HMRC more than doubles home searches as part of tax evasion investigations

Out-Law News | 21 Aug 2012 | 12:13 pm | 2 min. read

The number of property searches carried out by HM Revenue and Customs (HMRC) as part of criminal investigations into tax evasion has more than doubled, up to 499 searches in the tax year 2011/12.

Data obtained as part of a freedom of information (FOI) request by Pinsent Masons, the law firm behind, shows a 155% increase from the 196 searches carried out in 2010/11. Of this year's searches, 192 took place in the first three months of this year - more than treble the highest quarterly figure before this tax year, according to the figures.

The dramatic increase on figures that have held fairly steady since 2008/09, according to the data supplied, are a result of new "delivery commitments" on the part of HMRC, according to the agency.

Tax expert Jason Collins of Pinsent Masons said that the figures showed that HMRC was "making a big effort to follow through" on Government rhetoric.

"The Government has made a lot of noise about tax evasion since it was elected, using stronger rhetoric than any recent administration and promising extra money for HMRC to tackle it," he said. "Raids on property are about as dramatic a show of force as an agency like HMRC can make."

He added that taxpayers eligible for disclosure schemes like the Liechtenstein Disclosure Facility (LDF), which allows investors in the principality who are liable to pay UK tax to disclose any unpaid tax to HMRC and avoid the risk of criminal prosecution, should "sit up and take notice" of the increase in searches and "make sure they don't give HMRC an opportunity to start an investigation".

"HMRC has provided plenty of carrots for those who may have schemes to disclose, but now it's showing it has a pretty hefty stick too," he added.

More than 2,400 people have already registered to use the LDF, which was extended in June to run until 5 April 2016. More than £363 million in unpaid tax has already been recovered, while HMRC said that the agreement could ultimately bring in as much as £3 billion. The agency set up an Offshore Coordination Unit (OCU) to tackle offshore tax evasion, including through the administration of the LDF, in November last year.

The Government has recently announced a variety of measures aimed at cracking down on tax avoidance, including the proposed introduction of a 'general anti-abuse rule' intended to apply to the main direct taxes and national insurance. It is also consulting on changes to the Disclosure of Tax Avoidance Schemes (DOTAS) rules that would make it easier for HMRC to find out about taxpayers using avoidance schemes to artificially reduce their tax liability.

Collins said that this increased activity by both the Government and HMRC meant that those using tax planning schemes needed to be certain that they were not crossing the line from tax avoidance, where taxpayers use existing laws to gain an advantage that the Government never intended, and illegal tax evasion.

"There can be a very fine line between evasion and aggressive tax planning - crossing that line can mean something as small as failing to disclose a scheme properly," he said.

However, he added that the high number of searches did not guarantee an increase in prosecutions and convictions. Figures obtained by Pinsent Masons in June showed an "ever-rising backlog" of disputes between HMRC and taxpayers waiting to be heard by tax tribunals, with the number awaiting hearing having increased by a third between 2010 and 2011.

"Right now, HMRC is carrying out something like 500 prosecutions a year," Collins said. "Taking backlogs into account, this figure would need to be closer to 1,000 to begin to match the increase in searches. HMRC needs to work very hard to actually follow through on their efforts to make the searches worthwhile, but the problems and performance issues that have affected HMRC recently will not go away overnight."