Catching the tax dodgers

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Wendy Bradley
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Wendy Bradley applies her years of experience working for HMRC to assess the accuracy of this Channel 4 documentary, and muses on how HMRC could be reformed.  

Wrong jacket

My attention was riveted in the first few minutes of ‘Catching the Tax Dodgers' (Channel 4, on demand) but for the wrong reason: a man driving to a raid wearing his Customs & Excise epaulettes. HM Revenue & Customs merged with the Inland Revenue in April 2005 - either this film was a very long time in the making, or he was wearing a very old jacket.

Or perhaps it's that the two cultures: the macho, get-things-done Customs and the cerebral, get-things-right Revenue are still alive and well and living happily ever after inside HMRC?  I don't think so: in the last dozen years swathes of the old Customs & IR staff (like me) have left/moved/retired, and most staff these days are imbued with HMRC's culture rather than that of the separate legacy departments.

Case work

The programme covered a variety of cases.

Duty fraud

First, a multi-million, multi-national duty fraud case was dealt with by the men in epaulettes kicking down the door and ending in a rather damp squib of a court case. This was classic criminal evasion, correctly dealt with by what we might call the door-kicking end of the department, albeit with the culprit absconding during the trial. Did no-one suspect an Italian national charged with a multi-national fraud might be a flight risk?

VAT fraud

The second case was a VAT fraudster dobbed-in by his accountant. He did himself no good favours by letting C4 film his pre-sentencing party, and his company later liquidated owing HMRC more than the VAT fraud in the first place. This was a tax that would have been in Customs' remit and, again, there was hard evidence (the accountant's report) to start a criminal investigation.

Personal tax

Finally, the film featured personal tax owed by a guy who had his voice and face disguised. He was settling a £500,000+ tax bill and still felt hard done by, complaining that the data that started him on the process of "volunteering" information about his offshore investments had been "stolen". 

He had wanted to take advantage of the LDF (Liechtenstein Disclosure Facility) and was instead being dealt with under Code 9 (used by HMRC in cases where serious fraud is suspected) and there was a £500,000 difference in the amount he'd have to pay as a result. 

Missed the point

I felt the programme spectacularly missed the point: HMRC can only prosecute VAT, duty, customs frauds where there is evidence, and there is only evidence because they can investigate them in a way which gathers evidence suitable for future prosecution.

Prosecuting for undeclared personal and corporation taxes is harder, because to start an investigation to legal standards you need to have evidence in hand already, because otherwise you are conducting a “fishing expedition”.  

Once HMRC has started asking the question – “what’s this amount going into your bank every week?” it has already asked the person to incriminate themselves (in legal terms). At that point, the taxpayer is out of prosecution and into settlement territory.

In other words, investigating personal and corporation tax fraud is harder to do, but it’s not impossible. HMRC's approach has always been that it's better to negotiate, to bring in as much of the money as possible as cost-effectively as possible, and that means settlements rather than prosecutions.

Cost no barrier?

Imagine the situation where the government gave HMRC enough funding so they didn’t have to worry about cost effectiveness of tax investigations. HMRC could decide that the same financial thresholds should be applied to personal and corporate tax fraud prosecutions as apply to benefit fraud.  Benefit fraudsters are prosecuted for a few thousand pounds.

It's not beyond the wit of HMRC to investigate to prosecution standards if they have the resources and suspected, say £50,000 of suppressed takings or invented expenses. Perhaps that threshold would be only £10,000, £5,000 or even £1,000.

Two tribes

Maybe there should be two cultures in HMRC. 

The first should be truly customer service focused. They should make paying tax as simple and painless as possible, providing all the help people might need, through all the channels people might want to use. I would include in this tribe all the policy development, tax simplification and other functions and professions within HMRC.

The second culture would be the tough guys and gals. We could let the door kickers loose on all fraudsters on an equal basis. We could also make tax fraud the subject of criminal rather than administrative action.

Is this a civil rights nightmare or a reasonable next step – what do you think? 

Replies

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By JAADAMS
16th Aug 2017 11:45

Anyone who wishes to read the 28 comments from members following the showing of this Channel 4 programme should see here:
https://www.accountingweb.co.uk/any-answers/ch-4-tv-prog-tonight-catchin...

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16th Aug 2017 12:51

As someone who spent the best part of 20 years working for DWP and HMRC, I worry about treating taxpayers who may have made an honest mistake or misunderstood a piece of legislation in the same way as you treat someone who sets out to deliberately deceive.

For the majority of benefit fraud prosecution cases, the initial intelligence is gathered covertly either by interrogating data on government systems, third party tip-offs or by observation. Only once you have sufficient information to believe an offence has taken place do you get into the "door-kicking" and interviewing stage.

With the overwhelming majority of personal or business tax enquiries, while there may be some initial intelligence from data which prompts you to look further the next steps almost always involve contacting the taxpayer. There will be business records that need to be reviewed, or further light to be shed on return entries that can only come from the taxpayer themselves.

At that point, as Wendy rightly points out, you're into the territory of asking the taxpayer to give you information which will potentially incriminate them and your chances of a prosecution start to disappear off into the distance.

Someone who sets out to deliberately obtain money by deception (whether that's in the form of benefits or tax reliefs/refunds they are not properly entitled to) should be subject to the full weight of the law. In reality though, what percentage of compliance checks where HMRC do find tax has been underpaid would meet that mens rea standard?

The difficulty is not so much in the application of investigation techniques, but in correcting the public perception of what is or isn't "criminal" activity. Innocently getting your tax return wrong, or applying a genuine interpretation to a piece of complex legislation which isn't supported by the courts is not and should not be seen as comparable to setting out to deliberately deceive.

The reason so many more benefit fraudsters end up in court compared to people who underpay tax, is that so many more of them do set out to deliberately and criminally deceive. It's not "picking on the little guy", it's applying the relevant remedy to suit the actual offence committed.

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By DJKL
17th Aug 2017 11:26

There really has to be some benchmark of evidence/ suspicion and reasonable safeguard before the door kicking starts, until the doors have been kicked the suspects are not fraudsters in a legal sense but mere suspected fraudsters.

But one can hardly set up a judicial process with the suspect having representation to decide if his/her door is to be kicked, and unrepresented judicial process, where the suspect is unaware it has even taken place, sits slightly uneasily with my British values-secret trials or just get the orange jumpsuits now.

And even if a judicial process is used there are the odd worrying signs that the separation of the executive and the judiciary in say Scotland is currently being eroded; (the debacle after the Article 50 court case was another worrying sign of politicians and the executive nearly overstepping the mark)

HMRC as an instrument of state requires a strong, independent, judiciary to monitor their activities and if need be in odd cases stop them before they get started

As always we come back to, Quis custodiet ipsos custodes, there is never any simple answer to the line to be drawn between the rights of the individual and the power of the state, but am not convinced I would advocate letting the HMRC dogs of the leash without some robust process in place to call them to heel.

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18th Aug 2017 10:12

I was an AI Inspector in the mid late eighties.In my last year I pulled in £300k against a salary of mid teens.Why the emphasis on investigating mid level tax returns tailed off,just didn't make any sense.
I weep at HMRC ethos at present.It simply has not been fit for purpose for many years.

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By chatman
18th Aug 2017 11:08

"the cerebral, get-things-right Revenue".

LOL

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18th Aug 2017 15:31

I was hoping for more of a varied list of "chalk mark" results, less focused on the individual cases but more general in the intent and how HMRC deal with them. The feel of the program was very mute and vague. They where obviously not allowed to cover much given the sensitivity of the subject matter.

Perhaps something more akin to a Tax version of Crimewatch would have been better. Something that highlighted the results of resent campaigns HMRC have run like the landlord scheme. This would have been better viewing.

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By Eric T
19th Aug 2017 10:43

A programme of the "Crimewatch" type would probably reveal how ineffective HMRC really is.

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