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HMRC strengthens investigation staff ahead of new corporate criminal offence

Investment by HM Revenue and Customs (HMRC) into its specialist fraud investigation unit increased by 10% last year, ahead of the introduction of the new corporate criminal offence of failure to prevent tax evasion.

The increase suggests that HMRC could already be carrying out initial investigations into firms, ahead of the new laws coming into force in September, according to Pinsent Masons, the law firm behind Out-Law.com.

Investment by HMRC into its 'Fraud Investigation Service' increased to £204 million over the 2016/17 tax year, up from £186m in 2015/16, according to figures obtained by Pinsent Masons. This unit, which is made up of the specialist tax and criminal justice experts who deal with the most serious investigations, was set up in July 2015 as part of an internal restructuring by HMRC.

"Big ticket investment in staff at the Fraud Investigation Service is further evidence that HMRC is gearing up for a crackdown on tax evasion," said Jason Collins, a tax expert at Pinsent Masons. "With the increasingly blurred line about what constitutes acceptable tax practices, companies need to make sure they are not exposed to risk."

"It does look like HMRC is stepping up activity in advance of the new criminal law against businesses coming into force. It is ploughing through data it has recently received under international treaties from low tax jurisdictions across the world in order to see if any rules have been broken," he said.

New corporate criminal offences of failure to prevent tax evasion, contained in the 2017 Criminal Finances Act, are due to come into force in September, in time for the first automatic exchanges of information under the common reporting standard. The offences will effectively make businesses vicariously liable for the criminal acts of their employees and other persons 'associated' with them leading to the facilitation of tax evasion, even if the senior management of the business was not involved or aware of what was going on.

The offences will apply to both companies and partnerships. The first will apply to all businesses, wherever located, in respect of the facilitation of UK tax evasion. The second will apply to businesses with a UK connection in respect of the facilitation of non-UK tax evasion. The business will have a defence if it can prove that it had reasonable prevention procedures in place to prevent the facilitation of tax evasion, or that it was not reasonable in the circumstances to expect there to be procedures in place.

Tax evasion tends to be prosecuted as a longer-term 'course of conduct' rather than as a single act, Collins said. This meant that, although the new offences would only apply to conduct which took place after the change in the law, "scope for prosecution under the new rules" may still exist even if a device for tax evasion was set up before that point.

"This is just the beginning," he said. "We expect the number of investigations into corporates to keep climbing after the new corporate offence becomes operational in the autumn. Businesses must not wait for the new rules to take effect, but should begin preparing their prevention measures and critical incident procedures now."

Although banks and professional services firms were likely to be most affected by the new legislation, all sorts of businesses could potentially be caught by the new rules, Collins said. For this reason, businesses across the economy could be expected to "revaluate and reassess their tax positions and relationships with customers and suppliers whereas they might not have done otherwise", Collins said.

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