HMRC Investigations - Closing in on tax evasion - Chris Simpson Deputy Director, Head of SME Operations Local Compliance June 2013
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HMRC Investigations –
Closing in on tax evasion
Chris Simpson
Deputy Director, Head of SME Operations
Local Compliance
June 2013
PFP – Experts in Tax Investigation
Insurance
PFP – Experts in Tax Investigation
InsuranceKey challenges for HMRC
HMRC’s challenging Spending Review 2010 commitments
involve delivering cost savings of 25 per cent and reinvesting
£917 million to bring in additional revenue of £7 billion a year
by 2014-15, while stabilising and improving the customer
experience.
Over the next decade we will radically change the way that we
deliver our services, transforming to a Digital by Default
organisation, so that more customers can self-serve online,
which will be combined with more automated interventions to
both deliver services and manage compliance risks.
This will be supported by a smaller, more highly-skilled and
professional workforce. We need to do this against a backdrop
of continued economic uncertainty, while maintaining
customer service levels and increasing staff engagement.
PFP – Experts in Tax Investigation
InsuranceEfficiencies in HMRC
As acknowledged by the NAO, during 2011-12, HMRC made
£296 million in savings, approximately a third of the total
required over the four years to March 2015. During this period,
we will reinvest £917 million of savings into our compliance
work to bring in an additional £7 billion per year by 2014-15.
Net of reinvestment this is a 15% efficiency saving.
By the end of the Spending Review period (31st March 2015)
HMRC is forecast to be operating with 56,814 full time
equivalent posts, 10,000 fewer than in April 2011 and more
than 40,000 fewer than in April 2005.
We have also continued to make estate efficiencies – saving
£26.8 million in running costs and releasing 138,000m2 of
office space during 2011-12 alone.
PFP – Experts in Tax Investigation
InsuranceHMRC Performance
During 2011-12, HMRC collected £474.2 billion in taxes and
duties. We also paid out more than £30 billion in tax credits
and £12 billion in Child Benefit. Our compliance work brought
in £16.7 billion in additional revenues. This is £3.7 billion
above our baseline year, and more than double the amount
collected in 2005-06 when HMRC was created.
We have deployed additional resource in our call centres and
during the second half of 2012-13, we answered 91.7% of
calls, against the industry standard (and our own target) of
90%. This compares to an average of 75% for the whole of
2012-13, 74% during 2011-12 and a very poor 42% during
2010-11.
PFP – Experts in Tax Investigation
InsuranceTax Gap
The tax gap is the difference between the total revenues collected
by HMRC and the total revenues the tax system should generate.
The tax gap in the 2010 to 2011 financial year was estimated to be
£32 billion – 6.7% of the total tax that HMRC estimates was due.
SME’s account for 35% of tax receipts and are estimated to
account for around half of the tax gap in 2010-11. Large
businesses account for around 60% of tax receipts and around a
quarter of the tax gap.
46% of the tax gap, by behaviour, is attributable to evasion, the
hidden economy and criminal attack. 14% is due to avoidance.
PFP – Experts in Tax Investigation
InsuranceStaffing challenges
By March 2015, we will have deployed an additional 8,000
people on to revenue-generating compliance work. As the
majority will have been redeployed from other parts of HMRC,
our programme of extensive formal training will continue, in
addition to informal coaching and mentoring.
HMRC also recognises that we have more to do to improve
staff engagement, which fell as a result of a long period of
change, combined with a raft of major ongoing efficiency
programmes.
PFP – Experts in Tax Investigation
InsuranceDavid Gauke, Exchequer
Secretary to the Treasury
“Finding people who deliberately hide their
income and wealth to evade taxes is challenging.
But doing it effectively has never been more
important. As we rebalance our economy and
take action to drive down the deficit, detecting
tax evasion and penalising those who hide their
income and wealth to evade tax is essential to
ensure we all pay our fair share.”
PFP – Experts in Tax Investigation
InsuranceGovernment understands…
There is a strength of public feeling against tax avoidance and evasion. The
compliant majority, who are responsible and pay their taxes to fund our public
services and reduce the deficit, do not tolerate people and businesses that are not
willing to pay what they owe. The Government understands this feeling and is
committed to cracking down on the minority who seek to cheat and dodge their
taxes.
It is important to remember that, in general, individuals and businesses in the UK
are honest and comply with their tax obligations; this is reflected in our tax gap
figures, which rank among the lowest in the world. However, more can be done to
deal with those who deliberately evade tax or who use contrived tax avoidance
schemes to gain an unfair advantage.
The Government is committed to cracking down on avoidance and evasion: from
the companies and individuals who bend the rules, through to the lawbreakers who
evade their taxes by operating in the hidden economy, do not declare their income,
commit tax fraud or hide their income in offshore accounts. We are also working
with international partners to find solutions to the complex issues around how and
where the profits of multinational enterprises are taxed.
PFP – Experts in Tax Investigation
InsuranceAdditional resources to
tackle fraud & avoidance
Since 2010 the Government has committed almost £1
billion to tackling evasion, fraud and avoidance, which
HMRC is investing in 2,500 extra staff and cutting-
edge technology and analytics, underpinned by a
stronger set of powers and sanctions, such as criminal
investigations and prosecutions and publishing the
names of deliberate defaulters.
To tackle offshore evasion, HMRC has set up a
dedicated Offshore Co-ordination Unit and there are
tough sanctions specifically to counter offshore
evasion, including penalties of up to 200 per cent of
the tax that was evaded.
PFP – Experts in Tax Investigation
InsuranceList of Budget 2013 evasion
measures
Agreements and Disclosure Facilities for Jersey
Agreements and Disclosure Facilities for Isle of Man
Agreements and Disclosure Facilities for Guernsey
Extending HMRC’s data-gathering powers to card payment
processors
PFP – Experts in Tax Investigation
InsuranceList of Budget 2013 anti-
avoidance measures
General Anti-Abuse Rule Misuse of tax-advantaged tax
Corporation Tax: corporate schemes: Corporation Tax deductions
loss-buying rules for employee share acquisitions
Corporation Tax loss relief: 3
loophole closures Taxation of investors in offshore funds
Taxation of loans from close Review of offshore employment
companies to their intermediaries used to avoid tax and
participators: 3 loophole NICs
closures
Retrospective action to Review of use of partnerships to avoid
address Stamp Duty Land Tax tax
avoidance New proposals to target the ‘high-risk’
Strengthening the code of promoters of tax avoidance schemes
practice for taxation of banks
Using public procurement to Enhancing the impact of court
deter avoidance and evasion decisions in avoidance cases: stronger
approach to penalties
PFP – Experts in Tax Investigation
InsuranceData analytics
HMRC already has innovative technology in the form of the award
winning Connect system. We aim to go further and be the market
leader in our use of data analytics to drive our business, for
example, investing £30m more in Connect and other risking
systems. This means we are making more use of the data we
have. But it also means going further and faster, joining up across
government, with the private sector and with other countries, to
expand data sources and through clever analytics – to accelerate
our ability to spot those trying to evade paying their share. For
example new agreements with counties like Switzerland or
Liechtenstein, and recent cases of “whistleblowers” coming
forward to identify overseas tax evasion, are making it harder for
people to hide income and wealth by moving it overseas.
PFP – Experts in Tax Investigation
InsuranceData gathering
We are transforming the way we use data, whilst always
operating under strict legal and data security measures to
ensure that information and privacy are protected. More data
sources are being added, so new connections can be made. As
announced at Autumn Statement 2012, legislation is being
introduced to amend HMRC’s current data-gathering powers,
to allow us to issue notices to card payment processors. This
will provide us with bulk data about businesses accepting
credit and debit cards, improving our ability to identify
businesses that are not declaring the full amount that should
be paid.
Turning this amount of data into valuable information is
challenging, but through our use of cutting-edge technology –
known as Connect – we can now cross-match over a billion
pieces of data to detect risky taxpayers to follow up. Connect
has already generated around £2 billion in additional tax yield
– a return of more than 40 times the initial investment – and is
used in almost three-quarters of all risk profiles in HMRC.
PFP – Experts in Tax Investigation
InsuranceData matching & credit card
data
Para 13A, Schedule 23, Finance Act 2011, as amended by FA
2013 (subject to the passage of the Finance Bill).
HMRC already in discussions with data owners over
information notices to them calling for details of credit and
debit card transactions for all UK businesses.
Data analytics team in HMRC will cleanse, match and profile in
order to identify those who appear to be non-compliant.
Risky sectors likely to include ghosts & moonlighters,
businesses trading above the VAT threshold, businesses
suppressing sales.
PFP – Experts in Tax Investigation
• InsuranceNo Safe havens
“Central to this offshore evasion strategy is greater sharing of
information between governments. Last year, we signed an
enhanced automatic exchange agreement with the USA, the
first of its kind anywhere in the world. In February we reached
an agreement with the Isle of Man and I welcome the lead
they have taken. We now have similar agreements with both
Guernsey and Jersey, demonstrating the commitment of all the
Crown Dependencies to transparency and to tackling tax
evasion. We, of course, expect them to honour that
commitment and will be looking to conclude similar
agreements with other jurisdictions.
With this dramatic increase in information flows comes an
increase in the likelihood of evaders getting caught. Those who
are determined to continue breaking the law by evading tax
will find that the strongest penalties are imposed on them. The
time has come for those with hidden offshore interests to come
forward: there are no safe havens for tax evaders.”
PFP – Experts in Tax Investigation
InsuranceNo safe havens for offshore tax evaders
– working with other authorities
Two businessmen who lied about cash they had hidden in
offshore bank accounts were jailed for tax evasion and fraud.
Having been alerted by the German authorities, HMRC
investigators discovered that, over a six-year period, the men
evaded around £500,000 in UK income tax, instead putting
their profits in bank accounts in the Isle of Man.
Following the opportunity to come clean in an offshore
disclosure campaign, both men failed to take the chance to
disclose their hidden accounts – with Roderick Smith claiming
that he had one offshore account when in fact he had 12.
His business partner, Stephen Howarth, also failed to take the
chance to disclose any of his accounts in the campaign.
PFP – Experts in Tax Investigation 17
InsuranceOffshore disclosures
Over 4,500 customers have registered for the Liechtenstein
Disclosure facility and 2,657 disclosures have been settled.
The LDF is expected to raise £3Bn by April 2016.
HMRC has written to over 2,700 people, challenging them on
assets held in specific Swiss banks.
Crown Dependencies’ Disclosure Facilities – to 30th September
2016.
HMRC has now launched a new initiative, writing to customers
who have been identified as having an interest in, or control
over, offshore companies or structures and who may not have
paid the UK tax due.
PFP – Experts in Tax Investigation 18
InsuranceProsecuting those who
break the law
HMRC is taking swifter legal action against those who don’t
come forward and sort out their taxes. We are also allocating
more resources to increase the pace and number of tax evasion
cases being brought before the criminal and civil courts.
We are setting up local task forces to identify and deal with tax
cheats, using criminal and civil powers.
We are prosecuting more people who break the law by evading
tax. We have recruited an additional 200 criminal investigators
to increase the number of people prosecuted for tax evasion
from 165 in 2010 to 2011, to 565 in 2012 to 2013, and to
1,165 in 2014 to 2015.
PFP – Experts in Tax Investigation 19
InsuranceFilm producer found guilty
HMRC investigators have unraveled a complex and organised
VAT fraud. Driscoll knew that he was breaking the law, yet
chose to overlook it for the opportunity of making what he
wrongly assumed would be easy money, at the expense of the
UK taxpayer.
Tax fraud is a serious offence and HMRC will continue to seek
out those who attempt to commit these crimes and bring them
to justice. I urge anyone with information about people or
businesses involved in tax fraud to contact HMRC’s Tax Evasion
hotline on 0800 788 887.
PFP – Experts in Tax Investigation 20
InsuranceContractual Disclosure
Facility
Anyone who knows they have committed tax fraud and wants
to work with HMRC can come forward in an environment
where criminal investigation by HMRC is no longer a risk.
The undertaking not to instigate a criminal investigation will
only apply where the taxpayer signs and fulfils a contract.
Taxpayers and their advisers can request CDF.
PFP – Experts in Tax Investigation 21
InsuranceTargeted taskforces
Since 2010, HMRC has carried out 40 specialist taskforces –
intensive bursts of compliance activity in specific, high-risk
sectors or locations where there is evidence of tax evasion.
These have included taskforces dedicated to fast food outlets
in Scotland, landlords in the North West and property
transactions in Greater London. Taskforces often involve
working closely with other government departments, pooling
knowledge and expertise.
We launched 12 taskforces in 2011-12 which have recovered
more than £55 million to date and are expected to bring in
over £70 million in total. We launched a further 28 taskforces
in 2012-13 and we will launch up to 30 more in 2013-14 and
2014-15. Our taskforces have generated more than 1,000
press articles across TV, local and national radio, regional/
national and e-media, which enables HMRC to reinforce our
message that we are cracking down on tax evasion.
PFP – Experts in Tax Investigation 22
InsuranceFast food taskforce activity
in London
In July 2011, HMRC launched a fast food taskforce in London,
focused on establishments declaring unexpectedly high
amounts of zero-rated VAT sales, successfully bringing in over
£25 million of compliance revenue.
Further analysis is also showing an increase in VAT standard-
rated sales for fast food outlets in London, compared to the
national average, for the 17 months following the launch of the
taskforce.
This is a positive early indicator of the wider impact our
taskforces have in encouraging more compliant behaviours,
potentially bringing in millions of pounds of future tax
revenues that would otherwise have been lost.
PFP – Experts in Tax Investigation 23
InsuranceMonitoring serious
defaulters
The Managing Deliberate Defaulters Scheme subjects those
who deliberately fail to comply with their tax obligations to
increased scrutiny. In the past two years, HMRC has sent nearly
3,000 letters telling tax cheats that they will be subject to
closer monitoring for up to five years. We also have the power
to name those penalised for deliberately defaulting where more
than £25,000 of additional tax would have been lost. We used
this power for the first time in February 2013, publishing the
names of deliberate defaulters on our website...
PFP – Experts in Tax Investigation 24
InsuranceDetecting tax avoidance
Early detection provides us with information to respond quickly
to avoidance, which can include changing legislation quickly to
close off avoidance opportunities. We have several ways to
detect tax avoidance:
Disclosure of Tax Avoidance Schemes (DOTAS) regime for
direct tax avoidance schemes and its equivalent for indirect
taxes
Intelligence on avoidance schemes provided by third parties,
informers and other sources. The number of informers on
avoidance schemes, in particular, has been steadily increasing
Risk assessment of taxpayer returns and other information.
PFP – Experts in Tax Investigation 25
InsuranceAvoidance: Challenge &
litigation
We have a robust approach to litigation, and we have had
considerable success in recent years in defeating tax avoidance
schemes in the courts and tribunals. As the National Audit
Office noted, we won 85 per cent of avoidance cases between
April 2010 and October 2012.
In 2012 we published settlement opportunities covering
certain employment-related schemes and loss-creation
schemes, inviting users to resolve the outstanding tax disputes
on a basis that is cost-effective and consistent with the law.
We cited relevant precedents from case law that had been
decided in our favour and explained the risks to taxpayers of
taking their case to court. We have made it clear that we have
the resources to accelerate litigation if taxpayers do not settle
under the settlement opportunity.
PFP – Experts in Tax Investigation 26
InsuranceAvoidance: Challenge &
litigation
In addition, we are intensifying and improving our project
management of all avoidance schemes, by setting clear goals,
timetables and handling strategies, and improving the co-
ordination of case teams. Promoters and avoiders should be
clear that we are relentless in pursuing those who bend or
break the rules and have the resources to do so. The potential
complexity or the large number of users of particular schemes
is no obstacle to achieving the right result.
PFP – Experts in Tax Investigation 27
InsurancePreventing avoidance and
evasion by wealthy individuals
We are expanding HMRC’s Affluent Unit, with 100 extra
investigators and extra risk and intelligence staff to identify
and deal with avoidance and evasion by the wealthiest
individuals.
We are increasing the number of specialist personal tax
inspectors to prevent evasion and avoidance of inheritance tax,
using offshore trusts, bank accounts and other entities. These
specialists will concentrate in particular on the agents and tax
intermediaries involved in these activities.
PFP – Experts in Tax Investigation 28
InsuranceDeterring evasion through
publicity and campaigns
In November 2012, HMRC launched a major advertising campaign to reinforce
the message that we are closing in on tax evasion. This publicity sends a clear
message to evaders that time is running out and aims to reassure the
compliant majority that we are pursuing those who don’t pay their dues. While
publicity alone will not change the behaviour of evaders, it is designed to
complement and strengthen the deterrence effect generated by targeted
compliance activity, including campaigns and taskforces.
Our campaigns provide an opportunity for evaders voluntarily to put their tax
affairs in order and become compliant. As well as unpaid tax received as a
direct result of campaigns, HMRC is starting to see the wider impacts that
campaigns are having in changing behaviours and encouraging a sustained
improvement in tax compliance within targeted sectors. The characteristics of
campaigns are:
transparency – clearly setting out which trades or professions we are
targeting and telling them that we have information about them
use of behavioural change techniques – encouraging customers to make the
right choices for themselves
robust action – using information and intelligence to follow up with action
that can include criminal investigations, aimed at those who choose not to
pay.
PFP – Experts in Tax Investigation 29
InsuranceCampaigns approach to
improving compliance
Transparency about who Nudges to encourage
we are targeting and customers to make the
Tools to prevent
common risks & problems, right choices for
customers from
using benchmarks where themselves
getting things
appropriate wrong
Education to help Respond with
customers understand robust follow up
their obligations and for those who
promote compliance are committed
to non-
compliance
Improved compliance
through voluntary,
sustained behaviour
change
PFP – Experts in Tax Investigation 30
InsuranceWider impacts of campaigns
The impact of HMRC campaigns doesn’t stop
with individual disclosures. Following the medical
professionals campaign, HMRC has seen more doctors
spontaneously sending in returns, seeking to adjust their
PAYE codes, and filing on time.
HMRC is also working with medical representative bodies
and UK medical schools to develop education packages,
ensuring doctors of the future are aware of what they
need to do to stay compliant.
This education is up and running in two medical schools
with many more in the pipeline. Other countries have
taken note, and following HMRC’s success, Denmark,
New Zealand and Canada have adopted our approach.
PFP – Experts in Tax Investigation 31
InsuranceProperty Sales campaign
The Property Sales campaign is an opportunity for you to bring
your tax up to date if you have sold a residential property, in
the UK or abroad, that’s not your main home. If you made a
profit but have not told HM Revenue & Customs (HMRC), you
might not have paid the right amount of tax. To take
advantage of the best possible terms you must voluntarily
disclose your income or gains and pay what you owe by 6
September 2013.
After 6 September, HMRC will use the information it holds to
target those who should have made a disclosure under this
campaign and failed to do so.
PFP – Experts in Tax Investigation 32
InsuranceHow to avoid a compliance
check
1. Submit accurate tax returns
2. Agent toolkits
3. What might HMRC know?
4. Credibility, lifestyle,
comparability
5. Don’t buy into schemes
6. Random compliance checks
PFP – Experts in Tax Investigation 33
InsuranceSWISS COTTAGE DIET
CLINIC
"We are satisfied that HMRC have discharged the burden of proof
that the inaccuracy in Dr S’s tax return was deliberate. From the
evidence before us we are satisfied that she must have known
that the amount of taxable income shown on the return was less
than her actual income for that period.”
PFP – Experts in Tax Investigation 34
InsuranceThree points from the Swiss
Diet
1. There is a burden of proof on HMRC.
2. From the evidence before us.
3. She must have known that the income declared on her tax
return was less than her actual income
PFP – Experts in Tax Investigation 35
InsuranceIndirect evidence that it
was deliberate
Patterns and frequency
Size and materiality
Knowledge and competence
Deficient records
Plausibility of the alternative explanation
Witness credibility – care in other areas, evidence of
dishonesty during the intervention
PFP – Experts in Tax Investigation 36
InsuranceIn Conclusion…
PFP – Experts in Tax Investigation
InsuranceYour feedback
How do you think we are
doing?
Christopher.simpson@hmrc.gsi.gov.uk
PFP – Experts in Tax Investigation
InsuranceRTI Webinar
Presented by:
Kevin Igoe, PFP
Phil Nilson, HMRC
23rd July 2013, 11am
to 12pm
This webinar also qualifies for an
hours CPD.
PFP – Experts in Tax Investigation 39
InsuranceUK Tax Investigations
Conference 2013
The Great Hall, ICAEW London
1st November 2013
www.ukticonline.co.uk
08453071177
PFP – Experts in Tax Investigation 40
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