A recent court case saw a group of directors who were caught openly discussing their tax evasion, sentenced to more than 70 years in prison. The directors (of Winnington Networks Limited “WNL”) were discussing the mechanics of their elaborate VAT fraud openly in a hotel in Birmingham which enabled HMRC to complete their investigations and take the individuals to court. This blog will discuss routes that you can take to report your tax evasion now, and to prevent potential custodial sentences.
Tax evasion (also known as tax fraud) is a criminal offence defined as deliberate, illegal and fraudulent action to avoid paying tax that is due. In the case of WNL, they had manufactured false documents and created multiple fictitious deals to understate the VAT payable to HMRC.
Other examples of tax evasion could include (but is not limited to):
- Deliberately not reporting income, either partially or in full.
- Submitting false invoices
- Artificially inflating the value of your expenses
- Omission of information for financial benefit
- Electronic Sales Suppression (ESS) / Till Fraud
- Deliberate overclaims of Research and Development tax credits (R&D)
- Deliberately failing to report your profits from self employment or let property
Code of Practice 9 (COP9) is an option that taxpayers can take when they have committed tax fraud and want to correct their historic positions. Taxpayers can voluntarily put themselves into COP9 where they know that they have committed tax fraud, or HMRC can invite them to use the service when HMRC has suspicions of tax fraud. There are significant financial benefits to voluntarily putting yourself into the process rather than waiting for HMRC to approach you.
Provided that the taxpayer commits to making a full an honest disclosure, HMRC will guarantee the individual receives immunity from criminal prosecution. In the case of WNL, whilst there would still have been a requirement to pay back the £20million of VAT that was evaded (plus interest and penalties), the directors would not be serving prison sentences if they had successfully disclosed the fraud through the COP9 process.
You can read more about the intricacies and processes of COP9 on our dedicated page.
We previously wrote about HMRCs increased powers and focus on “closing the tax gap” which was announced alongside their transformation roadmap. Part of closing the tax gap is the crack down of tax non-compliance. The WNL case is a clear win for HMRC in the determent of non-compliance and Richard Las, director of HMRC’s Fraud Investigation Service, reiterated this:
“This incredibly complex fraud was dismantled thanks to the tenacity, skill and dedication of our criminal investigators. I hope this sends a clear message to anyone involved in tax fraud that regardless of how complex it may be, we have the skills, resources and the determination to catch you and to bring you to justice.”
Mr Las also urged anyone with information about any type of tax fraud or money laundering to report it to HMRC. This aligns with their new ‘reward scheme’ that awards compensation to informants as an incentive for people to come forward and report. As above, if HMRC receive information about your tax fraud before you volunteer the information to them, then you will face higher financial penalties.
With so much focus on tax fraud, we would encourage anyone who accepts they have committed tax fraud and wants to rectify their position to get in touch. At Menzies, we offer COP9 services and support with our dedicated Tax Disputes and Disclosures Team who have collectively assisted hundreds of taxpayers through the COP9 process. HMRC recommends that taxpayers who need to use COP9 should appoint a specialist firm such as Menzies.
If you would like to discuss any matters arising from the issues covered in this article please contact Menzies’ Tax Disputes and Disclosure or on the free confidential hotline below.
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