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When HMRC launches an investigation, it will either be in the form of a civil or criminal investigation. It is most likely to be in the form of a civil investigation, however, you need to know the difference as both have different potential consequences and processes. 

Civil Investigations 

The most common type of investigation because it targets more common, accidental mistakes. Civil investigations can, however, also be used for investigation of deliberate tax avoidance. The aim of a civil investigation is to deal with fraud in the most cost-effective manner possible. Civil investigations often lead to the tax payer repaying the owed tax along with interest and penalties.  

The main advantage of a Civil Investigation is that it gives the opportunity for the case to be resolved without criminal prosecution. Even in the most serious civil investigations, Code of Practice 9 (CoP9), tax payers are given the opportunity to make a CDF (Contractual Disclosure Facility) through which all fraud is admitted in return for immunity from criminal prosecution. This can give a lifeline to people who have committed fraud and allow them to escape without criminal punishments. 

Click here to learn more about CoP9 investigations.

It is important to note, however, that even if an investigation starts as civil, HMRC reserves the right to initiate a criminal investigation with intention to prosecute where it feels this is appropriate.  

During a Civil Investigation, HMRC may start a Criminal Investigation if: 

  • Your CDF does not include a full disclosure of all irregularities (intentional or accidental) 
  • You reject or fail to respond to the CDF terms within the 60-day time limit, 
  • You refuse to co-operate with the investigation. 

The only definite way to avoid a Criminal Investigation is to completely co-operate with the terms of the CDF. 

Complying with the CDF and disclosing your deliberate tax avoidance conduct will also likely result in a greater reduction of penalty fees and the potential to avoid other civil penalties such as insolvency and publication of your name and personal details. 

The less co-operation you show with the investigation will result in a higher chance of criminal prosecution. 

Criminal Investigations 

As stated on the government website, Criminal Investigation is “reserved for cases where HMRC needs to send a strong deterrent message” or where the conduct is such that “only a criminal sanction is appropriate.” 

Examples of cases where HMRC would opt for a Criminal Investigation include: 

  • Organised crime gangs attacking the tax system or systematic frauds where the losses represent a serious threat to the tax base, including conspiracy. 
  • Situations where the tax payer holds a position of trust or responsibility. 
  • Cases in which false, forged or altered documents are used and false statements are given in a civil investigation 
  • Cases involving theft, misuse and unlawful destruction of HMRC documents. 
  • Cases involving money laundering by certain professionals who are considered to have the knowledge and means to move tainted money out of the reach of law enforcement officers eg. Accountants, solicitors, advisors. 
  • Cases where the perpetrator has a previous history of offences or there is a repeated course of unlawful conduct or previous civil action. 
  • Cases in which there is evidence of assault on, threats to or impersonation of HMRC officers. 
  • Cases with suspected links to wider criminal activity (involving offences not under the administration of HMRC) 

These are just a few examples of reasons that HMRC may initiate a criminal investigation against you. 

HMRC has powers to: 

  • Make arrests 
  • Search suspect’s premises following an arrest 
  • Apply for orders requiring information to be produced 
  • Apply for and execute search warrants 
  • Recover criminal assets through the Proceeds of Crime Act 2002. 

If you are struggling with a HMRC investigation, You Know It Makes Sense to give us a call today! 

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