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Since HM Revenue and Customs (HMRC) adopted a new approach to investigating and prosecuting tax fraudsters, there has been a significant increase in investigations and prosecutions. Data released by Action Fraud reveals a 110% increase in the number of fraud cases brought to prosecution in the tax year ending March 2014.

Kim Holden, from criminal defence law firm Burton Copeland, explains that the HMRC is now more willing to take action against individuals and businesses found committing tax fraud and failing to disclose income, including making arrests and property searches, to make people accountable for their actions.

What is tax fraud?

Tax fraud is the act of deliberately avoiding paying tax or VAT either by intentionally lowering how much you are liable for (avoidance) or falsifying documents to avoid paying altogether (evasion). The latter is more severe and warrants more serious punishment.

The HMRC is treating noncompliant individuals and organisations very seriously, with its ‘Accelerated Payments Challenge’ issuing fines upfront prior to investigation. Those found guilty of tax fraud will be forced to pay back what they owe, as well as a substantial fine. In some cases, a prison sentence is also issued.

Although tax and VAT fraud cases can start off dealing with small amounts, if the Proceeds of Crime Act (POCA) is brought in, which gives power to seize property and other assets, this amount can substantially grow. For example, a £31,000 tax bill could lead to a £1m POCA loss.

Miss Holden warns: “Individuals and businesses that both unintentionally and deliberately deceive HMRC are now eligible for more severe punishments, making it more vital than ever that tax compliance is a priority. Any attempts to deceive the HMRC are now much more likely to end up in court, which could see people facing serious punishments as well as further financial loss through POCA.”

How can I avoid prosecution?

The obvious way to avoid a tax fraud investigation is by complying with HMRC regulations by declaring and paying the correct amount of tax and VAT that your business owes. However, if you’re found to be guilty of tax fraud and hold your hands up in admission to breaking the rules, a contractual agreement can be entered to avoid a criminal prosecution.

There are two options of agreement, depending on overseas tax liability. The first is a Conditional Disclosure Facility (CDF), once known as a COP9 agreement, while the second is an offshore disclosure facility, which replaced the Liechtenstein Disclosure Facility at the start of this year. This new agreement places a statutory requirement on an individual or business to come forward and correct their tax issues within a set time frame. Failure to comply can result in larger financial payments, as well as public naming and shaming.

By Kim Holden, Partner at Burton Copeland LLP