TAX NEWS - June 2010

UK Tax: Revenue urged to prosecute more tax cheats

HM Revenue & Customs is coming under pressure to take more tax fiddlers to court, amid fears that a steady decline in prosecutions is eroding the deterrence of fraud and evasion.

The number of criminal convictions for tax offences fell by 28 per cent to 157 in the year to September 30 2009, according to figures published on Wednesday. The number of cases sent to prosecutors has declined since 2004.

Revenue officials discussed with outside experts earlier this year the strategy of seeking more criminal convictions for tax evasion in order to achieve a deterrent effect.

The meeting concluded that "criminal investigation work did have a significant part to play as a deterrent, and HMRC should think hard about whether they were doing enough in the conventional tax area".

HMRC is wary of the high costs of bringing cases, as well as the difficulty of convincing juries in highly complex cases. John Benstead, a partner of McGrigors, the law firm and a former prosecutor for the Revenue said: "HMRC has been putting forward fewer and fewer cases for prosecution because it is worried about losing cases in front of juries."

The decline in cases coincided with the separation of the prosecutions arm of the Revenue from the rest of the organisation in 2005 in the wake of a series of high-profile failures by Customs & Excise.

The high success rate of recent prosecutions – 90 per cent of cases – has sparked suspicion that fear of losing cases meant it was not taking up as many cases as it should.

Too many failed prosecutions or short sentences involving direct tax would pose a reputational risk to HMRC, according to the meeting's minutes.

But it had no option but to mount criminal investigations of "missing trader" VAT fraud involving contrived chains of companies that rob the exchequer of billions of pounds a year.

Nearly half of the prosecutions secured last year concerned VAT fraud.