HMRC opens 'serious' business tax evasion investigations

The Large Business Directorate, which handles the tax affairs of the UK's 2,100 biggest and most complex businesses, referred 27 cases to HMRC's evasion referral team in 2017-18, involving more than £50,000 in potential unpaid tax or in cases where prosecution is possible.

Although a decision by HMRC's decision to open an investigation does not necessarily mean that any tax evasion has actually occurred, the numbers would still come as a surprise to many businesses, according to tax expert Jason Collins of Pinsent Masons.

"Our view is that no board and no head of tax would allow even the hint of tax evasion at their company," he said. "But, without proper controls, there is always the risk of a member of staff going rogue."

"There has been the expectation that possible tax evasion and the facilitation of tax evasion by bigger businesses had been all but stamped out. Whilst a number of major financial services and tobacco companies have been accused by tax authorities of directly enabling tax evasion, over the last decade the number of these cases had been falling," he said.

"Many businesses are still in the process of rolling out new procedures to comply with the Criminal Finances Act and, in doing so, irregularities could be uncovered. They will need to ensure they have robust prevention procedures in place, particularly with regards to their supply chains," he said.

The 2017 Criminal Finances Act introduced two new offences of failure to prevent the facilitation of tax evasion, which mean that HMRC can investigate and prosecute companies who have not done enough to prevent their staff and other representatives from intentionally helping others to evade taxes even if the senior management of the business was not involved or aware of what was going on. A business will have a defence if it can show that it had reasonable prevention procedures in place, or that it was not reasonable in the circumstances for it to have such procedures.

According to Collins, the majority of recent tax evasion cases involving both UK and European large companies have been restricted to financial and professional services firms, for example cases involving private bankers helping facilitate evasion by their clients. In another recent case, a European energy company was accused of evading tax by mis-recording sales of certain products, he said.

The number of referrals involving potential serious tax evasion by wealthy individuals and mid-sized businesses has remained relatively unchanged in the last two years, with 228 cases in 2017-18 compared to 232 in 2016-17, according to the figures. Referrals involving individual taxpayers and small businesses increased over the same period by 24%; from 2,586 cases in 2016-17 to 3,204 in 2017-18.

However, Collins said that the number of 'big ticket' cases involving the wealthiest individuals was likely to increase with the roll-out of the Common Reporting Standard (CRS) to more countries, including Switzerland, Hong Kong and Singapore, this month. The first information exchanges under the CRS, under which HMRC receives more information about UK residents with offshore bank accounts from foreign tax authorities, took place in September 2017.

"With increased global information sharing among tax authorities, HMRC has access to even more taxpayer data to crack down on any suspected tax evasion," Collins said.