Thursday, July 10, 2014
BP Holdings Tax Management: Prosecutions against tax evaders to rise as taxman tightens fraud rules
Accountants argue changes to the way tax fraud is investigated will lead to more prosecutions against tax evaders
A rule change quietly introduced by HM Revenue & Customs has blocked people accused of tax fraud from trying to clear their names before a criminal or civil investigation is launched.
Previously taxpayers who believed they were innocent had the option to co-operate with HMRC and were invited to supply evidence to support their innocence.
But this option has been phased out. Instead individual’s have two options: either admit or deny the allegations made. Those who plead ‘not guilty’ will be investigated straight away, which could lead to a prison sentence.
During the investigation the taxman will be able to obtain information from third parties, including banks, credit card providers, employers and other government agencies such as the Land Registry.
Accountants warned the move will lead to a “significant” increase in the number of criminal prosecutions against tax evaders, which has already been rising at an alarming pace in recent years as HMRC toughens up its approach to tax collection.
A total of 165 people were jailed in 2010, but in 2013 the number had jumped to 1,165. The rise coincides with HMRC hiring an extra 200 tax investigators over the past three years, taking the total headcount above 1,600.
Andrew Watt, a partner at Watt Busfield Tax Investigations, said: “Prohibiting taxpayers from denying the suspected tax fraud and co-operating with the revenue’s enquiries will only lead to one thing – a significant rise in the number of prosecutions.
“The taxman is determined to catch the tax evaders and rightly so, but my concern is that people who believe they are innocent will be worried out of their minds as they will subjected to a criminal investigation that cannot be fought until it goes to the courts.”
Other accountants also flagged concerns that innocent taxpayers will face unnecessary stress.
James Bullock, of tax firm Pinsent Masons, said: “Those who want to deny the claims made will be unduly stressed in facing what is now a very unfair process. It is a subtle tactic but one which fits in with the new tougher regime the taxman is carrying out, which will inevitably lead to more criminal prosecutions.”
Cases that could result in a prison sentence mainly involve cases of obvious tax fraud, such as undeclared taxable income and gains in offshore accounts. Individuals who use undisclosed tax avoidance arrangements are also targeted.
A spokesman for HMRC said the rule change has been made to make the tax system easier to understand.
"Removal of the denial option does not adversely impact anyone who believes they have nothing to disclose. This is about streamlining our approach to evasion and making the tax system more transparent. It makes things simpler for those who want to bring their affairs up to date while making things harder for committed tax cheats,” the spokesman said.