Of course, this is exactly what HMRC aim to do. They use a mixture of legitimate and random tax fraud investigations to instil the fear into you that your business could be investigated next.

There are very few things HMRC take more seriously than tax fraud. If you find yourself in the middle of an official fraud investigation, here’s the basics of what you should know.

What exactly is ‘tax fraud’?

In their 2015 Tackling Tax Fraud report, HM Revenue and Customs identify three different types of behaviours they say illegally deprive the Exchequer of tax revenue owed – a practice better known as tax fraud.

The types of tax fraud include:

  • Evasion

    This is when registered businesses or those submitting their individual tax returns choose to deliberately hide, misrepresent, or completely omit vital information in order to reduce their tax bill.

    In most cases, tax evaders still engage with HMRC however they usually make some kind of understatement when declaring a source of income; resulting in them paying a lot less tax than they actually owe.

    The tax gap is the difference between the total amount HMRC expect to make based on the amount of tax they’re owed each year and the actual amount they receive from taxpayers. Of a total tax gap of £34billion, more than £16 billion is lost due to tax fraud each year.

    Evasion alone made up £4.4billion worth of the tax gap, meaning millions of taxpayers continue to under declare every year.

  • Hidden economy

    This refers to the people whose entire income is not known to HMRC, known as ‘ghosts’. It also covers those for whom HMRC knows some of their sources of income but not all of them, such as ‘moonlighters’ with a secret second job.

    Those in the hidden economy defraud the tax system by not declaring all of their revenue-generating activities; meaning they do not pay the right amount of tax for the amount they earn.

    The Hidden Economy in Britain report showed that around one in every 25 British adults has earned some form of Hidden Economy income; with the top reasons for not reporting including irregular/one-off payments, not being successful enough, and not knowing they were above the tax threshold.

    This is the largest contributor to the tax gap in the UK, making up £6.2billion of losses made by HMRC each year.

  • Criminal attacks

    As the name suggests, this type of fraud tends to involve coordinated and systematic actions used to evade tax liabilities and abuse the tax system carried out by criminal gangs from all kinds of sizes and levels of sophistication.

    Criminal attacks contribute a shocking £5.1billion to tax fraud losses every year.

How does HMRC handle tax fraud?

Each year, HMRC assesses the precise tax position of a number of various individuals, companies, and more to make sure they are paying the right amount of tax.

For this reason, the taxman is known for triggering investigations at the slightest suspicion of tax fraud, and even carries out random assessments to make sure no one slips under their radar.

If HMRC believe that you are not paying enough tax, they’ll open a full enquiry to find out more. The Commissioners of HMRC also reserve their right to pursue a criminal investigation with a view to prosecute wherever and whenever they consider it necessary to do so.

What is the HMRC Fraud Investigations Service Unit?

HM Revenue and Customs’ Enforcement and Compliance Team is both one of the largest law enforcement agencies and the biggest debt collector in the UK.

It is also the largest division within HMRC; hiring more than 26,000 tax experts, intelligence gatherers, and data analysts to investigate suspected cases of tax fraud.

What is the procedure for a non-criminal investigation?

If HMRC believes that you may have committed fraud, they are looking into your tax affairs but they do not suspect you of any criminal activity, the powers that be will likely decide to investigate using the Code of Practice 9 procedure.

This involves you or your company being appointed a specially trained inspector to work on your case. Believe it or not, but HMRC are not out to get whoever they can. Your assigned agent will look over the facts with an open mind to accurately assess whether you have committed tax fraud or not.

What is a Contractual Disclosure Facility (CDF)?

If HMRC do open a Code of Practice 9 investigation, you’ll be given the chance to tell the taxman about any irregularities in your tax affairs of your own volition. What happens is you’ll enter into a contract with HMRC and this means they will not carry out a criminal investigation into any tax fraud you have disclosed.

You will need to:

  • Explain the deliberate actions which brought about the loss of tax in your Outline Disclosure
  • Sign a statement that you have made a full, complete, and accurate disclosure of all of your tax irregularities; including proof of all assets, liabilities, bank accounts, and credit cards you operated.

Should you come under investigation for tax fraud, you don’t need to wait for HMRC to offer a CDF. You can make a request for voluntary disclosure at any time however it will still be up to HMRC to offer CDF. This means that you could still be subject to a criminal investigation.

Speak to an expert

If you’ve been accused of tax fraud or if you’re worried about a potential investigation, speak to your Sunny accountant today. Our expert team will be happy to help you go over your accounts to make sure everything is as it should be. Call us today on 01623 559362.


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