Monday 16 November 2020 3:15 pm

HMRC criminal actions against rich individuals jump 40% in 2019/20

The number of arrests, dawn raids or interviews carried out by HMRC in respect of corporate and high net worth individuals jumped 40% last year. 

Criminal actions launched by HMRC’s Offshore Corporate and Wealth (OCW) unit increased to 70 in the 2019/20 tax year, up from 50 in 2018/19, according to a freedom of information request submitted by law firm Pinsent Masons. 

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The role of the unit is to use criminal and civil powers to investigate suspicious or serious non-compliance by companies and the wealthiest taxpayers. 

The OCW unit was established at the time of the Panama Papers scandal in 2016, in which millions of documents were leaked that showed how the rich can exploit secretive offshore tax regimes. 

HMRC has dedicated more resources to the investigation of corporates and wealthy taxpayers since the Panama Papers scandal. HMRC investigations into the wealthiest and most sophisticated suspected offenders have increased eight-fold from about 50 in 2016/17 to over 400 in 2019/20. 

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Ex-head of the OCW unit and Pinsent Masons partner Andrew Sackey said: “The Offshore, Corporate & Wealthy unit has a simple, highly focused aim – to target deliberate non-compliance by corporates, the wealthy and ultra-high net worth individuals who seek to evade tax. 

“The unit has really found its feet in recent years. Due to the complexity of the cases it investigates, it can take time for criminal cases to reach the public domain of the prosecution stage. The increase in charging decisions demonstrates that the unit’s early work is now starting to pay off.”

Since it was established, OCW has collected or protected £1.8bn in extra tax through its investigations, with £414m collected in the 2019/20 tax year alone. 

OCW investigations resulted in 85 cases being charged last year, up from 34 cases in 2018/19, which Pinsent Masons said suggests the unit is getting better at successfully building cases against corporate and wealthy taxpayers. 

The unit has just won its prosecution case against ex-BHS owner Dominic Chappell at the Crown Court at Southwark. Chappell was convicted earlier this month of tax evasion on £2.2m of income he received from his £1 deal to buy BHS, which has since collapsed.

A HMRC spokesperson said: “The majority of individuals and businesses pay the tax that is due – however there remains a determined minority who refuse to play by the rules. 

“HMRC is on the side of the law-abiding majority. By tackling the most serious forms of tax crime we are creating a level playing field for businesses and citizens. We are determined that they shouldn’t be disadvantaged or impacted by the criminal actions of others.”

Read more: Government advisory body tells Rishi Sunak to hike capital gains tax

Big business underpaying tax

At the same time, the amount of tax that HMRC suspects big business may have underpaid has risen by 16% in a year to £34.8bn, up from £29.9bn a year ago, according to HMRC’s annual report.

According to Pinsent Masons the sharp rise in the amount of tax that HMRC believes is being underpaid by corporates, known as Tax Under Consideration, is being driven by increased scrutiny of how large corporates allocate their costs and income between different countries.

HMRC suspects that some businesses undertake this process in a way that deliberately and artificially reduces their taxable profits in the UK. For example, a company could charge a high price for services to its division in the UK, therefore, reducing its corporation tax bill in the UK. Or a multinational group might sell into the UK but claim to be doing so from outside the UK and without a taxable presence there.

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Pinsent Masons head of tax Jason Collins said: “This is a dramatic increase in the amount of big business tax that HMRC fears is being underpaid.

“It is an above trend jump and something that corporates should be concerned about. HMRC’s Large Business Directorate have a particularly good record in this area, collecting between 40% and half of all the underpaid tax they identify. Sometimes they do that through negotiation but other times it is full scale investigations and litigation all the way through the courts.”

In the last year the Large Business Directorate collected an extra £13.2 billion in tax from investigations and other compliance work focused on this group of the 2,000 largest businesses. That equates to around 44% of the amount tax that HMRC suspected might have been underpaid by corporates at the start of that year.

For companies with a UK parent the figure for suspected underpaid tax is £24.6bn up from £20bn last year and for non UK companies £9.9bn up slightly from £9.7bn – suggesting that HMRC may be picking up more major new issues with UK companies than with US tech companies.