- Criminal prosecutions up 38% this year
- Target of fivefold increase in prosecutions
Under the current rules, known as the Civil Investigation of Fraud process, taxpayers under civil investigation for tax evasion have automatic immunity from criminal prosecution. If HMRC opts to bring a civil investigation, it cannot then mount a criminal prosecution for the same offence.
The new rules, called the Contractual Disclosure Facility, mean that taxpayers suspected of fraud will not get automatic immunity from criminal prosecution. Taxpayers approached under the new rules will be invited to admit tax irregularities, and give details of their offences. Failure to do so will mean that they do not get immunity from prosecution for those offences.
Taxpayers who face a civil investigation can be fined up to 200% of the tax due. With a criminal prosecution, however, taxpayers face an unlimited prison sentence, in addition to the confiscation of assets, which can include the family home.
Pinsent Masons says that HMRC is under immense pressure to prosecute more taxpayers for tax evasion and so is likely to make extensive use of the new powers.
HMRC was set a target of increasing criminal prosecutions for tax evasion fivefold at the Spending Review last October. Figures obtained by Pinsent Masons from HMRC show that criminal convictions for tax evasion have jumped by 38% already in the last year to 148.
Phil Berwick, Director at Pinsent Masons, comments: “This new procedure represents a significant change in the way HMRC conducts investigations where fraud is suspected. The change will help facilitate a very substantial increase in criminal prosecutions in the next few years.”
“Taxpayers will be at greater risk of imprisonment and losing the family home. For the more determined tax evaders, the chances of getting off with a fine and a slap on the wrist are diminishing.”
He adds: “HMRC is hamstrung under the current rules because it has to weigh up the probability of securing a criminal conviction against a civil settlement. It’s much easier to secure a civil settlement, which means HMRC is often reluctant to take a gamble on criminal proceedings, where the burden of proof is higher. In effect, HMRC now gets two bites of the cherry.”
According to a report published by the National Audit Office, in around 20 per cent of civil investigations taxpayers did not cooperate by making disclosures about their tax affairs.
The changes to the rules governing civil investigations should mean that, particularly in cases where individuals refuse to cooperate, HMRC will retain the option of bringing a criminal prosecution.
Phil Berwick says: “Under the current rules a significant minority of individuals have been stonewalling the Revenue, thwarting the process. HMRC will now have the option of hauling those individuals in front of the criminal courts, the threat of which alone should prompt greater cooperation from taxpayers.”
Pinsent Masons says that taxpayers with undisclosed liabilities should come forward voluntarily, under professional guidance. For many taxpayers with tax problems, particularly serious ones, the Liechtenstein Disclosure Facility (LDF) will offer the most favourable terms.
Phil Berwick adds: “HMRC is augmenting its arsenal all the time. Individuals with undeclared liabilities should approach the Revenue before they are contacted by the taxman. In particular, they should consider making an unprompted disclosure under the LDF. With the risk of punitive fines and imprisonment growing, a potential 10% penalty through the LDF is looking increasingly attractive.”