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.
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.
The programme covered a variety of cases.
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?
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.
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.
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?
About Wendy Bradley
Wendy Bradley is a retired tax inspector, a PhD student at Sheffield University (researching the relationship between tax simplification and better regulation) and a freelance journalist.