HMRC’s forms and certificates are littered with warnings that “False statements may result in prosecution” or similar. The reality is that HMRC prosecutions are very rare – just 157 convictions for tax evasion last year. I regularly ask accountants when was the last time they saw any publicity on a tax prosecution and the usual answer is Ken Dodd or Lester Piggott. These were both in the late 1980’s and reflect the low profile of tax prosecutions over many years. Perhaps not for much longer with HMRC investing £900 million to tackle non-compliance including:

“a five-fold increase in criminal prosecutions to act as a deterrent to others”

HMRC’s prosecution policy has been unchanged for several years and it would be a mistake to assume that the cases that have been prosecuted will be the most serious. Certainly for several years after the introduction of the Fraudulent Evasion of Income Tax Act in 2002 many prosecutions were distinctly low level. More recently there has been a focus on organised criminal attacks on the tax system (for example MTIC and tax credit frauds) and professional advisors.

The vast majority of serious fraud cases have been and will continue to be dealt with as civil matters by HMRC under Code of Practice 9. The advantages to the taxman being:
• limited resources needed
• relatively quick turnover of cases
• early and substantial payments on account of tax due.

HMRC are evidently going to need to switch substantial resource to prosecution work to get anywhere near their five-fold increase. This could be achieved by increasing the prosecutions of minor cases but this is unlikely to prove any sort of deterrent to the COP9 type miscreant involving yields of hundreds of thousands.

Confiscation orders have been a feature of tax prosecutions for several years and a more aggressive use of the 2002 Proceeds of Crime Act could be the kind of highly cost effective approach that HMRC are looking at. In cases where there is very good evidence of tax evasion at the outset then prosecution and consequent confiscation orders will bring much more into the Treasury coffers than the typical civil settlement. In less obvious cases proceedings in the High Court for recovery orders will have the same financial effect.

A big problem with these approaches is that the guilty and their dependents are often wiped out financially. Silly me. I was forgetting the aim is “to act a deterrent to others”.