While the majority of people abide by the law and pay their taxes, there are those who deliberately and dishonestly set out to defraud HMRC by evading tax, stealing public funds or cheating the system in other ways.
Tax fraud undermines our economy, creates unfair competition for legitimate businesses and robs our vital public services of much-needed funds. It also supports other crimes that harm our communities.
By bearing down on tax fraud we build public trust: honest taxpayers, rightly, want to know we will step in to enforce the rules where necessary, creating a level playing field for individuals and businesses.
What is tax fraud?
We define fraud as any deliberate omission, concealment or misinterpretation of information, or the false or deceptive presentation of information or circumstances in order to gain a tax advantage.
Tax fraud covers a wide range of illegal activity, including:
- deliberately submitting false tax returns
- falsely claiming repayments or reliefs
- hiding income, gains or wealth offshore
- smuggling taxable goods
Some of this is carried out by dishonest individuals but organised criminals also deliberately target the tax system for financial gain.
The best way to tackle tax fraud is to stop it happening in the first place. We do this by:
- building checks and controls into our systems
- changing legislation to make it more difficult or impossible to commit tax fraud
- working with businesses to help them spot when they are at risk of tax fraud
Building checks and controls into our systems
Our work to design the COVID-19 support schemes is an example of this: we built in fraud controls before the payments were made, both in how we set the eligibility criteria and the claim process itself. Our data and risking experts checked submitted claims for signs of criminal activity, which meant we effectively countered the threat from organised crime – just 0.3% of the Coronavirus Job Retention Scheme grants paid were estimated to be lost to organised criminals.
Changing legislation to make it more difficult or impossible to commit tax fraud
By introducing a VAT ‘Reverse Charge’ for customers seeking to purchase Renewable Energy Certificates, we effectively closed off an opportunity for VAT to be stolen, preventing the loss of hundreds of millions of pounds through Missing Trader Intra Community fraud.
Working with businesses to help them spot when they are at risk of tax fraud
This includes our work with businesses involved in risky supply chains, providing guidance and support to ensure they are helping drive up compliance among the businesses they work with.
When tax fraud does happen
When tax fraud does happen, we have a range of powers and specialist investigation capabilities that enable us to uncover even the most complex and determined frauds and bring the perpetrators to account.
Most of our work to tackle tax fraud makes use of our civil powers. These allow us to get hold of the information we need to identify and collect unpaid tax, while imposing financial penalties on those responsible (up to 200 percent of the tax due in some cases).
In some serious cases of tax fraud, we can use the approach set out in our Code of Practice 9: in exchange for individuals admitting their dishonesty, paying all their tax and significant financial penalties, they won’t face a criminal investigation, which otherwise could be the case.
While we reserve complete discretion to conduct a criminal investigation in any case, our approach is to use our criminal and specialist investigation capabilities in certain circumstances.
Firstly, when a fraud is particularly serious. For example, those involving large losses or where the conduct or individuals involved merit a strong response, such as our work to tackle organised crime groups.
Secondly, when we want to send a strong deterrent message that reassures the honest majority there is a level playing field. That could be tackling a particular type of fraud, or targeting specific business sectors or customer groups where we know tax fraud is prevalent. Our work to tackle promoters of fraudulent tax schemes and those professionals who carry out or enable tax fraud is evidence of this. We are clear that the tax rules apply the same to everyone, regardless of wealth, profession or resources.
And thirdly, when our civil powers aren’t enough to uncover the truth or recover the tax that is at stake. This includes the use of our covert capabilities to unmask the workings of organised criminals or our more coercive powers, such as searches and arrests.
These are significant powers and are rightly subject to rigorous external oversight and safeguards, like other law enforcement agencies.
Criminal cases can be expensive and time consuming, so it’s only right that we use them selectively to ensure they deliver both value for money for the taxpayer and the maximum impact on tax fraud. In recent years, we have deliberately focussed them on the most harmful, complex and sophisticated frauds.
It’s an approach that’s about reaching the right outcome for the UK, rather than chasing arbitrary targets for arrests and prosecutions.
Collecting what is owed
Whatever approach we take, we always seek to recover the money owed.
Where possible, that’s through issuing tax assessments or reaching agreements with taxpayers for the full amount of tax owed, applying penalties and interest as appropriate. These are often sufficient to recover monies owed.
When we need to go further, we have access to a raft of other powers that allow us to disrupt and recover the proceeds of tax fraud.
That includes those under the Proceeds of Crime Act, which enable us to identify, confiscate and sell the assets of those convicted of tax fraud; failure to comply with these confiscation orders can lead to more jail time for the perpetrators.
Account Freezing Orders, meanwhile, allow us to quickly and effectively freeze and forfeit money in suspect bank accounts, stopping fraudsters from transferring funds out of our reach. We also continue to seize physical amounts of cash as part of our work.
And where we need to tackle companies involved in tax fraud, we can, and do, work with financial institutions and liquidators to wind them up, identifying and seizing their assets in the process.
These are unrivalled asset recovery powers that send a message that tax fraud does not pay.
Tackling enablers of tax fraud
Tax fraud is becoming increasingly sophisticated and complex, with those involved requiring the services of professional enablers to help them transfer wealth anonymously or launder the proceeds of crime.
We are determined that these enablers should face the consequences as much as those they help to carry out tax fraud.
That includes using the Corporate Criminal Offence (CCO) to root out wrongdoing across business sectors. The CCO has made it a criminal offence if an organisation fails to stop those acting on its behalf from facilitating tax fraud. With potentially unlimited fines for organisations found guilty, the CCO is not just about corporate prosecutions but about changing industry practice and attitudes towards risk, encouraging businesses to do more to prevent tax crime happening in the first place. We’re already seeing positive signs that this is happening.
Working with partners
While HMRC is the single UK organisation with responsibility for tackling tax fraud, we do it working alongside a range of partners, including financial institutions, professional bodies, other government departments and law enforcement agencies and international tax and customs authorities.
That includes our work with accountancy and legal professionals as part of our newly launched Tax Crime Alliance and our engagement with financial institutions through the Counter Fraud Banking Forum.
We’re also a founding member of the Joint Chiefs of Global Tax Enforcement (J5) – an operational alliance between the UK, Canada, the US, Australia and the Netherlands, dedicated to tackling international tax crime, money laundering and those who enable it. The J5 is currently working on a significant number of investigations, including cases involving influential international enablers of tax fraud.
It’s partnerships like these that allow us to track down and return those criminals who believe they can flee justice by going overseas, including some of the UK’s most harmful tax cheats.
Reporting tax fraud
Tax fraud is an issue for us all because it takes from us all. Whether that’s the money it steals from our vital public services or the harm that organised criminals cause to our communities, we all have a responsibility to tackle it.
Anyone with information about tax fraud should report it online or call our Fraud Hotline on 0800 788 887.
- Our criminal investigations aim to achieve prosecutions with a view to conviction.
- Our civil powers tend to use financial penalties and professional disqualification, such as Director Disqualifications, as sanctions. We can also publish the details of those who evade their taxes.
- Our specialist investigation capabilities are used for specific purposes: for example, allowing us to freeze criminal assets or intercept criminal communications.
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