Drop in HMRC tax fraud investigations

As FOI shows number of raids fell by 23% last year but ‘interpreting the data is not straightforward’

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HM Revenue and Customs’ (HMRC) tax fraud convictions decreased by a fifth to 648 in 2018/19, according to a freedom of information request by law firm Fieldfisher.

Prosecutions for the financial year were 749, which was a 16% drop from 896 in 2017/2018.

The number of HMRC raids fell by 23% to 495 in the previous financial year, while decisions to prosecute came in at 831 from 946 the previous year.

Fall

In September 2010, the UK government made funding available to the UK taxman, which pledged a five-fold increase in prosecutions.

In January 2013, that target was expanded to a seven-fold increase.

But, despite the additional resources, HMRC’s criminal investigations activity has fallen well short of its targets.

Year Raids Decisions to prosecute Prosecutions Convictions
2011/2012 657 430 364 333
2012/2013 787 664 471 439
2013/2014 784 874 713 674
2014/2015 759 1,247 681 617
2015/2016 761 1,065 843 773
2016/2017 752 1,063 844 767
2017/2018 641 946 896 815
2018/2019 495 831 749 648

Source: Fieldfisher – data excludes tax credit offences

Since 2015/16, the number of raids has fallen year-on-year, with the most significant decrease being between 2017/18 and 2018/19.

Last financial year saw the first decrease of prosecutions since 2014/15, when there was a small reduction.

George Gillham, partner in Fieldfisher’s tax team, said: “While interpreting the data is not straightforward, what is clear is that the government has failed to reach its targets.

“With fewer raids, fewer decisions to prosecute, fewer prosecutions, and many fewer convictions, one may think that this means that HMRC and the Crown Prosecution Service (CPS) have given up on using criminal investigations into tax related matters as a way of changing taxpayer behaviours.

“However, this is clearly not the case.”

Successful prosecutions

HMRC’s prosecution-to-conviction rate in the tax fraud investigations has been very impressive over the last few years.

Conviction rate:

  • 2018/2019 – 86.5%;
  • 2017/2018 – 91%;
  • 2016/2017 – 91%;
  • 2015/2016 – 92%;
  • 2014/2015 – 91%;
  • 2013/2014 – 95%;
  • 2012/2013 – 93%; and
  • 2011/2012 – 91%.

“Successful prosecutions are the tip of HMRC’s iceberg of criminal investigations activity,” said Gillham.

“Complex tax fraud prosecutions, whether successful or unsuccessful, come at a vast cost to the public purse; pursuing a criminal prosecution for many years is extremely resource-intensive,” Gillham continued.

“So they are rightly reserved for cases where HMRC considers that it needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.”

Reasons for decrease

“It needs to be recognised that criminal tax evasion is estimated to give rise to only circa 15% of the ‘tax gap’,” he added.

“Carelessness, or ‘failure to take reasonable care’, remains the largest single element of the tax gap.

“There may be fewer prosecutions because there has been less criminal activity.

“Whilst determining whether or not that is the case from the statistics is impossible, my view is that lessons have been learned.

“Anecdotally, it does seem that there have been real changes in taxpayer behaviours.”

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