HMRC targets accountants over tax evading clients
Credit: International Investment
HMRC sent 1,414 requests to professional services firms demanding confidential information on clients suspected of tax evasion in the 12 months to 31 March 2018, according to law firm RPC.
The production orders are issued by HMRC’s Criminal Investigation Directorate to force third parties, such as accountants, lawyers and other professional services firms, to provide it with potentially incriminating information about their clients’ tax affairs.
They are the starting point for HMRC to kick off an investigation and any evidence obtained can lead to a criminal prosecution.
According to RPC, the taxman is increasingly beginning criminal investigations against taxpayers who have participated in tax-planning arrangements designed to reduce their tax liability. These arrangements can include employee benefit trusts and film finance investments, the firm said, and issuing a production order is one way HMRC can obtain evidence that can lead to a criminal prosecution.
In the past, HMRC tended to challenge such arrangements by the civil route, through the tax tribunals, according to RPC. However, it is now increasingly launching criminal investigations into such arrangements.
If firms do not comply with a production order this can lead to criminal sanctions, but likewise if they provide too much information they could face a legal claim from their client.
RPC partner Adam Craggs said: “When HMRC applies to the court for a production order it is important that the intended recipient obtains expert legal advice as soon as possible and makes appropriate representations to the court. This can lead to the court rejecting HMRC’s application.
“HMRC’s policy of commencing criminal investigations into taxpayers who have participated in tax planning arrangements is concerning.
“The mere commencement of a criminal investigation can create serious practical difficulties for taxpayers and their businesses such as, for example, lenders calling in loans. Such commercial damage can be irreparable for a small to medium sized enterprise.
“In addition, HMRC criminal investigations normally take several years to complete and although they frequently do not lead to a subsequent criminal prosecution, taxpayers are subjected to a great deal of stress and uncertainty whilst they await the conclusion of the criminal investigation.”
“It is of little comfort to a taxpayer to be informed that after several years of investigation, often at great personal and emotional cost for the taxpayer concerned, HMRC have decided not to pursue criminal proceedings.”