40% jump in criminal actions launched by HMRC’s Offshore Corporate and Wealthy unit last year - but that’s just the tip of the iceberg for HMRC’s compliance drive

Last month it was reported that HMRC’s new Offshore Corporate and Wealthy Unit carried out 70 arrests, dawn raids and interviews amongst affluent clients last year. This marks a 40% jump in the number of actions undertaken by the unit compared to the year before. The unit also raised £414m in extra tax from its investigations.
 
That is an impressive result for a unit of HMRC that was only set up in the wake of the Panama Papers scandal in 2016. However, that activity is just a drop in the ocean compared to HMRC’s overall tax investigation work in the past year, based on its latest Annual Report.
 
In all HMRC took in a total of £36.9bn in additional tax from its tax evasion, avoidance and other compliance activity last year. That’s up 8% from £34.1bn the year before and is more than £5bn more than the amount brought from tackling non-compliance in 2015-16.
 
Included within this total is £7.6bn that HMRC brought in from investigations into small businesses. These are businesses with fewer than 20 employees and turnover below £10m, which account for more than 95% of all the UK’s businesses.
 
Additionally, HRMC prosecuted more than 4,000 individuals for tax evasion last year and handed out custodial sentences totaling more than 3,300 years in prison.
 
HMRC is ramping up compliance activity on small businesses, including dedicating extra resources to check the tax affairs of small firms that now deal with all their tax affairs online.
 
It is highly likely the number of investigations and therefore penalties and charges handed out will increase as HMRC seeks to make up for the huge drop in tax revenues the “lockdown” has caused.
 
In addition to its “regular” investigations into tax evasion we can also expect more small and medium sized businesses to be investigated by HMRC over fraudulent claims made in relation to both the furlough and the ‘Eat Out to Help Out’ schemes.
 
Early estimates by HRMC reveal that up to £3.5bn may have been fraudulently claimed in relation to the furlough scheme alone whilst 4,000 restaurants in the UK have been warned they may be investigated due to inaccurate “Eat Out to Help Out” claims.
 
Following the previous global economic crisis in 2008, HMRC substantially increased its number of investigations in the following years in an attempt to recover as much revenue as possible to fill the hole in the treasury’s finances.
 
HMRC will be under pressure to further increase its yield from compliance activity to cover some of public spending during the coronavirus crisis. Clients need to be extra diligent in ensuring their tax affairs are in order to avoid falling foul of HMRC.
 
Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect your clients against the cost of most tax investigations by offering a Tax Investigation Service. To find out how we can help, contact info@pfp.uk.com.