Out-Law News 2 min. read

HMRC hardens stance against tax evasion with tougher sentences

Longer average prison sentences for tax fraud offences show that HM Revenue and Customs (HMRC) is hardening its stance against tax evasion, an expert has said.

The average sentence for offences including tax evasion, VAT, excise duty and custom duty frauds has increased by 25% in a single year according to the latest Ministry of Justice (MoJ) figures; up from three years three months to four years one month.

Corporate crime expert Olga Tocewicz of Pinsent Masons, the law firm behind Out-Law.com, said that HMRC was "pushing hard for longer sentences as it clamps down on tax evasion".

"HMRC has come under growing political pressure in recent years to prove to the public that it has a workable strategy in place to stamp out evasion," she said. "As a result, it has become more dogged in its approach to sentencing."

"Both individuals and businesses are facing stringent additional new laws for offshore tax evasion later this year, and should anyone be caught out by these rules they may face an even lengthier sentence," she said.

Longer sentences could reflect how HMRC and the Crown Prosecution Service (CPS) are increasingly pushing for tax fraud cases to be considered as more serious offences, Tocewicz said. HMRC has also come under increasing political pressure to prosecute more cases since a 2016 report from parliament's Public Accounts Committee, which said that the department did not have a clear strategy for dealing with tax fraud and was not pursuing criminal prosecution in enough cases.

A judge, when sentencing, uses a set of pre-determined categories to assess the level of an offender's culpability or the loss to HMRC. Higher categories carry higher penalties, including prison sentences and fines. The CPS, as prosecutor, can argue that a case belongs in a higher category as a starting point for sentencing. It can also appeal a sentence it considers to be too lenient.

Tocewicz said that successful prosecutions, and average sentence lengths, were likely to continue to increase, especially once the strict liability offence for offshore tax evasion comes into force in October 2018. This new offence will apply where a UK taxpayer fails to notify HMRC of their chargeability to tax, fails to file a return or files an incorrect return in relation to offshore income, assets or activities; regardless of whether the taxpayer's actions were dishonest. It carries a maximum sanction of six months imprisonment.

The figures will also be impacted by prosecutions relating to the two new corporate criminal offences which came into force on 30 September 2017 once these begin to work their way through the courts, as HMRC has made it clear that it intends to actively investigate companies suspected of having committed these offences, Tocewicz said. These offences are applicable to companies and partnerships which fail to prevent their employees and other associated persons from intentionally facilitating tax evasion, even if the senior management of the business was not involved or aware of what was going on.

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