Chappell tax evasion conviction shows nobody beyond HMRC's reach

Out-Law News | 06 Nov 2020 | 1:23 pm | 2 min. read

The conviction of former BHS owner Dominic Chappell for tax evasion demonstrates that the UK's HM Revenue & Customs (HMRC) "is prepared to effectively deploy its criminal powers to underpin its strap line 'nobody beyond our reach'", a tax expert and former head of the HMRC unit responsible for the work on the Chappell case has said.

Andrew Sackey of Pinsent Masons was commenting after Chappell was sentenced at Southwark Crown Court to six years in prison after being found guilty by a jury of evasion of corporation tax, income tax and VAT on £2.2 million of income he received when his company, Retail Acquisitions Ltd, purchased the high street chain BHS for £1 in 2015. The chain ultimately collapsed resulting in the loss of 11,000 jobs.

The court heard that rather than paying tax, Chappell had used his income to fund a lavish lifestyle which included buying a Bentley car and a yacht.

Portrait of Andrew Sackey

Andrew Sackey

Partner

HMRC has been dedicating more and more resources to the investigation of corporates and wealthy taxpayers since the Panama Papers scandal

Sackey, who led HMRC's offshore corporate and wealthy unit previously, said: "HMRC will be delighted to have got this high-profile prosecution under their belt. This prosecution is part of HMRC's new, very focused, approach of building and pursuing cases against the wealthy and ultra-high net worth individuals, and indeed corporates who make the decision to evade tax. HMRC continues to invest a lot of resource in increasing their deterrent impact in this sector."

New figures obtained by Pinsent Masons show that the number of arrests, dawn raids or interviews undertaken in respect of corporates and wealthy individuals by the offshore, corporate and wealthy unit jumped 40% last year to 70, up from 50 in 2018/19.

The offshore, corporate and wealthy unit was established by HMRC at the time of the 'Panama Papers' scandal in April 2016. The role of the unit is to use criminal and civil powers to investigate suspicions of non-compliance by companies and the wealthiest taxpayers.

"The offshore, corporate and wealthy unit has a simple, highly-focused aim – to target deliberate non-compliance by corporates, the wealthy and ultra high net worth individuals who seek to evade tax," Sackey said. "The 2019/20 tax yield alone was £414m, demonstrating that HMRC's focus on these customer segments is delivering a significant return on investment."

The unit's investigations resulted in 85 charging decisions in the year ended 31 March 2020 year, more than the double the 34 it secured in 2018/19. It secured 32 in 2017/18. Since it was established, the unit has collected or protected £1.8bn in extra tax through its investigations.

"The offshore, corporate and wealthy unit has really found its feet in recent years," Sackey said. "Due to the complexity of the cases the unit investigates, it can take time for criminal cases to reach the public domain of the prosecution stage. The increase in charging decisions demonstrates that the unit's early work is now starting to pay off."

"It should also be remembered that as well as its criminal powers, HMRC also has a wide range of civil enquiry powers that it uses on a daily basis without the fanfare of a criminal trial," he said.

"HMRC has been dedicating more and more resources to the investigation of corporates and wealthy taxpayers since the Panama Papers scandal. HMRC investigations into the wealthiest and most sophisticated suspected offenders have increased eight-fold from about 50 in 2016/17 to over 400 in 2019/20. It recently announced that 31 businesses are under investigation or enquiry in respect of suspicions relating to the corporate criminal offence," Sackey said.

The corporate criminal offences of failing to prevent the facilitation of tax evasion were introduced in 2017, and make it a criminal offence if a business fails to prevent its employees or agents from facilitating tax evasion. A successful prosecution can result in an unlimited fine and a criminal record for a business, restricting its access to some regulated markets and ability to bid for government contracts.

As at 13 October 2020, HMRC said it had 13 live corporate criminal offence investigations with a further 18 "live opportunities under review", although no charging decisions have yet been made. HMRC said it was looking at businesses ranging from small businesses to some of the UK's largest organisations across a range of sectors including financial services, oils, construction, labour provision and software development.