HMRC is responsible for investigating suspected criminal activity across the breadth of direct and indirect taxes throughout the UK. HMRC’s criminal investigation policy states that it has complete discretion to conduct a criminal tax investigation in any case, particularly where HMRC feels the need to send a “strong deterrent message” or where the case is so serious that only a criminal sanction is appropriate. However, not every criminal tax investigation results in a successful criminal prosecution.
Historically, HMRC’s policy has been to deal with suspected tax fraud/evasion via its Code of Practice 9 (COP9)/ Contractual Disclosure Facility procedure. But, where a taxpayer under a COP9 investigation rejects HMRC’s offer of the Contractual Disclosure Facility, HMRC reserves the right to reconsider the case as a criminal tax investigation. Additionally, where a taxpayer under a COP9 investigation accepts the Contractual Disclosure Facility offer but makes materially false or incomplete disclosures, HMRC will often feel it has no option but to criminally investigate.
Since 2010/11, HMRC has more than quadrupled its criminal investigation workforce. It is, therefore, inevitable that the number of criminal investigations will continue to increase. Cases that might previously have been dealt with under a COP9 investigation will now face an increased likelihood of being criminally investigated. Critics have also suggested that HMRC has been increasing its prosecutions by focusing on lower complexity cases, some of which concerned less than £50,000 of potential lost revenue.