Sharp fall in average jail sentence for criminal tax evaders

A sharp fall in the average length of custodial sentences handed down to criminal tax evaders suggests that HMRC is increasingly seeking prosecution in more marginal cases, according to Pinsent Masons, the international law firm. 

The average custodial sentence length for criminal tax evasion has fallen by around 60% over the last four years, from 41.3 months in 2011, to 17.7 months in 2014.  The total number of tax evaders given a custodial sentence has risen by around 30% over the same period; from 171 in 2011 to 220 in 2014. 

Pinsent Masons says that the figures together suggest HMRC is making broader use of its prosecution powers and pushing for maximum punishment in a wider range of tax evasion cases. This means that many guilty of offences which might previously have resulted in a simple financial penalty, are now facing jail. 

Fiona Fernie, Partner and Head of Tax Investigations at Pinsent Masons commented: “The figures reflect the great deal of pressure being placed on the Revenue- by both politicians and the public- to show zero tolerance when it comes to tax evasion.” 

“HMRC wants to make examples of tax evaders by sending more of them to prison. It is no longer focusing narrowly on the very wealthiest culprits, guilty of the most serious evasion. It is clamping down on tax evaders from all walks of life and adopting a much more aggressive stance when it comes to pushing for criminal sanctions.”

 “HMRC is also likely to be coming down harder on taxpayers who have been offered settlement terms in return for a full declaration of any unpaid tax - in the course of a COP9* investigation or via an offshore disclosure facility such as the LDF, for example - but have failed to fully disclose. The original tax offence may not have been serious or clear cut enough to warrant a custodial sentence, but making a false statement or an incomplete disclosure to HMRC may.”

Average length of custodial sentence secured in cases of criminal tax investigation (months)

Pinsent Masons says that the activities of HMRC’s Affluent Unit provides further evidence that it is broadening the scope of its tax evasion probes.  The Affluent Unit, which was established in 2011 in order to target taxpayers considered wealthy but not prosperous enough to be classed as a HNWI, has increased the amount of extra tax it brings in through investigations by 60% in the last year, collecting £137.2 million  in 2013/14**. 

HMRC’s increased targeting of the ‘mass affluent’ has also included a number of voluntary disclosure campaigns targeting specific groups of professionals. The Solicitor’s Tax campaign, for example, urges legal professionals to come forward and voluntarily declare any undisclosed income before a June 9 deadline, or face heavy penalties. Doctors and Dentists have been a previous focus of the schemes.

Fiona Fernie comments; “HMRC is keeping up the pressure on HNWIs and the super-rich but is also now looking more closely at moderately successful professionals and businesspeople. Officials are leaving no stone unturned when it comes to identifying and prosecuting those guilty of tax evasion.”

“The new Government has promised to continue the Coalition’s’ clampdown on tax offences, meaning we are likely to see the number of custodial sentences meted out for evasion increase even further.”

*COP9 investigations are opened where HMRC suspects serious tax fraud. Targets are offered a guarantee that HMRC will not commence a criminal investigation in exchange for a full disclosure of any unpaid tax via the Contractual Disclosure Facility (CDF)

 **Year end 31 March 2014