC for potentially bending the rules while under severe financial pressure.

Ways in which we can help include negotiating with HMRC, possibly narrowing the scope of any investigation and advising you on ways to demonstrate co-operation with HMRC such as preparing documentation or putting forward a payment plan.

HMRC have historically tended to look into businesses which handle cash, such as small retailers and especially restaurants.

Where HMRC start investigating, this is often linked to a situation where a small business seems to be in financial difficulties, perhaps with a pattern of late payment of tax or diminishing declared amounts of VAT or PAYE. If you are struggling financially, it’s far better to get experienced advice instead of taking risks that could make your situation worse, not least legally. So, if you are notified by HMRC, via an investigation letter, that they are investigating you, please do contact us.

Who are the HMRC Fraud Investigations Service Unit

The HMRC Fraud Investigations Service Unit (FIS) is a team of specialist financial investigators tasked with uncovering and penalising high value fraud that costs the exchequer money.

The Fraud Investigations Service Unit (FIS) was created from the merging of two existing teams: the Criminal Investigations Unit and the Special Investigations unit, in 2015.

The The Fraud Investigations Service Unit (FIS) specialises in the following areas

• Code of Practice 9 (cases where fraud or dishonesty is suspected and may involve substantial amounts of tax) and,
• Code of Practice 8 (cases which involve bespoke tax avoidance and/or where COP9 is not thought appropriate).

How do you Know if HMRC are Investigating you for Fraud?

You will know you are being investigated by the arrival of a brown HMRC letter through your door, typically requesting more information.

You should comply with this request as honestly and efficiently as possible. In fact, HMRC documentation makes it very clear that this kind of request is the opportunity to ‘make a complete and accurate disclosure of all… deliberate and non-deliberate conduct’ that has led to irregularities in your tax affairs. ^[1]Trusted Source – .GOV – Code of Practice 9 HM Revenue & Customs investigation where we suspect tax fraud

If a fuller investigation is deemed necessary, the Fraud Investigation Team will then request a face to face meeting. Once the investigation is concluded, you will receive a decision notice by post, or a contract settlement.

How long does it take HMRC to Investigate?

This depends on the type of investigation but, on a general level, investigations can last several months. While the initial red flag will usually be raised by Connect, HMRCs Supercomputer, the process of manual discovery takes time.

Most correspondence from HMRC during this period will specify that they need a reply within 30 days.

As such a simple case, involving a sole trader, investigations might be concluded within a couple of months. A complex case involving a large corporation could exceed 6 months in duration.

Types of HMRC Tax Fraud Investigation

HMRC classify their investigations on three levels.

Random

From time to time, HMRC will pick random businesses to investigate.

Usually, these will be companies where fraud is more easily accessible such as cash related businesses such as restaurants, taxi firms, takeaways, etc. However, VAT fraud is very common and companies with inter-Country VAT transactions.

Aspect

Where a particular area of a company’s tax affairs is raising a red flag, HMRC will proceed with an ‘aspect’ investigation (Such as inter-Country VAT transactions).

Full

Where significant risk is present, HMRC will undertake a full investigation.

This will include a detailed records review, including the personal financial records of directors or company owners.

Penalties for Tax Fraud

In the majority of cases, civil investigations prioritise the recovery of sums due to HMRC tax .

The Legal and Compliance team have the power to impose fines and sanctions to pressure companies to either pay what is due or cease trading immediately.

They also have the power to disqualify company directors, and name defaulters who owe more than £25,000.

In certain cases, however, and especially those where HMRC feels a deterrent message needs to be sent, criminal proceedings will be used. One such example of this would be when dealing with organised criminal gangs for which HMRC operates a zero tolerance policy.

How does HMRC Calculate Tax Penalties for Fraud?

HMRC will take into account the tax owed and the circumstances surrounding the non-payment of the tax.

Was tax deliberately withheld and diverted to the directors personally? Was it plain incompetence or panic by a small business in financial trouble?

Where an HMRC tax fraud is discovered it will depend on whether it is a Small to Medium Enterprise or a large Corporate body. In the majority of cases, it is likely the HMRC Legal Compliance Small Enterprise Team (LCSE) will take control.

Be aware this team can make the company director personally liable for HMRC Tax Fraud.

HMRC LCSE team will also take into account the following to calculate the penalty:

• Telling – The amount the director/s reveal and or admit to the HMRC tax fraud.

• Helping – The amount of assistance given by the director/s to identify the how, when and where of the HMRC tax fraud.
• Giving – The amount of cooperation and honesty of the accused director/s.

You should contact us immediately on 0800 074 6757 if you have been served with any notice from this team as your accountant is unlikely to be able to help.

The Contractual Disclosure Facility (CDF)

Since 2012, HMRC also has the power to offer individuals what is known as the ‘Contractual Disclosure Facility’ which, in return for full cooperation, can offer offenders a chance to avoid prosecution.

Designed to strengthen HMRC’s civil fraud investigation capacities, CDF’s are intended to encourage cooperation from taxpayers with the incentive of reduced penalties.

Does HMRC Work With Other law Enforcement Bodies?

Although it is not customary for HMRC to work jointly with other UK law enforcement organisations, such as the police, HMRC may offer other bodies information it gathers in the course of its criminal investigations.

Does HMRC Work Undercover?

HMRC regularly work undercover and their activities in this regard are wide ranging. Inspectors in disguise will pose as normal customers to investigate certain business practices – such as whether a restaurant is declaring cash payments, for example.

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

1. Trusted Source – .GOV – Code of Practice 9 HM Revenue & Customs investigation where we suspect tax fraud