A joint report published on 25 October argues that there exists a serious enforcement gap in HMRC’s approach to tackling tax fraud, whereby criminal tax behaviour is systematically dealt with through civil channels provided that it complies with the “rules of the game” (ie, it is handled as tax avoidance rather than evasion).
The report’s first recommendation is an immediate legislative change that would see more cases going down the criminal rather than the civil route. This would involve requiring that HMRC:
- considers for separate investigation and potential prosecution the promoters and enablers involved in any tax avoidance arrangement;
- pursues that investigation and refers it for prosecution unless a determination is made that a successful prosecution would be unlikely or against the public interest; and
- only offers the taxpayer in the case in question a civil pathway in accordance with COP 8 or COP 9 on the condition that the taxpayer agrees to give evidence for the Crown in respect of the arrangement.
The report acknowledges that this may be viewed as impeding legitimate tax planning, but argues that legitimate tax planning should have nothing to fear as the egregious or
aggressive instances of tax avoidance will be self-selecting. It contends that trying to expressly carve out legitimate tax planning based on a civil law understanding of tax avoidance would reinstate the precise problem that the intervention seeks to address.
The second longer-term recommendation is to consider the option of separating the enforcement of tax law from the collection of tax. While the primary function of a separate enforcement agency should be to prosecute tax crime, the report considers that such a department could be revenue generating. It could deploy the proceeds of crime legislation to make significant recoveries from the advisers in addition to any tax collected from their clients. It proposes that the discretion to use civil or criminal procedures would sit with this enforcement authority rather than HMRC.
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