Seeking a target of 565, the department delivered 617 successful prosecutions; a marked increase on the result at the half way point of the year, when HMRC had achieved 202.
The prosecutions by regime type are broken down as follows:
|Regime type||At Sept 2012||Final 2012/13 result|
The figures were obtained via Freedom of Information requests and do not include prosecutions arising from frauds organised by criminal groups.
In her speech at the first annual HMRC stakeholder conference on 18 July 2013, Jennie Granger the Director General, Enforcement and Compliance, alluded to the overall total achieved, when she said over 770 prosecutions had tackled fraud and criminal attack last year.
HMRC has been given significant sums to clampdown on and prevent tax avoidance and evasion.
In 2010, the government allocated £917m from efficiency savings to reinvest in compliance activity. A further £77m was announced in the Chancellor’s 2012 Autumn Statement. 200 additional volume crime investigators and 40 intelligence officers have since been recruited.
Whilst HMRC is responsible for investigating crime involving all taxes and other regimes it deals with, it is not responsible for criminal prosecutions. In England and Wales, that responsibility lies with the Crown Prosecution Service (CPS). In Northern Ireland it is the Public Prosecution Service for Northern Ireland and in Scotland, it is the Crown Office and Procurator Fiscal Service.
In a keynote speech in January earlier this year, Keir Starmer QC, the outgoing Director of Public Prosecutions at the CPS explained that a stronger fraud prosecution policy had been developed following the merger of the CPS with the Revenue and Customs Prosecutions Office and talked about how a strategic decision had been taken to radically increase the number of tax evasion cases prosecuted.
Alison Saunders CB is due to replace Mr Starmer on 1 November 2013 and, as an internal recruit from within the CPS, she is likely to continue in much the same vein and build on the work on her predecessor.
From a baseline figure of 165 prosecutions achieved in 2010/11, HMRC has been set a target to achieve 1165 prosecutions by 2014/15. The 2011/12 target was 365, which HMRC missed by 63, but as the figures for 2012/13 demonstrate, HMRC’s prosecution activity has rebounded significantly.
Again, the figures summarised above relate to tax evasion prosecutions only and exclude organised crime.
The general public is seemingly blissfully unaware of the heightened prosecution activity.
HMRC commissioned TNS BMRB to conduct a survey amongst Small and Medium Enterprises (SMEs) to test their awareness of compliance behaviour and prosecutions. The survey also looked at how social networks discuss tax related activity. The report was published last month and made for interesting reading.
- Only 9% of those surveyed thought that prosecutions were increasing.
- The chances of detection and prosecution were thought to be extremely low and being caught was simply ‘bad luck’. Respondents reasoned that evasion was the norm in cash in hand industries and extremely difficult to trace.
However, the report also discovered that 56% of respondents were glad to see prosecutions happening and a majority would discuss prosecutions within their social network, especially if the respondents knew the person involved, if it related to their own profession or sector and if it was a local, current case.
Respondents felt hardened criminals and cash in hand evaders could not be deterred, but ‘potential rule breakers’ could.
The most powerful deterrents were found to be hearing about:
- Somebody they knew, the disruption to their business and the loss of reputation suffered.
- Local examples and the associated social stigma.
- Someone in their profession or sector being caught, which prompted fears of a more general clampdown and a risk of detection.
- The size of the penalty relative to the amount of money which had been evaded.
The survey also uncovered several morality indicators. Respondents did not consider all examples of evasion to be as bad as each other. Clear cut criminals engaged in organised crime garnered no sympathy, nor did larger companies and wealthy individuals motivated by greed. These were the most disliked categories of tax evader and furthest away from respondents’ own ‘worlds’.
There was more understanding of businesses trading in cash in hand industries because of a pressure to keep prices competitive and to stay in business. Small sums being evaded by people with cash flow problems, motivated by a desire to keep their businesses afloat, were judged the most leniently.
A copy of the report can be viewed here
Tax fraud cases adopted for investigation are worked in two ways. Some are worked by the Criminal Investigation team with a view to criminal prosecution, whilst others are worked under the Contractual Disclosure Facility/COP9 procedure. There is no definition of tax fraud within the Taxes Acts, but it is generally taken to occur when an individual or business entity deliberately does something in order to limit their tax liability.
The HMRC Criminal Investigation Policy can be viewed here
To a large degree, the TNS BMRB report supported HMRC’s assumptions about the deterrence effect of prosecutions, namely:
- SMEs become aware of prosecutions either directly or through press coverage.
- SMEs discuss prosecutions within their social networks.
- The increased awareness drives attitudinal and behavioural change. SMEs become more compliant because they fear getting caught.
Campaigns and task force activity are fertile ground for potential prosecution cases.
National campaigns target specific trades and professions, whilst task forces centre on geographical areas. As well as identifying potential tax cheats, the campaign and task force strategies enable HMRC to communicate a message of deterrence, in a form that the TNS BMRB research suggests resonates with the wider SME population.
The Plumbers Tax Safe Plan closed in August 2011, after focusing on plumbers, heating engineers and gas fitters. Since this particular national campaign closed to voluntary disclosures, there have been five successful prosecutions.
A task force into the legal profession in London started in September 2012. Two barristers have since been sentenced for deliberate tax fraud.
What does all this mean to the man or woman running an SME? Not a lot in all honesty, if their business records are good and accurate accounts and tax returns are being submitted to HMRC.
But if a tax fraud has been committed, it is better to come forward sooner rather than later, particularly if the individual or business entity operates within a campaign or task force sector. If the voluntary disclosure time period of a campaign has closed, any subsequent discovery of omitted income or overstated expenditure is considered to be deliberate behaviour by HMRC. Similarly, HMRC launches tax evasion media and advertising publicity offensives and regularly encourages people to come forward. Generally failing to act after being prompted to do so is usually interpreted by HMRC as consistent with deliberate behaviour.
The regime breakdown of the 2012/13 figures show that 86 individuals were prosecuted for direct tax fraud last year and this number is only going to escalate as HMRC builds on the momentum it has created, in order to reach its ultimate goal of 1165 prosecutions within the next two years.
If you or a client are concerned about the likelihood of a prosecution and are keen to make a voluntary disclosure, please contact the ReSource Tax and VAT Consultancy Team who will be able to advise on the best way forward.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.