U.K. Aims for Massive Rise in Tax Evasion Criminal Convictions

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By Ben Stupples

Oct. 31 — The U.K.’s tax authority is targeting a 100-fold increase over the next four years in the annual number of wealthy individuals and corporations criminally prosecuted for tax evasion.

Investigations from Her Majesty’s Revenue and Customs have led to just one criminal conviction for tax evasion in the past five years. However, the tax authority is aiming for 100 each year by 2020, according to a Nov. 1 report on HMRC’s taxation of high-net-worth individuals by the National Audit Office.

“HMRC prioritizes the recovery of tax where it identifies fraud and uses civil investigations in the majority of cases,” said the National Audit Office’s report.

“Where high net worth individuals are suspected of tax fraud, their case is passed to a specialist team within HMRC which examines whether the evidence is sufficient to merit a criminal, rather than civil, investigation.”

Panama Papers

HMRC’s convictions target comes as the U.K. tax authority is seeking to crack down on tax evasion following the publication of the Panama Papers earlier this year, when a leak of more than 11 million documents revealed how wealthy individuals establish offshore entities to avoid taxes.

Any U.K. taxpayer with unpaid tax from overseas assets or activities has until the end of September 2018 to disclose their tax liability under an online disclosure facility launched Sept. 5 by HMRC.

Individuals who come forward will pay the full amount of unpaid tax with interest and face a minimum penalty of 30 percent of the tax due. Those who fail to do so will face fines as much as three times the amount of money owed, HMRC said in an Aug. 24 consultation document.

Last month, HMRC also included a new criminal offense in the Criminal Finances Bill, for corporations that fail to prevent the facilitation of tax evasion both inside and outside the U.K.

2012 Conviction

HMRC’s one tax fraud conviction dates to 2012 when British property developer Michael Shanly was ordered to pay a 400,000 pound penalty ($488,500), and an unpaid inheritance tax bill.

HMRC launched a special unit in 2009 to collect taxes from high net worth individuals, which raised a total of 416 million pounds in 2015-16 through compliance work, said the NAO’s Nov. 1 report.

Consisting of around 550,000 U.K. taxpayers, wealthy individuals have a net worth of more than 1 million pounds or annual income of more than 150,000 pounds. HMRC defines high net worth individuals, meanwhile, as having wealth of more than 20 million pounds, the report said.

The U.K.’s 6,500 high net worth individuals paid over 4.3 billion in taxes in 2014-15, it added.

Increased Efforts

Commenting on the NAO report, general secretary of the Mark Serwotka Public and Commercial Services union said that HMRC to increase its efforts with convictions of wealthy individuals.

“HMRC still needs to do much more to clamp down on tax avoidance and evasion by the very wealthy, and only one criminal conviction in the last five years doesn’t send a clear enough message,” he said. “More cuts to staff and resources across HMRC in the coming years would also further undermine the integrity of our tax system and these plans must be reversed.”

An HMRC spokesperson responded to the NAO report by highlighting the tax authority’s commitment to ensuring that taxpayers continue to comply with U.K. legislation.

“HMRC enforces the rules impartially and last year we tracked down an additional 416 million pounds in tax from the wealthiest that would have otherwise gone unpaid,” they said. “We will continue to evaluate our results so that we carry on getting what is due to the country.”

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

A December 2015 report from the U.K.'s National Audit Office on HMRC’s treatment of tax fraud is at http://src.bna.com/jLh.

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