08/02/17

Country: UK, Specialist HMRC fraud investigation unit pushes up tax recovery

The new HMRC fraud investigation service (FIS), set up in July 2015 following an internal restructuring, collected £2.2bn from criminal investigations and £2.7bn from civil investigations over 2016, according to the figures. However, an additional £16bn was lost through tax fraud last year, accounting for nearly half of HMRC's estimated £34bn 'tax gap', according to the figures, reports Out Law.

"The new fraud investigation service has been successful in collecting additional revenue, but tax fraud remains very damaging to the Treasury," said tax expert Paul Noble of Pinsent Masons.

"HMRC's internal restructuring and the creation of the FIS demonstrated the government's determination to stamp out tax fraud, especially in the aftermath of the 'Panama Papers' scandal. HMRC wants to make examples of tax evaders and is no longer focusing on just the most simple cases of crude fraud," he said.

Successful tax fraud prosecutions by HMRC over the past year have included that of a group of film producers, accountants, financial advisors and investment bankers who were imprisoned for a total of 36 years for their part in a £2.2 million film tax scheme fraud. In another case, three men including an accountant and a construction firm boss were jailed for a total of 19 years after a £6.9m payroll fraud.

HMRC has been under political pressure to crack down on the underpayment of taxes, according to Noble. Although criminal investigations tend to receive more media attention and can be seen to send a stronger deterrent message to taxpayers, HMRC will use its more cost-effective civil investigation procedures in the majority of cases.

HMRC operates a contractual disclosure facility (CDF) to encourage cooperation from the taxpayer during an investigation. The CDF allows the taxpayer to enter into a contract with HMRC in order to avoid criminal prosecution. Provided that the individual fulfils the contractual obligations and fully discloses all the relevant facts and extent of any irregularities, HMRC will not pursue a criminal investigation with a view to prosecution.

Although HMRC is successful in around 90% of the prosecutions that it undertakes, cooperating through the CDF gives taxpayers the opportunity to "avoid criminal investigation and lengthy prison sentences", Noble said.

"It's essential that if you are offered the CDF, or have a disclosure to make, that you seek specialist advice as HMRC has adopted an increasingly aggressive stance to those who don't cooperate," he said. "With the right advice, someone with an issue to disclose can do so without the risk of criminal prosecution. Proactive disclosure of tax irregularities has its advantages."

HMRC's fraud investigation service consists of specialist tax and criminal justice experts, and deals with some of its most serious investigations.