UK Tax Authority Will Use Civil Procedure In Tax Fraud Cases

by Jason Gorringe, Tax-News.com, London

19 September 2005

The UK's Revenue and Customs authority (HMRC) has announced a new civil procedure for dealing with suspected tax fraud. Criminal proceedings will be excluded in most cases, especially if a taxpayer co-operates.

Says HMRC:

"Both HM Customs and Excise and the Inland Revenue had procedures for tackling suspected serious tax fraud using civil powers. The former Inland Revenue's Hansard procedures and all former Customs & Excise Civil Evasion procedures are being replaced with a new single Civil Investigations of Fraud procedure for HMRC. (The only exception is the Customs Duties Civil Evasion Penalties applied to travellers at port and airport controls)."

The new Civil Investigation of Fraud procedure came into effect on 1st September 2005 for new cases with a new Code of Practice 9 (2005). Existing cases will be worked to a conclusion under the old Hansard procedures (Code of Practice 9), New Approach or C&E Notice 730.

Initially the new procedure will only be used by officers serving in HMRC Special Civil Investigations. Use by other specialist teams within HMRC is under consideration.

The changes:

• The new procedure is wholly civil, removing the threat of prosecution for the original tax offence - a change from the Inland Revenue's Hansard procedure.
• HMRC will retain the option to consider prosecution for a materially false disclosure or materially false statement with intent to deceive.
• Interviews will no longer be conducted under caution and tape-recorded.
• Investigations under the new Civil Investigation of Fraud procedure will cover both direct and indirect taxes where appropriate.

"Where HMRC suspects serious tax fraud and decides to proceed via a civil rather than a criminal investigation, the taxpayer will be given one opportunity to secure maximum benefit by making a full disclosure of all irregularities within the direct and indirect tax regimes. If they take that opportunity the investigation will proceed more quickly, efficiently and advantageously for both the taxpayer and HMRC.

"If a taxpayer decides not to make a full disclosure and co-operate, HMRC will conduct their own investigation, using statutory information powers if necessary. If irregularities are discovered they will issue formal assessments and pursue collection of unpaid tax with interest. Any penalties due are likely to be significantly higher to reflect the fact that the taxpayer did not take the opportunity given to them to disclose.

"Once the decision by HMRC has been made to follow a civil route for investigation and the procedure is offered to the taxpayer, HMRC retains no underlying threat of prosecution for the original tax loss.

"HMRC reserves complete discretion to pursue a criminal investigation with a view to prosecution where they consider it necessary and appropriate. Where HMRC decides to use the Civil Investigation of Fraud procedure it will not prosecute for the original tax offence. However if materially false statements are made or materially false documents are provided with intent to deceive, HMRC may conduct a criminal investigation with a view to a prosecution of that conduct.

"Once the new procedure is introduced, where suspicions of irregularities cut across direct and indirect taxes, a single meeting will be held to cover all regimes. During this meeting it will be made clear to the taxpayer whether questions are relevant to direct taxes, indirect taxes or both."

HMRC says it believes that the new procedure is compliant with the Human Rights Act. "The civil fraud processes previously operated by both departments have received considerable scrutiny in terms of Human Rights and, in
particular, Article 6 - Right to a Fair Trial. The views of the courts in the lead Human Rights Act rulings of Han & Yau and Gill & Gill together with advice from leading counsel have provided the principles for designing the new procedure. The recent case of Khan v Commissioners of Customs and Excise (2005) has endorsed these principles and safeguards have been built into the new procedure."

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