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Substantial increase in criminal prosecutions for tax evasion planned, says Director of Public Prosecutions

Out-Law News | 21 Jan 2013 | 4:46 pm | 2 min. read

The Crown Prosecution Service (CPS) intends to substantially increase the number of tax cases it takes on with a view to prosecution, Keir Starmer, the director of public prosecutions, is expected to announce on Tuesday. 

The CPS plans to increase the number of tax files it handles, to 1,500 a year by 2014-15. The CPS secured 200 convictions in tax cases in 2010-11 but this increased to more than 400 in 2011-2. It has a conviction rate of about 86%.

HMRC investigates tax avoidance and evasion in the UK. Most cases are settled through negotiation with HMRC or pursued through the civil courts such as the Tax Tribunal, where taxpayers can be ordered to pay the unpaid tax with penalties and interest, but do not face criminal sanctions.

In the most serious cases of tax evasion HMRC provides the evidence to the CPS to make a decision on criminal charges in England and Wales. In Scotland and Northern Ireland this is done through the Crown Office and Procurator Fiscal Service and the Public Prosecution Service Northern Ireland.

Cases where HMRC will currently consider criminal sanctions include those where the individual holds a position of trust or responsibility; where materially false statements are made or materially false documents are provided in the course of a civil investigation; or where deliberate concealment, deception, conspiracy or corruption is suspected.

"It seems certain in the light of the CPS announcement that HM Revenue & Customs (HMRC) will revise its policy on prosecution and this will mean that anyone caught by HMRC will be more likely to be prosecuted than has been the case in the past" said Ray McCann a tax expert at Pinsent Masons, the law firm behind Out-law .com. "Individuals within those categories of taxpayer where HMRC has introduced special arrangements for dealing with unpaid tax, lawyers, doctors, tradesmen and so on will continue to be at more significant risk."

Phil Berwick, a tax investigations expert at Pinsent Masons, says: "The CPS are giving a clear message. Taxpayers with undeclared income or gains should approach HMRC before the inspector comes after them."

The Liechtenstein Disclosure Facility is available for taxpayers with irregularities, and enables them to bring their tax affairs up-to-date, usually on beneficial terms, without the threat of prosecution said Berwick. However, once HMRC starts to investigate a taxpayer, they are not able to use the beneficial Liechtenstein Disclosure Facility (LDF). An existing connection to Liechtenstein is not required in order to be able to use the LDF, said Berwick.

Ray McCann said that a particular target of HMRC is likely to be a number of 'tax avoidance' schemes where HMRC could take the view that that taxpayer has tried to evade tax. "HMRC already has a number of individuals under criminal investigation for suspected tax evasion stemming from participation in schemes."  he said. 

"Tax evasion has to be dealt with robustly all the time. But in a recession, when ordinary law abiding taxpayers are suffering real hardship, the need to deter, detect and prosecute those who evade tax is greater than ever," Mr Starmer is expected to say in the speech. He is also expected to dispel the idea of tax evasion as a victimless crime, stating that tax 'cheats' cost each household the equivalent of £530 a year.

Figures from HMRC suggest that tax evaders, including those operating in the hidden economy and those who undertake organised criminal attacks on the tax system, deprive the public purse of around £14 billion.

HMRC is recruiting an additional 100 tax inspectors to its Affluent Unit which scrutinises the tax affairs of about 300,000 people with incomes over £150,000 or with wealth between £2.5m and £20m. This £2.5m threshold will be reduced to £1m when the new inspectors are recruited in April.