As part of its much-publicised crackdown on the abuse of tax procedures, HMRC actively seeks to prosecute those involved in serious financial crime through criminal rather than civil procedures.

HMRC has complete discretion to conduct criminal tax investigations in any case, particularly where it feels it needs to send a strong deterrent, or that the case is so serious that only a criminal sanction is appropriate.

These investigations are carried out by HMRC’s specialist criminal investigation team.

Criminal tax cases

The following cases will typically be investigated by HMRC’s criminal investigation team:

Deliberate filing of inaccurate tax and VAT returns

  • Money laundering
  • Commercial tax fraud (MTIC fraud)
  • Assets hidden overseas
  • Submitting forged or false documents
  • Where HMRC has offered a Contractual Disclosure Facility (CDF) which was rejected or where all the relevant information was not disclosed

As well as the nature of the tax abuse, other cases may also be selected for criminal prosecution based on the individuals involved. For example, people in a position of trust, such as tax advisers, accountants, solicitors etc. are more likely to be involved in a criminal investigation if they commit the same offence as a company director in an unrelated sector.

The penalties – civil and criminal investigations

Criminal tax investigations are quite rare, but as you would expect from such serious cases of tax abuse, the consequences can be severe.

  • In cases where HMRC uses ‘civil procedures’, HMRC will look to recover the tax they are owed along with interest and financial penalties, which can be up to 200 percent of the tax recovered.
  • In criminal cases, HMRC’s criminal investigations team will look to recover the tax owed and interest, but as well as a financial penalty, they will try to secure a criminal conviction and even a prison sentence.

What Powers do They Have?

HMRC’s criminal investigations team has similar powers to those available to law enforcement agencies. In England and Wales, these are made available through the Police and Criminal Evidence Act 1984 (PACE). These powers allow investigators to:

  • Apply for production orders that require information to be produced
  • Apply for search warrants
  • Make arrests
  • Search suspects and premises following an arrest

In addition to these powers, to gather the evidence they need for a successful prosecution, interviews can be recorded under a police caution, and raids and searches can take place at business and private premises.

How Serious is This?

If you are notified that you are to be investigated by HMRC’s criminal investigation team, the situation is extremely serious. If the case against you is successful there will be severe consequences for you, your family, your reputation and your assets. However, even though a criminal investigation has begun, with careful negotiation the case can still be switched to a civil matter. Alternatively, it may be possible to persuade HMRC that there is insufficient evidence to support a criminal prosecution.