Author: Azizur Rahman
22 July 2013
4 min read
Tax fraud prosecutions are up by 53% in the last year. With the authorities now keener than ever to gain convictions, it’s vital to make sure your affairs are in order.
The figures are in. And they are eye-catching. Although informative may be an even better way to describe them.
Recent research has shown that there has been a 53% increase in prosecutions for tax fraud over the past year. The prosecutions figure for 2012 was 240 – quite a leap from the 2011 total of 157. It also has to be noted that the number of arrests only rose by 7% (to 151) and that the number of convictions rose a modest 4% (from 148 to 154). Yet the figure of 53% for prosecutions cannot be ignored, especially when put alongside the fact that there has been a 44% rise in arrests for tax fraud since HM Revenue and Customs (HMRC) gained extra funding to tackle tax avoidance and tax evasion due to provisions in the 2010 Budget. HMRC is now looking for more criminal investigations for tax fraud and it wants those prosecutions on the desks of Crown Prosecution Service (CPS) lawyers quicker than in previous years. Its aggressive stance is seeing it go down the criminal route rather than the civil, with the inevitable result that there are more arrests, prosecutions and raids.
There is an argument that says that HMRC could perhaps look to civil routes to boost its tax revenues. But, for now at least, it seems the criminal option is the one being favoured. That means that not only are HMRC’s staff casting their net wider in pursuit of prosecutions – they may also be taking a closer look at people that it has previously only had a passing interest in. Whether this will mean a rise in convictions proportionate to the increase in HMRC funding and prosecutions is something that we will only find out in the course of time. Similarly, there is also the unanswered question of whether the CPS (and other areas of the legal system) would be able to respond adequately to a deluge of tax fraud cases created by the new, zealous HMRC.
Yet whatever course this new, get-tough approach eventually takes – and whatever success it may or may not achieve – it has to be viewed as a stern reminder that tax is no longer a matter where people can play the system. Any lingering beliefs that crafty and illegal tax dealings are likely to go either undetected or unpunished have to be dispelled immediately. The last couple of years have seen HMRC taking a much closer than normal look into the affairs of all manner of industries and professions. Everyone from London’s legal professionals, North East beauty therapists, Scottish car dealers and restaurants in the South East and Solent and retailers, scrap metal dealers, taxi firms and construction companies in various parts of the UK have all come in for extra attention. And the list does not end there. HMRC has been looking closely into many industries and professions where it feels tax evasion has been rife. If you are one of those who come under such scrutiny you have to be able to account for each and every aspect of your business dealings and tax affairs.
Should HMRC come knocking at your door, you have to be able to prove conclusively that your dealings are legitimate. For the company that has acted entirely within the law, this can still prove a problem unless it has in place an accounting system that is fully documented and recorded – and working within the law. To ensure this latter point is likely to involve hiring a legal expert who is familiar with all aspects of compliance. Such a person can advise and help introduce business systems that ensure a company is functioning fully within the confines of the law and is able to prove it to anyone who believes otherwise. Not being able to do this can mean prosecution, conviction, loss of assets, damage to reputation and the risk of total business collapse. This has to be worth remembering at a time when HMRC is determined to achieve more results like this than it ever has before.
Having helped many companies make sure they are legally compliant and having represented many more who have been investigated for their tax affairs, Rahman Ravelli has many years of experience in giving clients the best possible advice in HMRC investigations. We have represented clients successfully in cases ranging from the most straightforward allegations of tax evasion through to the most complicated instances of MTIC fraud and fraud in sectors such as the construction industry. Knowing how to deal with the tax investigators can be just as important as having the evidence available to prove your innocence. With HMRC out looking for ever more scalps and having more powers than before, it can make life very difficult for any company it suspects; even if the subject of such an investigation has done nothing wrong. HMRC now has the Code of Practice 9 (COP9) at its disposal to try to force companies to disclose any underpayment of tax; which is exactly what this get-tough approach is all about. This means that HMRC will be exceedingly reluctant to let anyone it has under investigation for tax irregularities slip through their grasp without facing prosecution and subsequent payment of what is believed to be monies owed.
Faced with such a determined foe, any company with even the slightest suspicion they may face an HMRC investigation has to bring in the right legal representation at the earliest possible stage. Only then can a company be sure whether it has or has not done anything wrong and what course of action it would be best to take. HMRC has been seeking penalties of up to 200% of the amount of tax owed, which is perhaps the clearest indicator of the need to tread carefully (with the best legal advice available) if you ever find yourself under investigation. When you consider that this is the same organisation that has brought 53% more prosecutions for tax fraud in the past year and has overseen a 44% increase in arrests in little over two years, the figures speak for themselves.
But just in case they don’t, we’ll say it for them. The stakes have got higher. Playing the percentage game and leaving it to chance that your tax affairs are in good, legal order - or at least above suspicion - just doesn’t add up. HMRC is on the look out for anything with the slightest hint of irregularity when it comes to tax. Making sure your affairs are in regular order and that you have expert legal advice at hand should you need it has never been more important.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.