HMRC issues another 1400 demands to accountancy and law firms in relation to clients suspected of tax evasion
HMRC issued another 1,414 requests to accountants, lawyers and other professional services firms last year* demanding information on clients that it wants to investigate for suspected tax evasion, says RPC, the City-headquartered law firm.
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’ affairs.
RPC says that HMRC is increasingly commencing criminal investigations against taxpayers who have participated in tax planning arrangements designed to reduce their tax liability. These arrangements can include, for example, Employee Benefit Trusts (EBTs) and film finance investments. Issuing a production order is one way that HMRC can obtain evidence that can lead to a criminal prosecution.
In the past, HMRC tended to challenge such arrangements by the civil route, through the tax tribunals. However, it is now increasingly launching criminal investigations into such arrangements.
Professional services firms that receive an HMRC production order can often struggle to find a balance between the requirement to hand over requested documents whilst also making sure client confidentiality remains intact.
Firms are often placed in a difficult position. If they do not comply with a production order this could lead to criminal sanctions, but if they provide too much information they could face a legal claim from their client.
Adam Craggs, Partner at RPC, comments: “When HMRC apply 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.”
* HMRC data, year-end March 31 2018