Serious tax evasion cases at their lowest level for five years

From April 1^st 2012 to March 31^st 2013, local HMRC offices pinpointed 2,888 suspected cases of serious tax evasion – a 16% drop on the 3,456 cases identified by HMRC in the previous year (see graph below) and a 36% drop on recent highs. 

Pinsent Masons says that there has been a sharp decline in the number of tax evasion cases identified over the last two years, going against the popular notion that tax evasion in on the rise.

Phil Berwick, Partner** at Pinsent Masons, comments: “This decline in suspected tax evasion doesn’t tally with the rhetoric from some quarters that the British economy is being undermined by a chronic under-collection of tax revenues.”

“HMRC has plenty of tools at its disposal to catch tax evaders which serves as a huge deterrent to those considering tax evasion. A fall in serious tax evasion cases being identified is definitely not down to any waning of HMRC’s determination to pursue tax evasion. Some of the speculation about tax evasion is a little over the top.”

Pinsent Masons points out that HMRC has stepped up its anti-evasion efforts considerably in recent years, including having new powers conferred on itself.

The new powers and initiatives include:

• The ability to impose penalties of up to 200% of the original tax owed if an individual does not declare any income or capital gains that has been hidden from HMRC in an offshore bank account.
• The creation of taskforces to help prevent cases of serious tax evasion, such as the Offshore Coordination Unit (OCU) which coordinates HMRC’s analysis of the extra information that it now receives on UK taxpayers who have money stashed away overseas.
• The use of private sector experts to improve HMRC’s strategy and use of data to identify possible tax evasion. The Connect System, which uses state-of-the-art data analytics was developed and brought to HMRC by private sector experts.
• High profile advertising campaigns which HMRC says are designed to heighten evaders’ discomfort about not declaring all of their income.
• Overall expansion of HMRC’s resources, including hiring 2,500 more tax inspectors
• Increase in the number of treaties with other countries to improve attempts to catch tax evaders who hold their assets in offshore accounts including deals with the governments of both Liechtenstein and Switzerland.

Phil Berwick says: “International co-operation has been stepped up significantly as HMRC has striven to curb tax evasion. Tax evaders are now realising that HMRC has a much greater ability to tackle evasion, even if individuals conceal their assets abroad.”

“Within the UK, HMRC has really ramped up its activities and has adopted a more focussed approach. It is now fully prepared to use all the powers at its disposal to target anyone or any business it believes to be evading paying their tax.” 

“Five years ago some individuals and businesses perhaps felt that evading tax was relatively easy. Now they can see that HMRC is much more proactive and better informed than in the past. Increasingly, they are deciding that tax evasion just isn’t worth the risk.” 

Number of serious tax evasion cases identified by HMRC 2008-09 to 2012-13

* HMRC defines a case of serious tax evasion as being one that is concerned with the evasion of tax totalling £50,000 or more, or if prosecution would be possible. Those cases are then passed on to the central ‘Evasion Referral Team’ by local offices.

**Non lawyer