06/03/23

UK: Prosecutions of tax evasion enablers drops by 80 per cent.

As published on ft.com, Monday 6 March, 2023.

The UK tax authority has prosecuted only eight cases in the past two years for the enabling of tax evasion, despite pledging to pursue the lawyers, accountants and financial institutions that help clients carry out tax fraud.

Instead, there has been a steep drop from the 43 prosecutions brought by HM Revenue & Customs in the two years before the Covid-19 pandemic, according to a response to a Freedom of Information request submitted by the Financial Times.

“The government’s rhetoric on cracking down on tax evasion, aggressive avoidance schemes and those who promote them is essentially not being followed through by HMRC,” said Nimesh Shah, chief executive at the accounting firm Blick Rothenberg.

John Hood, tax partner at accounting firm Moore Kingston Smith, who used to work at HMRC, said its limited resources meant “there are very few barriers for individuals to set up businesses that promote aggressive structures”.

The collapse in prosecutions of tax evasion enablers comes as HMRC is under intense pressure to recoup lost tax revenue. A report by the National Audit Office, parliament’s spending watchdog, in December revealed that a sharp fall in investigations over the pandemic had cost the government as much as £9bn.

The overall tax gap in the UK — the estimated difference between tax owed and tax paid — was around £32bn in 2020-21, the latest year for which data is available.

In an interview with the Financial Times in January, Simon York, HMRC’s head of serious fraud, said the agency was intent on pursuing the financial and professional services firms that facilitate tax evasion as well as evaders themselves, noting that this required more collaboration with international counterparts.

The number of prosecutions fell over the pandemic, partly owing to court closures, while lockdown restrictions affected the agency’s ability to develop cases.

But tax professionals are concerned that a lack of enforcement by HMRC, which employs 5,000 people in its fraud investigation service, weakens the deterrent effect of the legislation designed to prevent the facilitation of tax fraud.

“The current low number of prosecutions naturally means that these matters are afforded less attention than other matters which are perceived to be greater risk,” said Nicholas Gardner, a partner at law firm Ashurst.

The FOI request also revealed that HMRC has 102 live investigations into professional enablers of fraud, down from 153 in May 2021.

In 2017, the government brought in legislation, known as corporate criminal offences, which made it a crime for corporations to fail to put in place “reasonable procedures” to prevent facilitation of tax evasion. But it has yet to make any corporate criminal offence charges and the latest figures showed just nine live investigations.

John Cullinane, director of public policy at the Chartered Institute of Taxation, said there was a “strong case” for wider use of prosecutions by HMRC. But he cautioned that there was a risk of failed prosecutions taking up time and resources, resulting ultimately in a lower tax take for the Revenue, at least in the short term.

“Our preferred approach would be a public consultation on prosecution policy, to discuss the overall approach and the trade-offs needed to achieve that,” he said.

HMRC said tackling enablers of tax fraud “remains a top priority for us”.

“We’ve always been clear that we focus criminal investigations on cases where the behaviour is particularly severe, where civil sanctions alone won’t work, and where criminal prosecution will be a strong deterrent to others.”