An HMRC investigation into allegations of tax fraud or tax evasion can be highly stressful.

HMRC’s significant resources, combined with the fact these matters are often very complex, mean that the subject of an HMRC enquiry can easily feel overwhelmed – especially at the beginning of an investigation.

Hickman & Rose specialise in representing individuals and businesses under investigation by HMRC for alleged tax evasion, cheating the public revenue, fraudulent evasion of VAT, making false statements to the Revenue and conspiracy to commit these offences.

The firm’s track record includes successfully advising in the context of allegations involving film investment schemes; missing trader VAT fraud (MTIC); price transfer schemes; and research and development relief claims.

A successful outcome sometimes involves settling an investigation through HMRC’s Code of Practice 9 (COP9) procedure by which it can be possible to avoid prosecution.

HMRC tax fraud investigations

His Majesty’s Revenue and Customs (HMRC or ‘the Revenue’) is the government department responsible for collecting UK taxes and investigating tax evasion and avoidance.

Although HMRC used to prosecute its own criminal cases, this power was withdrawn in 2010 after series of high-profile errors. All HMRC criminal cases in England and Wales are now prosecuted by the Crown Prosecution Service (CPS).

HMRC has wide-ranging and far-reaching powers of criminal investigation. These include the power to:

apply for court orders requiring information or documents to be produced
apply to use intrusive surveillance techniques and intercept communications
apply for – and execute – search warrants
make arrests and conduct interviews under caution
search suspects and premises following arrest
seize assets including cash, alleged to be the proceeds of crime and to apply for forfeiture
freeze bank accounts (Account Freezing Orders) and to apply for forfeiture of the money in the account.

Although wide-ranging, these powers they are not always properly exercised. Hickman & Rose has successfully challenged their use, including persuading HMRC to return seized property, to withdraw Account Freezing Orders and to return seized cash. We have successfully appealed orders of the court including by way of judicial review and can call on the firm’s expert civil litigation team to assist these applications.

The HMRC tax investigation process

HMRC can start a criminal investigation in various ways.

It may be alerted to an incidence of alleged fraud by another law enforcement agency. Investigations are sometimes prompted by HMRC’s own compliance checks and analysis of tax returns. Investigations sometimes start with whistleblower allegations or HMRC may respond to pressure generated by a media campaign.

Once it has decided to investigate, HMRC can apply for production orders under either the Police and Criminal Evidence Act (PACE) or the Proceeds of Crime Act (POCA).

Production orders are often a key building block in an HMRC investigation. They require the recipient to comply in providing HMRC with material including documents, digital material and accounting records. Failing to adhere to a production order is a criminal offence.

In the most serious cases, HMRC can apply to use intrusive surveillance powers under either the Regulation of Investigatory Powers Act or the Police Act. Investigatory techniques available to HMRC including bugging and covert filming / recording. The agency can also request data from telephone operators including records of calls made and messages sent; these activities are tightly regulated.

It is often the case that the subject of a tax investigation will know nothing of all this until HMRC makes it clear, either by executing a search warrant, conducting an arrest, or sending a formal letter of notice.

In most cases, the subject of HMRC’s tax inquiries will be invited for interview under caution, after which they are usually released while the investigation continues until a decision whether to charge is made by the CPS.

Responding to an HMRC investigation

The best response to an investigation into an alleged tax fraud will depend on the nature of the particular case. While advice will vary with circumstances, some general considerations often apply, including:

If a production order has been made without notice you are usually entitled to see the basis of the application. This will provide helpful information about the investigation and in assessing whether the application was lawful.
If HMRC gives notice of an application for a production order, it may be possible to narrow the scope of the order by negotiation, saving time, costs and limiting interruption to a business.
If served with a production order carefully consider the terms before complying.
Keep scrupulous records of all communications made in respect of the enquiry, including all interactions with HMRC and what happened during the execution of a search warrant. Having a solicitor present at a search will help ensure it is conducted properly.
HMRC cannot lawfully obtain information which is subject to Legal Professional Privilege (confidential communications between a lawyer and their client for the purposes of giving and receiving legal advice, and if litigation is in contemplation some communications with third parties). If in doubt take advice whether material is subject to LPP. If material that may be subject to LPP is seized – for example emails with a solicitor saved on a phone, laptop or server – raise this with HMRC straightaway. HMRC should take steps to quarantine the material until the assertion of LPP has been determined.
HMRC investigations seldom move swiftly, usually it will be many months sometimes years before they conclude. HRMC may be willing to agree steps that allow a business to continue during this time, for example returning digital devices without unnecessary delay or agreeing access to the HMRC submission portal.
Be prepared, responding to a criminal tax investigation may involve a significant amount of your time.

HMRC investigation outcomes

Not all HMRC investigations will result in criminal prosecution through the courts.

If there is insufficient evidence or it is not in the public interest to do so, HMRC may decide not to pursue a prosecution or the CPS may decide not to bring one and no further action will be taken in the criminal sphere, although HMRC may pursue a civil case or seek a financial remedy.

If HMRC pursues a criminal case and the CPS agree that charges should be brought, this will lead to prosecution in the criminal courts. Anyone found guilty may face:

Significant financial penalties (fines) imposed by the court.
Imprisonment: depending on the severity of the offence, a convicted tax offender can face a prison sentence.
Criminal record: any conviction will result in a criminal record, which can have long-term implications for an individuals’ personal and professional life.
For companies there are associated risks which may include the risk of being convicting of the offence of facilitating tax evasion

Anyone facing the prospect of prosecution as a result of an HMRC tax investigation is advised to seek specialist legal representation as soon as possible.

COP9

HMRC has stated that “criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.”

A Code of Practice 9 (known as COP 9) investigation is a process under which a financial settlement may be reached in circumstances where HMRC suspects there has been a serious loss of tax as a result of tax fraud.

Under the COP 9 procedure a taxpayer is given a one-time offer where in exchange for immunity from prosecution and payment of a financial penalty they admit to committing tax fraud and agree to make full disclosure of any omissions or irregularities that have arisen in in the previous 20 years.

HMRC policy is to “deal with fraud by use of the cost-effective civil fraud investigation procedures under COP 9 wherever appropriate”. This resolution to alleged tax fraud may be offered by HMRC; or it may be applied for by the subject of an investigation. However, it is not appropriate or possible in all cases.

Where a matter starts out as a criminal investigation, our team work closely with experts who can advise on this potential route for dealing with the matter, the likelihood of reaching settlement with HMRC and the consequences of doing so.

How our expert HMRC solicitors can help

Hickman & Rose has long track record of successfully representing individuals and organisations who have been the subject of criminal investigation for tax fraud.

Our lawyers are able to respond immediately to any crisis such as a raid, search, arrest and interview. We can quickly assemble a team including expert forensic accountants and counsel to provide immediate advice and assistance.