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HMRC makes over 1,400 demands to lawyers and accountants for information on clients suspected of crimes

Published on 09 May 2016

Firms which fail to meet demands can face criminal liability

HMRC issued 1,468 production orders last year requiring businesses to provide information and documents relating to clients, or former clients, suspected of criminal activity*, says City law firm RPC. HMRC commonly issues production orders to financial and professional services businesses.

The production orders were issued by HMRC’s Criminal Investigation Directorate, as part of investigations into tax evasion and money laundering.

RPC says that these demands place professionals, such as auditors or accountants, in a very difficult position as they must comply with a production order and supply HMRC with the information and documents requested notwithstanding their professional obligations regarding client confidentiality.

Additionally, HMRC often insist that information and documents are provided within a relatively short time period which can be extremely disruptive, especially for smaller firms.

If a firm does not provide HMRC with the information and documentation it holds, or provides too little, then it can lead to criminal liability for failure to comply with the production order. However, if a firm provides more information than is required they may put themselves at risk of a legal claim from their client.

Adam Craggs, Partner at RPC, says: “Production orders can cause enormous business disruption for those who are unfortunate enough to receive one and raise difficult compliance issues. Deciding what is and what is not covered by a demand is not always easy and the potential cost of making a mistake is very high.”

“It can be very difficult to strike the right balance between providing HMRC with sufficient information and documentation to comply with the production order and not compromising client confidentiality by providing more information than is necessary.”

“There are other important issues to consider. Most tax advisors and accountants will not be familiar with production orders and may be unsure of their obligations and what they should do when one lands on their desk. For example, they must not ‘tip off’ their client about an HMRC investigation. Such behaviour can have extremely serious consequences.”

“Reviewing client files to find the information required by HMRC can take a great deal of time and reviewing files to be certain that the firm does not have the information required may take even longer!”

“HMRC have issued over 8,000 production orders over the last five years. They are regularly issued during the course of HMRC criminal investigations into tax evasion, and given the pressure on HMRC to increase the number of criminal prosecutions for tax fraud, the number of production orders received by professional service firms is likely to increase.”

*2014-15 – most recently available data