HMRC 'dawn raids' on suspected tax evaders rise to record high

Out-Law News | 09 Jul 2014 | 5:05 pm | 2 min. read

The number of searches carried out on the property of suspected tax evaders by HM Revenue and Customs (HMRC) reached a record high last year, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. 

The figures showed that HMRC carried out 500 searches in the year to 31 March 2014, up from 445 in 2012/13 and more than triple the average number of searches carried out each year between 2008 and 2011. It is the second time in three years that HMRC conducted a record-breaking number of searches, following the 499 searches carried out in 2011/12.

Tax expert Jason Collins of Pinsent Masons said that the huge annual increase in raids since 2011 was the result of HMRC's higher tax evasion prosecution targets. HMRC hopes to prosecute 1,165 people for tax evasion in 2014/15; five times more than its 2010 target of 250 prosecutions, he said.

"HMRC is making a huge effort to up the ante against tax evasion, raiding more properties and arresting more suspects just to keep up with its criminal prosecutions target," he said.

"It is also casting its net wider, not only going after the very biggest suspected tax evaders but also increasingly targeting middle-class professionals, like bankers and lawyers. Even though the value of the tax evaded in those cases is relatively low, HMRC is keen to pursue those cases to the bitter end as a deterrent to other tax evaders," he said.

Sometimes known as 'dawn raids' because of HMRC's habit of carrying them out early in the morning to catch suspects off guard, property searches are aimed at giving tax inspectors the chance to seize as many documents and computers as quickly as possible. They are also partly intended to allow HMRC to demonstrate the police-style powers that it has in a "dramatic show of force" so that suspected taxpayers can see how seriously HMRC views tax evasion by individuals and businesses, Collins said.

HMRC teams that carry out property searches also have the right to search individuals, and many can also make arrests without the presence of a police officer or the need to seek an arrest warrant. Collins said that there was evidence that HMRC was increasingly using its powers to search homes and businesses to supplement its traditional methods of running tax investigations, including prearranged visits to review business records.

"Tax evaders are very quickly realising that the places to hide are fast running out," he said. "HMRC is closing the net on suspected tax evaders and signing up offshore territories to 'automatic information exchange'. Individuals and businesses who think they can escape HMRC's anti-tax evasion drive should think again."

"HMRC's hand will be strengthened even further if it is given the go ahead to make failure to disclose offshore income a 'strict liability' offence. This would mean that in order to get a warrant to raid a property HMRC would no longer have to show a court there are grounds to suspect an intent to evade tax - just that tax was due and not declared, even if it was an oversight or error on the part of the taxpayer," he said.

A briefing note published by HMRC in April set out the department's intention to introduce a strict liability criminal offence of "failing to declare taxable offshore income", to be used in circumstances "where there is a need to send a strong deterrent message or where the conduct is so serious that only a criminal sanction is appropriate". Taxpayers charged with a strict liability offence could face automatic fines or prison sentences, depending on the outcome of a consultation which is expected to take place later this year.

New arrangements which will allow for the automatic exchange of tax information between the UK and the rest of the G5 largest European economies and other countries that have committed to their early implementation are due to begin in 2017, in respect of data collected from 31 December 2015. A total of 44 countries will begin to automatically exchange information about taxpayers with each other as soon as the new regime begins, although other countries have committed to their future participation in the scheme.