HM Revenue & Customs investigates tax avoidance, which is legal, and tax evasion, which is illegal. Most cases are pursued using HMRC’s civil powers. In cases of suspected fraud, taxpayers are given the opportunity to participate in the contractual disclosure facility. Providing a taxpayer agrees to the terms of the disclosure facility and makes a full confession of all tax frauds, and any other irregularities, he will not be prosecuted for the frauds.
Where necessary cases are pursued through the civil courts, such as the Tax Tribunal. If the court finds in favour of HMRC, taxpayers can be ordered to pay the unpaid tax with interest and, potentially, penalties but do not face criminal sanctions.
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 £14bn. Although the figure cannot, by definition, be regarded as the definitive figure, the cost to the UK economy is substantial. Mr Starmer was keen to dispel the idea of tax evasion as a victimless crime, stating that tax ‘cheats’ cost each household the equivalent of £530 a year.
In the most serious cases of tax evasion, HMRC will commence a criminal investigation. The cases are selected in accordance with HMRC’s criminal investigation policy. As HMRC is not a prosecuting authority, it provides the evidence for 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. The CPS has been responsible for prosecuting tax cases since 2010. Prior to that date the Revenue and Customs Prosecution Office was the prosecuting authority. The CPS secured 200 convictions in tax cases in 2010/2011, but this increased to more than 400 in 2011/2012. It has a conviction rate of about 86 per cent.
The CPS announced that HMRC will refer sufficient cases to enable prosecutions for non-organised tax fraud to rise from:
• 165 individuals in 2010/2011.
• 565 individuals in 2012/2013).
• 1165 individuals in 2014/2015.
These figures represent a significant increase in the risk for taxpayers suspected of fraud, and will make it more likely that they will be subject to criminal sanction. In addition to the above individuals, the CPS will continue to prosecute organised tax fraud.
The HMRC’s criminal investigation policy is to reserve criminal investigation for cases where it needs to send a deterrent message, or where it considers that the conduct involved is such that only a criminal sanction is appropriate. HMRC reserves discretion to conduct a criminal investigation in any case, and to investigate across a range of offences, in all areas for which HMRC has responsibility.
When HMRC considers whether a case should be investigated using civil or criminal powers, one factor taken into account is whether the taxpayer has made a complete and unprompted disclosure of the offences committed. The amount of tax lost, or potential tax lost, is not mentioned in HMRC’s criminal investigation policy, and this reflects HMRC’s desire to investigate across a broad range of offences to achieve the deterrent effect.
Whether HMRC will formally change its criminal investigation policy is not known at this stage. What is certain is that HMRC needs to drastically increase the number of cases it selects for criminal investigation to ensure that sufficient cases are passed to the CPS. In practice this will mean that more taxpayers who fall into HMRC’s criminal investigation policy will be subject to a criminal, rather than a civil, investigation. Whereas those taxpayers currently benefit from the contractual disclosure facility, in the future more will be selected for criminal investigation.