HMRC’s crackdown on tax evasion

On 10 December 2015, three former bankers at RBS and a financial broker were acquitted by a jury at Southwark Crown Court of a single count of conspiring to cheat HM Revenue and Customs. The acquittal enables the reporting of convictions of three traders in September 2015 who claimed to be active members of a film finance partnership. The three traders were each jailed for four and a half years.

This follows a HMRC crackdown on such schemes, described as “a very aggressive tax avoidance industry developed which devised a large number of artificial schemes based around expenditure on films”.

When the defendants were originally charged in January 2014, Donald Toon, the then Director of Criminal Investigation at HMRC, stated “HMRC carried out a thorough investigation and the matter will now be put before the courts. The vast majority of people pay the tax they owe, but for those we suspect may not be, no matter who you are or what your profession, it is only right we investigate.”

The crown alleged that the defendants submitted “hundreds of pages” of fake diaries detailing the hours they supposedly worked on a film in order to claim thousands of pounds of tax relief. The movie was never made. All three defendants denied wrongdoing, claiming they were unaware of the status of the scheme and the requirement to spend 10 hours a week working on the films in order to qualify for the tax rebates.

In the  trial, Neil Williams-Denton, the financial adviser who introduced them to the scheme was found guilty of one count of conspiring to cheat the Revenue. He was also convicted in the earlier trial.

Perhaps the most striking aspect of the prosecutions is the increasing willingness of HMRC to prosecute individuals for investment tax evasion, rather than simply to enter into repayment arrangements. There are regular occurrences where HMRC suspects a person of acting fraudulently, yet rather than seek a criminal prosecution will take civil action through one of its relevant Codes of Practice, usually  Code of Practice 9.

HMRC does not have unlimited resources to prosecute every taxpayer it suspects of tax evasion and will, in certain circumstances, prefer to collect tax due rather than pursue an expensive and time-consuming prosecution.

On 9 December 2015, HMRC published the draft Finance Bill 2016. The bill contains numerous provisions, including a lengthy section on tax avoidance and evasion. Proposed procedures in the bill include:

  • A new penalty of 60% of tax due to be charged in all cases successfully counteracted by the General Anti-Abuse Rule to create a disincentive from entering into abusive tax avoidance.
  • Publication of the names persistent abusers, with restrictions on their accessing certain tax reliefs for a period.
  • New civil penalties for individuals and businesses which deliberately enable offshore evasion, as well as naming provisions for the most serious enablers.
  • A new criminal offence that removes the need to prove intent for offshore tax evaders.
  • A consultation on a new corporate offence where a corporation fails to prevent those representing it from criminally facilitating tax evasion.

It seems apparent that tax evasion, which previously focused on the more blatant examples, will focus on more complex arrangements in the future.

For the offence of cheating the public revenue see practice note, Cheating the public revenue

For the offence of fraudulent evasion of income tax, see practice note, Evasion of income tax.

For an explanation of COP9, see practice note, HMRC Code of Practice 9.

Practical Law David Bacon

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