What advice would you give to clients who want to be prepared for potential investigations in relation to the criminal offences of failure to prevent the facilitation of tax evasion?
A defence exists of having ‘reasonable prevention procedures’ in place. Therefore, the first thing that I would advise is to ensure these procedures are in place. Despite the new laws on failure to prevent tax evasion being around since September 2017, quite a lot of corporates have failed to implement any procedures. These corporates will find it near impossible to mount a successful defence to these offences.
The first part of that is conducting a risk assessment specific to the facilitation of tax evasion. Considering existing financial crime controls (eg anti-money laundering and anti-bribery and corruption) without applying a tax evasion facilitation lens, is not sufficient. Once you’ve performed the risk assessment you can’t just forget about it; you have to continue monitoring and ‘refresh’ the risk assessment constantly to reflect any changes in a company’s business.
If you become a target of a criminal investigation, you need to instruct lawyers early on who know how to engage with HMRC. But if you don’t have those preventative procedures in place, it’s going to be difficult.
How dramatic a difference does the failure to prevent law make to corporate liability?
It makes it significantly easier for HMRC to achieve a corporate criminal conviction. The corporate criminal offences for failure to prevent the facilitation of tax evasion were introduced partly due to the difficulties in attributing criminal liability to corporates for the acts of their employees, agents or those that provide services for or on their behalf.
I was at a conference recently with the head of HMRC’s Fraud Investigation Service and he made it clear that HMRC were active in considering the offences as part of all of their ongoing investigations into tax fraud.
Is HMRC cracking down on any particular companies or businesses at the moment?
Yes it is. We have definitely seen a big shift. Historically they focused on the ‘low-hanging fruit’: the corner shop, the hairdressers, the smaller companies because they were considered to be an easy target. But they came in for a great deal of political criticism for not investigating the larger corporates. Also, the money that can be recovered in such cases, relative to the cost of litigation, is not large. Now they’re focusing on large corporates and high-net-worth individuals.
What kind of impact will Covid have on tax investigations?
A huge uptick. There’s going to be extreme amounts of pressure on HMRC to increase the tax take. The government has reported that it’s lost £1bn a week due to the exploitation of furlough and other grants, including bounce back loans. David Clarke, chairman of the Covid-19 Fraud Watch Task Force, said it’s going to be the biggest fraud in British history. So HMRC are going to be really busy.
HMRC have already made a couple of arrests and have over 10,000 open investigations into furlough abuse. In the March Budget, The Chancellor announced that he’s providing £100m to fund a Taxpayer Protection Taskforce, with the deployment of 1250 HMRC officials to investigate individuals and companies who have fraudulently claimed under the various government Covid support schemes. The numbers of investigations will undoubtedly increase, and the Government will be relentless in its investigation of offenders in an effort to recoup fraudulent and wrongful claims.
How has furlough been abused and what should businesses do?
A typical example of abuse is where a business has said an employee isn’t working but they actually are. Then there are administrative mistakes, the guidance changed something like 158 times, and was in parts very complex.
‘Employers that have claimed furlough should carefully review their internal records and systems in order to identify any discrepancies.’
Michelle Sloane, RPC
Employers that have claimed furlough should carefully review their internal records and systems in order to identify any discrepancies. Employers should ensure all paperwork is up to date and consider collating any documentation which details the business rationale underpinning why certain roles or employees were furloughed. For those businesses that do discover that they have received, or retained, furlough payments when they were not entitled to do so, they need to urgently consider what action they now need to take, including self-reporting to HMRC.
What other trends have you noticed in HMRC’s approach to tax investigations?
Historically, HMRC was much more focused on UK tax enquiries, but obviously business is much more global now.
Tax fraud is ever more complex with fraudsters often using complex global structures to avoid detection, multiple bank accounts in different countries, ownership through overseas trusts and things like that. So now HMRC is much more internationally focused. HMRC is a founding member of the Joint Chiefs of Global Tax Enforcement, known as the J5. That includes the US, Canada, Australia and The Netherlands. That’s designed to combat international transnational tax crime and money laundering. HMRC is collaborating with its overseas counterparts on a number of investigations and have shared more financial data internationally than they ever have before. In the last year, they’ve shared more than in the previous ten years combined.
On the civil side, there’s the Common Reporting Standards which came in in 2014. There are over 100 countries which now automatically share financial data, and that’s a particularly important source of information for HMRC, in particular, in respect of high-net-worth individuals who may be holding money offshore.
Those that have international businesses need to ensure their tax affairs are in order before HMRC come knocking.
How would you describe RPC’s tax practice?
When faced with a HMRC investigation you need experienced, extremely knowledgeable and commercially minded lawyers, that’s what we offer. Lawyers who have an inside track to the thinking and inner workings of HMRC.
We’ve got three partners, five associates, and we really pride ourselves on being a full-service tax disputes team. We advise on a broad range of tax disputes: indirect, direct as well as less known taxes such as customs and excise duty. We handle both civil and criminal tax investigations which makes us quite different to the usual tax practice found in other firms. We are tax specialists who understand the regulatory implications for clients.
Given all these topics, what makes RPC stand out?
We really understand how HMRC work and we are not only familiar with the full range of taxes (both direct and indirect) we are also experts in advising and defending our clients against allegations of criminal wrongdoing.
Michelle Sloane is a partner in RPC’s tax disputes team.
