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.
Tax Fraud is defined by HM Revenue and Customs as behaviour that illegally deprives the Exchequer of Revenue and, during the last decade, HMRC has invested significantly to increase their success rates in enforcement and compliance.
How do you Know if HMRC are Investigating you?
If you’ve received a letter from HMRC suggesting you are under investigation, you should next ascertain what level of enquiry is underway.
Expect the Fraud Investigation Team to request a face to face meeting, at which it would be prudent to invite your accountant or lawyer. Once the investigation is concluded, you will receive a decision notice by post, or a contract settlement.
Who are the HMRC Fraud Investigations Service Unit?
The HMRC Enforcement and Compliance Team is one of the UK’s largest law enforcement agencies, as well as the biggest debt collector in the UK.
As the largest division within HMRC, it employs more than 26,000 staff which, in addition to tax professionals, include intelligence gatherers and analysts. It has a presence in 120 separate UK locations, and more than 28 countries worldwide.
Within the Enforcement and Compliance Division, fraud is handled by a specialist division known as the Fraud Investigation Service Unit. This unit was created during 2015 when HMRC combined what had been called the Criminal Investigations and Specialist Investigation Directorates.
HMRC Fraud Investigations Service Unit Phone Number
If you need to speak with HMRC about an avoidance scheme, you can call them on:
Tel: 03000 588 993
How long does it take HMRC to investigate someone?
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 trade, 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.
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.
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).
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.
Code of Practice 9
If you have received a letter informing you of an investigation, you will also be provided with a Code of Practice leaflet.
HMRC uses four different Codes of Practice for its tax investigations, with Code of Practice 9 relevant to cases of suspected serious tax fraud.
How does HMRC Handle Civil and Criminal Investigations into Tax Fraud?
In the majority of cases, civil investigations prioritising the recovery of lost tax are used by HMRC.
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 it deliberately withheld and diverted to the directors personally? Was it plain incompetence and so on.
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 take into account the following to calculate the penalty segments:
- 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.
A penalty amount is allocated to each segment based upon the tax fraud and is calculated as a percentage for each segment. For example, if the director has been made personally liable £50,000 in each segment the overall liability will be £150,000.
Each segment is then reduced in percentage terms by the level of telling, helping and giving received by the director.
You should contact us immediately on 08000 746 757 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, HRMC 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.