Tax Fraud & Evasion

What is tax evasion and tax fraud?

There is no doubt that tax evasion and tax fraud have come more into focus in the UK since 2008. The government and HMRC have published a number of papers and announced a number of initiatives.

In effect tax evasion and tax fraud is the same thing. One thing that tax evasion is not is tax planning or tax avoidance. Tax avoidance (whether HMRC perceive this to be aggressive or not) is legal. Tax evasion is illegal.

Tax evasion involves the deliberate misrepresentation of a business’s or an individual’s financial affairs to the tax authorities to reduce tax liabilities. It means deliberately not declaring all sales and deliberately claiming expenses that are not due.

Tax evasion is creating false documents to support the understatement of sales or over claim of expenses.

HMRC tax fraud investigators

HMRC has tens of thousands of people who undertake tax investigations. All of them are trained (to a greater or lesser extent) in detecting tax evasion and conducting tax investigations.

It is generally quite easy to see which department you are dealing with as HMRC’s addresses are quite descriptive. Most tax investigations of tax evasion are conducted by the following business units:

• Criminal Investigation
• Specialist Investigations
• Local Compliance Fraud
• Local Compliance

There are a number of levels of tax investigator within each of these units investigating tax evasion. More details of each business stream dealing with tax evasion can be obtained by clicking on the name which will take you to a specific page.

The severity of the level of the tax evasion for civil investigations (i.e not being prosecuted) can also be deduced from the department and the above list is in order of severity of the suspicion of tax fraud.

All of these departments deal with all direct and indirect taxes so the suspected tax fraud could be for failure to declare income through to collecting VAT when a business is not VAT registered.

All of these departments conduct tax investigations and it should be clear when they write to anyone that they are under investigation.

Offshore Tax Evasion

Regarding offshore tax evasion, HMRC’s strategic thinking about tax evasion is neatly summarised in the document "Closing in on Tax Evasion". There are a number of initiatives relating to tax evasion.

The UK government has said that it will make tackling tax evasion its main focus in the 2013 chairmanship of the G8. This follows on from the OECD’s work with tax havens to give access to financial records of individuals of each member state. In effect the UK think that tax havens are used to shelter the proceeds of tax evasion. This started with the Offshore Disclosure Facility and then the New Disclosure Opportunity and then latterly the Switzerland Agreement and the Liechtenstein Disclosure Facility.

More recently as the UK has suspected that funds held in Jersey Guernsey and the Isle of Man may contain the proceeds of tax evasion then agreements have been reached with these Jurisdictions that from October 2016 they will disclose details of financial interests of UK citizens to HMRC. As part of the negotiations then people whom have assets there can come clean to HMRC.

UK Tax Evasion

HMRC have invested heavily (about £30 million) in a data mining tool to find evidence of tax evasion in the UK. They have obtained details of property from other European countries and from the Land Registry in the UK. They are comparing this to income declared by individuals to see if these properties can be purchased (and run) from known income. They believe that this will throw up good leads for suspecting tax evasion. It will not stop there as HMRC are using information powers to obtain details from all sorts of financial and other institutions and this will be used by the software to find more cases of suspected tax evasion.

HMRC have also run a number of targeted campaigns for voluntary disclosure of tax evasion within the UK for:

• Medical Practitioners
• Barristers
• Plumbers
• E market place Traders
• Tutors and Coaches
• Electricians
• Party Planners

At the moment the only targeted campaign to voluntarily disclose tax evasion is the Property Sales Campaign aimed at people whom have sold property where a capital gain should have been declared.

What has been a common theme from these campaigns is that in most instances after the closure of the campaign then one or two prosecutions of people (for tax evasion) who did not take part has followed. That is not to say that people whom still have to declare tax evasion will be prosecuted but it is better if they disclose the tax fraud voluntarily and using a tax professional experienced in handling disclosure of tax evasion.

Conclusion

HMRC are investing significantly in detecting and tackling tax fraud and tax evasion. Thus the chances of someone being investigated for tax evasion and tax fraud and increasing. The use of data has increased exponentially to detect tax fraud and this is still only in its infancy.