The lockdowns hit the volume of prosecutions, and data suggests that there is possibly less facilitation of tax evasion than some in government think, an advisor says. Another law firm said that there is no room for complacency over the new powers that HMRC has at its disposal.

A sharp fall in UK prosecutions for enabling tax evasion shows how pandemic-induced lockdowns disrupted work, and suggests that fears of tax misbehaviour may have been overblown, an advisor says.

The Financial Times (6 March) reported that HM Revenue & Customs has prosecuted eight cases in the past two years for enabling tax evasion, in spite of pledging to pursue the lawyers, accountants and financial institutions that help clients carry out tax fraud. There has been a fall from the 43 prosecutions brought by the body in the two years before the pandemic. The FT obtained the data from a Freedom of Information request. It quoted Simon York, HMRC’s head of serious fraud, as saying in January that the body intended to pursue the financial and professional services firms that facilitate tax evasion as well as evaders themselves.

Facilitating tax evasion is a strict liability offence, removing the need to prove intent. Such powers come at a time when government continues to seek powers to make it easier to pursue advisors for failing to prevent their clients committing offences – a move that some legal advisors in the private client industry say could cause damage to due process of law.

"The steep decline in prosecutions is yet another example of the havoc caused by the government's response to lockdown. HMRC shut down their service and, like many institutions, didn't do anything for nearly two years. It's no surprise that there's a backlog of enquiries,” Miles Dean, head of international tax, Andersen LLP, said in a statement. 

"We're not a nation of tax evaders. It's not in our psyche, so going after the high-hanging fruit was always going to be difficult, in fact it might be folly as it's not realistic."

Simon Airey, white collar partner and Sarah Gabbai, tax counsel at international law firm McDermott Will and Emery, took a different angle on the figures.

“Despite the low take up by HMRC of prosecutions for enabling tax evasion, corporates cannot afford to be complacent about the UK statutory offences of failing to prevent the facilitation of tax evasion that were introduced in 2017,” they said. “Though there are only nine live investigations, HMRC has announced it has a further 26 investigation opportunities under review and – partly inspired by adverse media reporting – it will be keen to demonstrate success.”

“There is also currently a broader focus on corporate criminal responsibility in the UK, with the Law Commission having released a paper on reforming the law in this area and various legislative proposals in train to expand the categories of available offences,” they continued. 

Failure to prevent
“The existing corporate offences of failing to prevent the facilitation of tax evasion essentially impose a form of strict liability on corporates in relation to the actions of their ‘associated persons’ such as employees, agents and intermediaries,” Airey and Gabbai said. “The offences relate to the evasion of both UK and foreign taxes, and the fines that can be imposed are unlimited. The good news is that there is a complete defence in law, providing it can be shown that `reasonable prevention procedures’ were in place at the relevant time – in other words, a tailored compliance programme,” they said.

“Companies and partnerships would therefore be wise to factor into their annual compliance budget the cost of conducting an appropriate risk assessment and designing appropriate policies and procedures. Related training, due diligence, monitoring and review are also essential – and there is a real focus on assessing board level engagement in terms of culture, governance and making sure that sufficient resources are made available. The authorities are very astute to policies that merely pay lip service to the legislation or are not properly implemented or communicated. The risk of blow-back for senior management is therefore significant,” they said.