When is it Criminal or Civil?

When HMRC suspects tax fraud or tax evasion, it will either begin a criminal investigation or a civil investigation. There are significant differences between the two, most notably that a criminal investigation can lead to a prosecution and a conviction. HMRC Criminal Investigations vs Civil Investigations, aren’t always as clear as you may think. At Altion Law we strive in offering valuable advice with these areas.

HMRC Civil Investigations

When tax fraud or tax evasion is suspected, HMRC’s usual course of action is to launch a civil investigation. This is known more commonly as a COP9 investigation, so-called because it is conducted in accordance with HMRC’s Code of Practice 9.

You will know that you are under a civil investigation when you receive a letter from HMRC, saying that you are suspected of fraud. This is known as a Civil Investigation of Fraud Statement.

At this stage, you have two options available: co-operation or non-cooperation.

The option you choose depends entirely on your circumstances. However, before making a final decision, we highly recommend talking to our solicitors. You should only refuse to co-operate if you have genuinely done nothing wrong.

The Contractual Disclosure Facility

If you co-operate, you must comply with the Contractual Disclosure Facility (CDF). This is a process in which you disclose details of any tax irregularities.

HMRC will then decide on a penalty. This might include the recovery of tax that has been lost over the past 20 years, plus interest, plus an additional penalty. In theory, the penalty can be up to 200% of the tax recovered. However, it is possible to get the penalty reduced with ‘good’ behaviour. This means that you offer an early and truthful explanation, and co-operate fully with the investigation.

You will then be asked to pay the outstanding sum. If you cannot pay in full, you may be permitted to pay in instalments. A failure to comply may result in Civil Recovery Proceedings, whereby your assets are frozen and confiscated, subject to the court’s approval.

Rejecting the Contractual Disclosure Facility

If you deny any wrong-doing, you must submit a Contractual Disclosure Facility Rejection Letter. You should include evidence that proves your innocence. HMRC will then continue their investigation, which will either remain a civil investigation, or will be transferred into a criminal investigation.

What happens next depends on the outcome of HMRC’s investigation. The case against you may be dropped. Or, you may be issued with a civil penalty. Alternatively, the Crown Prosecution Service (CPS) may decide to start criminal proceedings, meaning your case goes to court.

HMRC Criminal Investigations

For the most part, HMRC chooses to conduct civil investigations into tax fraud and evasion because it is more cost-effective. However, there are times when it considers a criminal investigation to be a more suitable course of action. This arises when HMRC wishes to send a strong deterrent message to others, or when the tax fraud or evasion is deemed to be serious.

According to HMRC, criminal investigations may be pursued:

  • In cases of organised criminal gangs attacking the tax system or systematic frauds where losses represent a serious threat to the tax base, including conspiracy
  • Where an individual holds a position of trust or responsibility, such as solicitor, accountant or tax advisor
  • 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 or there is a repeated course of unlawful conduct or previous civil action
  • In cases involving theft, or the misuse or unlawful 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

What Happens Next?

Often, you will not know that you are the focus of a criminal investigation until you are arrested, or you are asked to attend an interview under caution. HMRC may also exercise their powers to execute a search warrant or order you to produce certain evidence.

It is essential to seek immediate legal advice as soon as you become aware of the criminal investigation into your conduct. It may be possible to persuade HMRC to accept a deal, whereby you co-operate fully with the investigation, on the basis that it is dealt with on a civil basis.

Why might a civil investigation be preferable? Primarily because you may be prosecuted following a criminal investigation – meaning you would have to attend court and, if you are found guilty, serve a sentence. This could involve a period of imprisonment. You may also be subject to Civil Recovery Proceedings.

The decision to pursue a prosecution is not actually made by HMRC. Rather, it is made by the CPS. HMRC will hand the information it has collected to the CPS, which will then determine whether there is enough evidence to secure a conviction. If so, you will be told to attend court on a particular date.

Negotiating with HMRC

Therefore, there is a major difference between having HMRC conduct a civil investigation and a criminal investigation. It is true that with a civil investigation, you may be subject to a sizeable penalty. But with the right strategy, you can reduce this penalty by as much as 80%. With a criminal investigation, you face the very real possibility of a prison sentence – in addition to a penalty and all the other consequences that come with a criminal conviction.

That is why if you are subject to a criminal investigation, it may be favourable to negotiate with HMRC. Many criminal investigations are actually concluded on a civil basis. If you strike a deal with HMRC, you will normally be protected against prosecution, so long as full disclosure is made.

Speak to our Solicitors

We appreciate that any kind of HMRC investigation is troublesome. Yet there are ways to mitigate your losses and resolve the matter effectively. Our solicitors can advise on the best strategy in your particular case, whether that is to negotiate, to co-operate, or to deny wrong-doing and establish your innocence.

For a confidential discussion with our solicitors, please contact us today at Altion Law.

Call us on 01908 414990 or complete our online enquiry form and we will get back to you.




COP9 investigation https://altion-law.co.uk/hmrc-disputes-solicitors/hmrc-cop9-investigations/

criminal investigation https://altion-law.co.uk/hmrc-disputes-solicitors/hmrc-criminal-investigations-2/