The UK tax authority has prosecuted only eight cases in the past two years for enabling tax evasion
On March 9, 2023 by Yash Pratap SinghDespite promising to pursue the attorneys, accountants, and financial institutions that aid clients in tax fraud, the UK tax authority has only prosecuted eight cases for assisting tax evasion in the last two years. Conversely, a response to a Freedom of Information request made by the Financial Times reveals that there has been a sharp decrease from the 43 prosecutions brought by HM Revenue & Customs in the two years before the Covid-19 outbreak.
“HMRC is essentially not following through on the government’s rhetoric on cracking down on tax fraud, aggressive avoidance strategies, and those who promote them,” said Nimesh Shah, chief executive at the accounting firm Blick Rothenberg. As HMRC has limited resources, there aren’t many obstacles for people to start enterprises that support aggressive structures, according to John Hood, a tax partner at Moore Kingston Smith.
The decrease in tax evasion enabler prosecutions coincides with increased pressure on HMRC to make up for lost tax income. The government may have lost out on up to £9 billion as a result of a dramatic decline in pandemic-related inquiries, according to a report released in December by the National Audit Office, the legislature’s spending watchdog.
The most recent year for which data is available, 2020-21, shows that the overall tax gap in the UK—the projected difference between taxes owed and paid—was roughly £32 billion. Simon York, the head of serious fraud at HMRC, stated in an interview with the Financial Times in January that the agency was committed to going after both tax evaders and the financial and professional services companies that enable it. He added that this required increased cooperation with international counterparts. Due in part to court closures during the epidemic, the number of prosecutions decreased, and the agency’s capacity to build cases was hampered by lockdown regulations.
Tax professionals are worried that the legislation intended to prevent the facilitation of tax fraud would have less of a deterrent effect due to a lack of enforcement by HMRC, which employs 5,000 personnel in its fraud investigation unit. suggested interview Tax avoidance and evasion HMRC focuses more on professionals who facilitate tax evasion, according to a top official The current lack of prosecutions “necessarily means that these things are accorded less attention than other matters which are seen to have bigger risk,” explained Nicholas Gardner, a partner at the legal firm Ashurst.
According to the FOI request, HMRC now has 102 active investigations into professional fraud enablers, down from 153 in May 2021. Corporate criminal crimes, legislation the government introduced in 2017, makes it illegal for businesses to fail to implement “reasonable processes” to avoid the facilitation of tax evasion. Yet, it has to file any corporate criminal offence charges, and according to the most recent data, there are just nine active investigations.
There is a “strong case,” according to John Cullinane, director of public policy at the Chartered Institute of Taxation, for HMRC to employ prosecutions more frequently. But he issued a warning that there was a chance that unsuccessful cases would consume time and resources, ultimately leading to a decreased tax collection for the Revenue, at least temporarily.
He stated, “Our preferable strategy would be a public consultation on prosecution policy, to debate the overall strategy and the trade-offs needed to achieve it. Combating tax fraud facilitators “remains a high focus for us,” according to HMRC. “We’ve always been quite clear that we concentrate criminal investigations on cases where the behaviour is especially serious, where civil punishments alone would not work, and when criminal prosecution will be a powerful deterrent to others,” the statement reads.
