HMRC sent over 1,400 production orders to accountants, lawyers and other professional services firms last year demanding information on clients that it wants to investigate for suspected tax evasion
The production orders are issued by HMRC’s Criminal Investigation Directorate to force third parties, such as professional services firms, to provide it with potentially incriminating information about their clients’ tax affairs.
They are the starting point for HMRC to kick off an investigation and any evidence obtained can lead to a criminal prosecution.
The volume of demands, highlighted by law firm RPC, shows that HMRC is increasingly starting criminal investigations against taxpayers who have participated in tax planning arrangements designed to reduce their tax liability.
These tax schemes include employee benefit trusts (EBTs) and film finance investments. Last week, HMRC issued a warning that loan charge schemes currently being promoted via offshore providers were not acceptable tax compliance vehicles.
In the past, HMRC tended to challenge such arrangements by the civil route, through the tax tribunals, according to RPC. However, it is now increasingly launching criminal investigations into such arrangements.
If firms do not comply with a production order this can lead to criminal sanctions, but likewise if they provide too much information they could face a legal claim from their client.
The issue has become even more critical as HMRC ramps up its powers under the Criminal Finances Act 2017, particularly as the worldwide disclosure settlement opportunity closed for new registrations last September.
Adam Craggs, partner at RPC, said: ‘When HMRC applies to the court for a production order it is important that the intended recipient obtains expert legal advice as soon as possible and makes appropriate representations to the court. This can lead to the court rejecting HMRC's application.
‘HMRC's policy of commencing criminal investigations into taxpayers who have participated in tax planning arrangements is concerning.
‘The mere commencement of a criminal investigation can create serious practical difficulties for taxpayers and their businesses such as, for example, lenders calling in loans. Such commercial damage can be irreparable for a small to medium sized enterprise.
‘In addition, HMRC criminal investigations normally take several years to complete and although they frequently do not lead to a subsequent criminal prosecution, taxpayers are subjected to a great deal of stress and uncertainty whilst they await the conclusion of the criminal investigation.”
‘It is of little comfort to a taxpayer to be informed that after several years of investigation, often at great personal and emotional cost for the taxpayer concerned, HMRC have decided not to pursue criminal proceedings.’
Report by Sara White