HMRC’s policy on identification of tax evasion cases for prosecution is extremely interesting, and to my mind for the most part eminently sensible and reasonable. In the first instance they will in the vast majority of cases try very hard to settle most such cases by negotiation and formal letter of offer, with penalties and interest charged in addition to the tax due. Only in exceptional circumstances will they take a taxpayer to court and seek criminal penalties. It is worthwhile quoting their stated policy in this respect:
“HMRC’s aim is to secure the highest level of compliance with the law and regulations governing direct and indirect taxes and other regimes for which they are responsible. Criminal investigation, with a view to prosecution by the Revenue and Customs Prosecutions Office (RCPO) in England and Wales – or the appropriate prosecuting authority in Scotland and Northern Ireland, is an important part of HMRC’s overall enforcement strategy.
It is HMRC’s policy to deal with fraud by use of the cost effective Civil Investigation of Fraud (CIF) procedures, wherever appropriate. Criminal Investigation will be reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.
However, HMRC reserves complete discretion to conduct a criminal investigation in any case and to carry out these investigations across a range of offences and in all the areas for which the Commissioners of HMRC have responsibility.
Examples of the kind of circumstances in which HMRC will generally consider commencing a criminal, rather than civil, investigation are:
- In cases of organised criminal gangs attacking the tax system or systematic frauds where losses represents a serious threat to the tax base, including conspiracy;
- Where an individual holds a position of trust or responsibility;
- Where materially false statements are made or materially false documents are provided in the course of a civil investigation;
- Where, pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;
- Where deliberate concealment, deception, conspiracy or corruption is suspected;
- In cases involving the use of false or forged documents;
- In cases involving importation or exportation breaching prohibitions and restrictions;
- In cases involving money laundering with particular focus on advisors, accountants, solicitors and others acting in a ‘professional’ capacity who provide the means to put tainted money out of reach of law enforcement;
- Where the perpetrator has committed previous offences / there is a repeated course of unlawful conduct or previous civil action;
- In cases involving theft, or the misuse or un lawful destruction of HMRC documents;
- Where there is evidence of assault on, threats to, or the impersonation of HMRC officials;
- Where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC.
When considering whether a case should be investigated under the Civil Investigation of Fraud procedures or is the subject of a criminal investigation, one factor will be whether the taxpayer(s) has made a complete and unprompted disclosure of the offences committed.
However, there are certain fiscal offences where HMRC will not usually adopt the Civil Investigation of Fraud approach. Examples of these are:
- VAT Missing Trader Intra-Community (MTIC) Fraud
- Vat ‘Bogus’ registration repayment fraud
- Organised Tax Credit fraud.”
There are two comments worth making about this policy, one with reference to what it does say and one by reference to what it does not.
Firstly, as a chartered accountant and chartered taxation practitioner, not only do I not feel unduly discriminated against by the policy as regards accountants and solicitors, but I warmly welcome HMRC’s approach in this respect. HMRC must be able to rely upon the honesty and integrity of professional advisors in administering the tax system, and where such qualities are not in evidence, they are absolutely right to view the matter in the most serious possible light and seek to prosecute the dishonest advisor. That is an integral part of being a tax advisor, and you will not hear me complaining about it.
Secondly, the policy does not make any reference to cases involving high profile celebrities, but there is a general perception that a disproportionate high ratio of the fairly small number of crimial prosecutions undertaken by HMRC relate to such individuals. Lester Piggott, Ken Dodd and latterly Harry Redknapp and Milan Mandaric sping to mind.
By all accounts Lester Piggott’s case was particularly flagrant; for instance there are rumours that he allegedly settled a tax enquiry by drawing a cheque to the (then) Inland Revenue on an offshore bank asccount of which the Revenue was unaware! In any case, whatever the truth of that particular matter, the jockey was found guilty by twelve good men and women and true and served time in prison for his crimes.
Now I can readily see the PR advantages to HMRC of very publicly prosecuting, successfully, a high profile tax evader. It is easy to see how this might make other potential tax evaders think twice before deceiving HMRC, or even consider taking advantage of an HMRC disclosure facility to ‘come clean’ about past misdemeanours. But the risks of this policy are all too clearly seen where the twelve good people and true find in favour of the taxpayer and not HMRC.
Given the unusual financial practices that Ken Dodd, by his own admission, indulged in over a period of a number of years, some may not consider it particularly surprising that prosecuting counsel for HMRC was rumoured to have declared that “this case is so clear cut I can win it in front of a Liverpool jury.” He was, of course, wrong in his alleged optimistic assessment of the case. Whilst those of us in the tax profession may scratch our heads and ponder the wonders of the jury system, the vast majority of the population presumably draw the rather more straightforward conclusion that Mr Dodd was cleared of all charges and was therefore vindicated in his highly unorthodox fiscal actions. To be frank, that is a disaster for HMRC.
Speaking of which, we come to the Redknapp, Mandaric case. My advice to my clients, based on close reading of tax legislation and HMRC guidance has always been that if you as an individual employer, or an individual in control of an employer, make a payment to an employee , HMRC will assume that payment to be in respect of the employment and taxable as such unless there are compelling family reasons for the gift. Mr Mandaric was in control of Portsmouth Football Club and made a large personal payment to an offshore bank account in the name of Mr Redknapp’s dog (sorry, that is not quite right – the account was named after the canine in question). HMRC took the view that this was ‘disguised remuneration’; in other words Mr Redknapp received the payment in respect of his duties as team manager of Portsmouth FC, and was as such taxable thereon. They also clearly took the view that the actions of the gentlemen concerned were such as to lay them open to criminal prosecution, but that view was not shared by the jury in the case.
Once again those of us engaged in the tax profession can shake our heads and mutter crossly to ourselves, but the general public will draw the conclusion that the actions of the accused were entirely legal and above board Which makes it rather difficult for me to explain to the next client who says he or she would like to make a large gift to an employee, and “that won’t be taxable will it?” that I cannot ethically advise that course of action in view of what I know of the UK tax system. That of course is the client who feels the need to ask; what about the employer who thinks that the recent verdict has made the position entirely clear and does not see the need to go to the trouble and expense of seeking professional advice on such an obvious matter..
And therein lies the problem. HMRC and the professional tax advisor have a shared interest in making sure that everyone plays the game by the rules; our livelihood depends on this just as much as the country’s financial health. But no one asks us whether it is a good idea to put the integrity of the tax system at hazard by risking a prosecution in a case where HMRC can clearly be far from certain of winning. So does the policy on criminal prosecution of high profile taxpayers require an urgent review? I rather think it does; if I were HMRC I might be less inclined to take a high profile case to court rather than more so.
Which leaves us with Mr Redknapp and his position vis-à-vis the Football Association and the England manager’s job, which by one of those remarkable coincidences that occurs from time to time became vacant on the very day that he was found not guilty of tax evasion.
Now, apart from the hide of an elephant and a wide streak of masochism, coupled with a desire to be in charge of an overpaid, over-rated, arrogant, exhausted group of footballers whose apparent shining light is suspended for kicking an opponent and has achieved near invisibility in his last two final tournaments, and whose former captain is a man facing criminal charges for racially abusing a fellow professional, one might have thought that among the pre-requisites for being manager of the England football team were sound judgement and common sense (given what the absence of one of these qualities each in the two immediate past incumbents gave rise to). In the course of his “I’m a cheerful cockney who knows nothing about money or tax” performance, which proved so successful in the courts, Mr Redknapp may well have unwittingly ruled himself out of a job for which he appears to be eminently well qualified on football grounds. In my view assuming that a payment on the scale of that received by Mr Redknapp from the man in control of his employer was non-taxable without seeking appropriate professional advice showed neither common sense nor sound judgement. That such a man should be regarded by the UK media as the ‘messiah-in-waiting’ of the England football team probably says more about the media than it does about Mr Redknapp.
Given that the Football Association precipitated the vacancy in question by removing the captaincy from a man being prosecuted for an alleged offence that carries a maximum penalty that pales into insignificance compared to that for tax evasion, they find themselves in an interesting position in considering Mr Redknapp’s credentials for the job (should he wish to be considered for the post, which might again cast doubts on his common sense and judgement!). Can they convince themselves that the verdict leaves him without a stain on his character? That may be difficult if HMRC pursue him, as they surely will, for tax, penalties and interest on the payment made to him by Mr Mandaric. Simply because that pursuit will happen behind closed doors surely does not make it appropriate to consider Mr Redknapp for the post of England manager in the light of all the circumstances.
Given that the post-Ericsson approach was to seek an English manager, presumably the FA would dearly like to do so again on this occasion. What a pity, therefore, that the only English candidate whose CV marks him as fit for the job is disqualified on other grounds. To whom will the poisoned chalice be offered, and why on earth would anyone want the job?