I have always been uneasy with the concept of ‘targets’ for prosecutions. Absent a five-fold increase in staffing in HMRC’s criminal investigations team (which was unlikely ever to happen, it takes years to train a good investigator) and a five-fold increase in the number of criminal investigations and raids, a five-fold increase in number of prosecutions could also be achieved by HMRC and the CPS ‘lowering the bar’ on the chances of a conviction before suspects were charged. If this were happening we would expect to see lower conviction rates for tax evasion offences going forward. The latest figures hint that this might indeed be starting to happen.
In a previous post on this blog about HMRC's criminal investigations activity. I explained that there are three figures I track (I aim to exclude prosecutions for tax credits fraud) that reveal the extent of HMRC’s criminal investigations activity, and the extent of its success (or failure).
1. warrants executed by HMRC (“raids”);
2. decisions by the CPS to charge for tax offences (“prosecutions"); and
3. convictions for tax offences in the courts (“convictions”).
All three are tracked because they deal with different stages in the prosecution cycle. It often takes a year or more between a raid and a prosecution; and a similar period again between a prosecution and any conviction.
I now have the complete figures for all four years tax year from 201/11 to 2013/14 derived from a combination of Parliamentary Answers and Freedom of Information Act requests.
Year Raids Prosecutions Convictions
2010/11 498 420 280
2011/12 731 545 401
2012/13 793 770 522
2013/14 744 774 682
As I noted in June there was a dramatic increase, in all three metrics, between 2010/11 and 2012/13, with raids up 59%, prosecutions up 83%, and convictions up 86%. However, the indications are that the HMRC criminal investigations team has reached maximum capacity, with the number of raids falling 6% in 2013/14 and the number of decisions to prosecute (which is a function of the number of files HMRC forwards to the CPS) static. The number of convictions rose 30% in the period but that is a function of the lag between decision to prosecute and the decision of the court.
What is more concerning- and bears out my previously- expressed fears about a target- driven culture- is the hint that the percentage of prosecutions which result in a conviction is falling: that is, there are more cases where the conclusion of the court is that HMRC were wrong when they accused the defendants of tax evasion. If we take the lag between decision to prosecute and conviction to average a year, the conviction rate is 95% in 2011/12, 95% in 2012/13 but falls dramatically to 88% in 2013/14 as the first wave of cases from the 'great leap forward' of 2011/12 result in trials.
If you are a regulated (SRA, FCA, ICAEW or the like) professional and are charged with a criminal tax offence, because these are dishonesty offences it is inevitable (at the moment) that you are going to have your licence to practise suspended, and thus will lose your means of earning a living, for at least a year- even if you are eventually found to be innocent by a jury. If the alleged offence relates to a complex conspiracy to defraud, with lots of co-defendants, it may take two, three, or even four years (I have known it be longer) for the case to come to trial. If you are acquitted, even if your previous professional firm will have you back again, you will never get back the money you could have earned in that time, nor will you get back the full sum you have spent on legal fees.
In other words, being charged with a criminal tax offence is likely to mean virtual financial ruin for a regulated professional, whether or not you actually 'did it'. So, if HMRC show an interest in you; and you have a concern that something is, or might be perceived to be, open to question or to adverse interpretation in your tax affairs; talk to a lawyer, under the protection of legal privilege, as soon as possible.