Anyone who has ever filed a tax return knows that tax law can be complicated.
The prospect of a criminal investigation by HMRC may be especially daunting since they can – if not handled correctly – result in serious consequences including fines; seizure of assets; and even imprisonment.
The recent, high-profile Entain and Bernie Ecclestone cases demonstrate that HMRC has the capability to tackle tax fraud allegations by way of criminal proceedings, and is also (in some cases) prepared to prosecute these offences.
The agency is increasingly keen on using its criminal investigatory powers. The year to April 2024 saw HMRC’s Fraud Investigation Service start a total of 430 criminal investigations into alleged tax fraud: an 8.6% increase on the previous year. [1]
When facing an HMRC criminal investigation it is important to understand the process by which this happens; to know your rights in respect of this; and to be aware of all potential outcomes.
Hickman & Rose is a leading law firm representing individuals and organisations under criminal investigation. Here our expert lawyers answer some of the questions that commonly arise in HMRC criminal investigations.
What triggers an HMRC criminal investigation?
An HMRC criminal investigation into tax fraud can be triggered in various ways.
A common starting point is a report made to HMRC through another law enforcement agency or regulatory body (e.g. by way of intelligence sharing or as a consequence of a suspicious activity report relating to money laundering).
An investigation may be prompted by a whistleblower. HMRC has its own fraud hotline to facilitate the reporting of suspected tax fraud. Investigations can be prompted by HMRC’s own compliance checks or analysis of tax returns. The agency also monitors open source material such as news reports, Companies House filings, and the Land Registry records for leads on possible tax evasion and fraud.
Having become aware of potential tax fraud, HMRC will then assess whether to initiate a criminal investigation. The main factors relevant here are:
- Was this aserious fraud involving substantial tax losses or with a connection to wider criminality, such as the activities of organized crime groups?
- Was there suspected deliberate concealment of income or assets, conspiracy, corruption, or deception?
- Were false or forged documents submitted? Or materially false statements are made during a civil investigation?
- Are HMRC’s civil powers inadequate to uncover the truth or to recover the tax at stake.
- Was there any money laundering, theft, or other financial crime involved?
- Would launching a criminal investigation send a strong deterrent message?[2]
What powers does HMRC have to investigate suspected criminal conduct?
HMRC has similar criminal investigation powers to other UK law enforcement agencies such as the police. However, it can only use these powers to investigate tax-related offences.
The main investigatory powers used by HMRC during an investigation of suspected criminality are the ability to:
- Apply for and execute search warrants.
- Make arrests and conduct interviews under caution.
- Search suspects and premises following arrest.
- Apply for orders from a court requiring information or documents to be produced.
- Recover criminal assets.
In the most serious cases, HMRC can apply to use intrusive surveillance which includes the power to intercept communications, carry out surveillance and interfere with property.
How will I know if I am under HMRC investigation?
There are various ways in which a person or a business may come to know that they under investigation on suspicion of having committed criminal offences.
They include:
- Receipt of a formal letter from HMRC informing you of the investigation. This letter will outline the nature of the investigation, the suspected offences, and may request specific documents or information from you.
- In some cases, HMRC may obtain a search warrant and conduct a raid on your home or business premises. This is often done without prior notification and the first you will learn about it is when HMRC officers arrive intending to conduct a search. Their aim in doing so is to gather evidence related to the investigation. If this happens, you will be presented with the search warrant at the time of the raid.
- You may be invited to attend an interview under caution. This is a formal interview where you will be questioned about the suspected offences. You have the right to legal representation during this interview.
- In more serious cases you may be arrested. If you are you will be informed of the reasons for your arrest and your rights, including the right to legal representation.
What should I do if I receive a letter from HMRC about a criminal investigation?
Receiving a formal letter from HMRC informing you about a criminal investigation can be daunting. Here are the steps anyone in this situation should consider taking:
- Carefully read the letter to understand the nature of the investigation and what HMRC is requesting from you.
- Ensure the letter is genuine by checking the contact details and any reference numbers against those listed on the official HMRC website. If in doubt, contact HMRC directly using the contact information provided on their official site.
- Contact a solicitor who specialises in criminal investigations into tax offences. They can provide expert guidance on how to proceed while also protecting your rights.
- Collect all relevant documents and information that HMRC has requested.
- Do not attempt to destroy, hide, or alter any documents or information. This can lead to additional allegations, more severe penalties and complicate your situation.
- Ensure you respond to HMRC within any specified deadlines – it may be possible to agree an extension, but do not ignore the request it will not go away. Provide accurate and complete information as requested.
- Keep detailed records of all communications and interactions with HMRC, including dates, times, and the names of the officers involved.
Can HMRC search my property? What to do if it does?
HMRC can only search a property such as a home or business premises if it has first obtained a search warrant from a court or following an arrest.
In the year ending 31 March 2024, HMRC executed 648 such search warrants against individuals and businesses.[3]
If HMRC executes a search warrant on your premises, it’s important to handle the situation carefully and calmly. Following the steps below can help protect your rights and ensure the search is conducted lawfully.
- Ask the HMRC officers to show you the search warrant. Ensure it covers the premises being searched.
- Call your solicitor as soon as possible. Inform the HMRC officers that your legal representative is on their way and request that they wait for your solicitor to arrive before starting the search.
- Your solicitor can assist in making sure the officers conduct the search respectfully and within the scope of the warrant. If you believe they are overstepping their powers or behaving inappropriately raise this with HMRC and make sure you make a record of this.
- Cooperate with the officers, but do not volunteer information or documents beyond what is specified in the warrant.
- After the search, request a list of all items seized.
What should I do if I am arrested by HMRC?
It is possible to be arrested if you are suspected of tax related criminal offences. Following an arrest, a suspect will usually be interviewed under caution before being released with bail conditions or ‘under investigation‘.
A suspect facing an interview under caution should be aware of some important rights which may protect their position.
Their primary right is to legal representation. Anyone who has been arrested by HMRC is advised to immediately seek advice from a solicitor who specialises in criminal tax cases. They should not answer any substantive questions about the allegations until having spoken to their solicitor.
Any suspect interviewed under caution has the right to remain silent when questioned. Whether or not to exercise that right by declining to answer questions is a often key decision which is best made after having taken expert legal advice.
It is also advisable, if possible, to keep detailed records of all interactions with HMRC. These records should include the names of officers, times of events, and any documents presented to you.
How to respond to HMRC’s demand for documents or information?
HMRC can require the subject of an investigation to produce specific documents or information. The agency usually does this by way of a court order or formal notice.
Anyone who receives such a notice is advised not to attempt to destroy or hide any documents or information. Doing so may be a criminal offence which carries its own penalties.
It is important to consider whether HMRC’s demands for information or documentation have been properly made. It may be possible to challenge a court order or notice for information. Taking expert advice will identify whether this is the case and the merits of raising a challenge, including to a court.
Having established what information should be turned over, you are advised to do so within the specified timeframe. Failure to comply with an order can result in fines or imprisonment.
It is generally also a good idea to keep detailed records of how you complied with the order, including what documents were provided and when.
Can HMRC seize and detain my property?
HMRC has a number of powers to seize, detain, and recover property from individuals and businesses suspected of engaging in criminal activity. These powers are primarily governed by the Proceeds of Crime Act 2002 (‘POCA’).
HMRC can search premises to find and seize recoverable property (i.e. property obtained through unlawful conduct) or property intended for use in unlawful conduct. This may include cash, physical assets, and crypto assets.
HMRC can also apply for a ‘freezing order’ under POCA, or use an Account Freezing Order, to freeze bank accounts while its investigations and proceedings continue. These orders are draconian provisions that can have a serious impact on a targeted person’s finances, and a business’ ability to continue operating.
It is possible to challenge these freezing orders. In some cases they may be set aside. In others terms of the order can be varied.
After a criminal conviction, a court will consider making a confiscation order aimed to recover the financial benefit obtained from criminal conduct.
HMRC can also choose to apply to the High Court for a civil recovery order to recover property that represents the proceeds of crime even without a criminal conviction.
What are the potential outcomes of an HMRC criminal investigation?
Depending on the findings and the severity of the suspected offences an HMRC criminal investigation can lead to several outcomes. Here are some of the main ones:
No Further Action. If HMRC finds insufficient evidence of wrongdoing, it may decide to take no further action. This means the criminal investigation is closed, and no charges or penalties are imposed under the criminal justice process.
Financial Penalties. If HMRC determines that there has been a breach of tax laws but they are not severe enough to warrant a criminal prosecution, it may impose financial penalties. These can include fines and interest on unpaid taxes. The amount will depend on the nature and extent of the breach.
Civil Settlement. In some cases, HMRC may offer a civil settlement. This involves negotiating a financial settlement to cover unpaid taxes, interest, and penalties. Accepting a civil settlement can sometimes prevent criminal prosecution.
Prosecution and Criminal Charges. If HMRC finds sufficient evidence of serious tax offences, it may pursue criminal charges. The decision whether to bring a criminal prosecution is made in England and Wales by the Crown Prosecution Service (CPS). This can lead to prosecution in court. Anyone found guilty may face:
- Significant financial penalties (fines) imposed by the court.
- Imprisonment: Depending on the severity of the offence, a prison sentence may be imposed.
- Criminal record: A conviction will result in a criminal record, which can have long-term implications for personal and professional life.
- Confiscation Order for the benefit of any criminal conduct
In the year ending 31 March 2024, HMRC criminal investigations resulted in 344 criminal prosecutions.[4]
Publicity. HMRC may publicise the outcome of its high-profile cases to deter others from committing similar offences. This can lead to reputational damage for individuals and businesses involved.
The duration of an investigation varies widely depending on the complexity of the case. It may only take several months for an investigation to concluded but it is not unusual for HMRC investigations to take several years.
Can an HMRC criminal investigation be diverted to a civil matter?
HMRC’s policy is deal with investigations in the most cost-effective way possible. This means it can, in certain cases, use its civil fraud investigation procedures under Code of Practice 9 (COP 9) in place of a criminal investigation.[5]
COP 9 is a formal procedure initiated by HMRC when they suspect serious tax fraud. It offers taxpayers the opportunity to disclose any deliberate tax irregularities through the Contractual Disclosure Facility. In return, HMRC agrees not to pursue a criminal investigation, provided the disclosure is complete.
Those subject to COP 9 enquiry may, within 60 days of being informed of HMRC’s investigation, admit to their wrongful conduct, provide full disclosure of their affairs, answer questions about their conduct and pay the unpaid tax and a fine. In return they will not be prosecuted by HMRC.
Where the COP 9 outcome is under consideration as a means of resolving an HMRC criminal tax investigation, we work with civil tax specialists to secure the best possible outcome.
[1] See the technical notes to the Fraud Investigation Service in HMRC’s Annual Report for 2023/2024 and the same in HMRC’s Annual Report for 2022/2023.
[2] The full list of factors is available on HMRC’s Criminal Investigation Policy guidance.
[3] See the technical note of the Fraud Investigation Service’s in HMRC’ Annual Report for 2023/2024.
[4] See the technical note of the Fraud Investigation Service’s in HMRC’ Annual Report for 2023/2024.
[5] See HMRC’s criminal investigation policy, last updated on 13 July 2021.
