Rise in HMRC demands for information from professional services firms on suspected tax evading clients
• 6% increase bucks trend of reduced investigations during pandemic
• Production orders compel professional advisers to hand over clients’ data to authorities
This marks a 6% increase from the 827 requests made in 2019 to 2020, according to research by RPC, the international law firm.
RPC says the increase in such requests, made by way of production orders, bucks the trend in declining levels of compliance activity by HMRC during the pandemic.
As HMRC focused on administering the furlough scheme, resources were diverted away from investigations. However, since the furlough scheme ended on September 30th, compliance will become a key focus again.
Production orders are issued by the criminal courts and are regularly sought by HMRC’s Criminal Investigation Directorate. They are typically issued to professional advisers, such as tax advisors, accountants and lawyers, to hand over confidential and potentially incriminating information about their client and their client's business affairs.
RPC says HMRC is under considerable pressure from the Treasury to increase the tax yield. The tax gap – the difference between the amount of tax owed to HMRC and that which has actually been paid – currently stands at £35bn (5.3% of all tax liabilities).
HMRC is putting more pressure on professional advisers to disclose information relating to their clients who they suspect have committed tax evasion. If they do not comply with production orders, advisers may be held criminally liable. Furthermore, firms have a relatively short window in which to provide information, which can be very disruptive to their business.
Adam Craggs, Partner and Head of Tax, Regulatory and Financial Crime at RPC says: “HMRC views production orders as an effective way to gather information. However, such orders can place advisers in a difficult position and complex issues regarding confidentiality and legal professional privilege often arise and such issues require careful consideration.”
“Firms issued with a production order must ensure they provide HMRC with the necessary information to avoid criminal sanction, but also need to be careful that in doing so, they do not breach the duties they owe to their clients. Any breach of such duties could lead to them facing a legal claim from their clients. It is important that anyone who receives a production order obtain expert legal advice as soon as possible.”
RPC says widespread abuse of the furlough scheme may be a factor behind the increase in production orders issued. Several multi-million pound scams have been unearthed, including a fraudster who used “sham companies” to claim £27.4m on behalf of non-existent employees, despite not setting foot in the UK.
*HMRC, Year-end March 31st