Criminal Offences and Prosecutions for Tax Fraud

In this blog, which is based on an article published in Tax Journal on 19 March 2025, we look at HMRC's approach to investigating and prosecuting tax fraud offences.

Introduction

Unlike tax avoidance, which is legal, tax evasion (also known as tax fraud), is unlawful and will constitute a criminal offence under UK law. The key ingredient in any criminal offence relating to tax, unless it is a strict liability offence, is ‘dishonesty’. The issue of what constitutes dishonesty was considered by the Supreme Court in Ivey v Genting Casinos [2017] UKSC 67. In deciding whether a defendant had acted dishonestly, the Supreme Court held that a court must:

1. ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts; and
2. determine whether the individual's conduct was dishonest by applying the objective standards of ordinary decent people (it is not necessary for the individual to appreciate that what he has done is, by those standards, dishonest).

In a criminal trial, unlike in a civil tax appeal, the Crown bears the legal burden of proof, which means that it must prove that the accused person has committed the offence, and the standard of proof in a criminal matter is beyond reasonable doubt.

Tax fraud offences

Tax offences carry potentially lengthy custodial sentences and/or unlimited fines. In addition, the courts can order the confiscation of the benefit obtained from the criminal activity.

There are a variety of tax fraud offences, including:

• Cheating the public revenue (common law): triable on indictment only, with a maximum custodial sentence of life imprisonment. This is the principal offence relied upon by HMRC and comprises making a false statement tending to prejudice the King and the Public Revenue with the intent to defraud the King.
• Conspiracy to defraud (common law): triable on indictment only, with a maximum custodial sentence of ten years.
• Fraud contrary to section 1 of the Fraud Act 2006: triable either way, with a maximum custodial sentence of ten years
• False accounting contrary to section 17 of the Theft Act 1968: triable either way, with a maximum custodial sentence of seven years.
• Fraudulent evasion of income tax/VAT contrary to section 106A of the Taxes Management Act 1970/section 72(1) of the Value Added Tax Act 1994: triable either way, with a maximum custodial sentence of seven years.

Failure to prevent criminal facilitation of tax evasion

Sections 45 and 46 of the Criminal Finances Act 2017, introduced two strict liability corporate criminal offences of failure to prevent criminal facilitation of tax evasion. The legislation came into force on 30 September 2017. The aim of the legislation is to require corporates and partnerships to put in place reasonable procedures to prevent those providing services for them, or on their behalf, from dishonestly and deliberately facilitating tax evasion. The corporate offences aim to overcome the difficulty often encountered by prosecuting authorities in attributing criminal liability to relevant bodies for the criminal acts of employees, agents or those that provide services for them, or on their behalf.

Although strict liability offences, there is a complete statutory defence if:

1. the corporate or partnership has in place such reasonable preventative procedures as it was reasonable in all circumstances to expect it to have; or
2. it was not reasonable, in all the circumstances, to expect it to have any preventative procedures in place.

HMRC's prosecution policy

HMRC does not have the resources to prosecute every suspected tax crime. Instead, it follows a selective policy. The following are examples of the circumstances which might lead HMRC to consider a prosecution:

• cases of organised criminal gangs attacking the tax system or systematic frauds where losses represent a serious threat to the tax base;
• where materially false statements are made or false documents provided in the course of a civil investigation;
• where, in pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;
• where deliberate concealment, deception, conspiracy or corruption is suspected;
• where the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action; and
• where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC.

Deferred prosecution agreements

Deferred prosecution agreements (DPAs) were introduced on 24 February 2014, by Schedule 17 to the Crime and Courts Act 2013 (CCA 2013). A DPA may be entered into for the offence of cheating the public revenue (paragraph 16, Schedule 17, CCA 2013) as well as other specific statutory offences such as offences under the Customs and Excise Management Act 1979 (paragraph 18, Schedule 17, CCA 2013) and the Value Added Tax Act 1994 (paragraph 21, Schedule 17, CCA 2013).

A DPA is an agreement reached between a prosecutor and a corporate body under the supervision of a judge. A DPA allows a prosecution against a corporate body to be suspended for a defined period of time provided the corporate body meets certain specified conditions such as paying a financial penalty and co-operating with future prosecutions of any individuals. If the conditions are not fulfilled, the prosecution will resume. A company will only be invited to enter DPA negotiations if it has co-operated with the criminal investigation.

Commencement of a criminal investigation

HMRC's Fraud Investigation Service (FIS) is responsible for all of HMRC's criminal investigations.

A criminal investigation will sometimes arise out of a pre-existing HMRC civil tax enquiry where factual circumstances examined during the civil enquiry identify a potential criminal offence. It may also arise from information supplied by an informant, such as a disgruntled former business partner or a former employee, or other sources of information available to HMRC, such as Suspicious Activity Reports filed by persons working in the regulated sector (see Part 7 of the Proceeds of Crime Act 2002 (POCA 2002)).

A typical investigation will involve FIS officers undertaking a review and evaluation of documents and other information that has already been obtained, including working with specialists (such as accountants and lawyers) to understand the particular issues involved. As part of its review, FIS will decide whether it is necessary to undertake a search of premises or interview witnesses for the purpose of gathering information to assist their investigation, and whether there is sufficient material to justify interviewing the suspect under caution. FIS will also consider obtaining information from third parties who are not suspects.

Information powers

Under the Serious Organised Crime and Police Act 2005, HMRC has the power to issue a ‘disclosure notice’ where it believes that:

• there are reasonable grounds to suspect that a prescribed offence has been committed;
• any person has information, in whatever form, which is relevant to the investigation of that offence; and
• there are reasonable grounds that such information is likely to be of substantial value to that investigation.

A person served with a disclosure notice may be required to answer questions or produce relevant documentation. However, legally privileged material need not be disclosed.

Search and arrest

The Police and Criminal Evidence Act 1984 (PACE 1984) and its accompanying Codes of Practice, establish the powers of investigating officers, including those from HMRC, to combat crimes whilst protecting the rights of the public. PACE 1984 and the codes impose specific obligations on an investigating officer in relation to the powers of search and arrest. For example, where premises are searched, some forms of material are protected (such as that covered by legal professional privilege or medical records). Failure to meet the requirements of PACE 1984 may result in the contents of a suspect's statement being ruled inadmissible at trial (see section 78 of PACE 1984).

Disclosure by the Crown

Following charge, if it is demonstrated that the taxpayer has a case to answer,  the Crown will serve bundles on the defendant incorporating documentary evidence upon which the prosecution intends to rely, including statements from witnesses. A rigorous regime applies to the disclosure of documents to the defendant which are relied upon by the Crown for the purposes of its prosecution. 

Additionally, under the Criminal Procedure and Investigations Act 1996, the Crown must provide the defence with copies of, or access to, any material which might reasonably be considered capable of undermining the case for the prosecution against the accused, or of assisting the case for the accused, and which has not previously been disclosed.

The defence statement

It is also necessary for the defence team to serve a defence statement, which must be provided within 14 days (in the Magistrates' Court) or 28 days (in the Crown Court) after the initial prosecution disclosure (or notice from the prosecutor that there is no material to disclose). The content of the defence statement is governed by section 6A of the Criminal Procedure and Investigations Act 1996, so that it must, for example, set out the nature of the defence, including any particular defences and indicate the matters of fact in respect of which the defence takes issue, and why it takes issue.

Witnesses for the defence

The defence team should identify any potential witnesses who will be able to support the defendant at trial. This task can only properly be undertaken by a suitably experienced solicitor, who will need to meet with any prospective witness and take a witness statement of their proof of evidence (which will be signed by the witness). Such witness statements that will be relied upon by the defendant will be disclosed to the prosecution in accordance with a trial timetable that will have been imposed by the court. If necessary, the defence team may also have to consider whether it is necessary to compel a prospective witness to attend court by the issue of a court summons under the Criminal Procedure (Attendance of Witnesses) Act 1965. It is also possible for the court to compel an individual to produce documents for the purposes of the trial.

The judge and jury

In a criminal trial the judge will determine issues of law (i.e. rule on the nature of the legal offence and the requirements that must be met as a matter of law in order for the defendant to be found guilty of the offence with which they are charged). In the Crown Court, the jury is responsible for determining whether the defendant is guilty of the offence with which they have been charged.

Sentencing

If the accused pleads guilty or is convicted, it will then be necessary for the judge to determine the appropriate sentence after hearing submissions on any mitigation by the defence and consideration of the relevant sentencing guidelines. 

Confiscation

The conclusion of the trial is not the end of the matter. HMRC will seek to recover any tax lost as a result of the fraud. On conviction, the prosecution will normally seek to obtain a confiscation order in respect of the proceeds of crime.

Under section 6 of POCA 2002, the Crown Court is, in certain circumstances, required to make a confiscation order. The court will make an order if two conditions are satisfied:

1. the defendant has been convicted of an offence in proceedings before the Crown Court, or has been committed to the Crown Court; and
2. either the prosecutor is seeking a confiscation order or the court is of the view that it is appropriate to proceed under section 6.

If both of the above conditions are satisfied, a confiscation order may then be made if the defendant is found to have a ‘criminal lifestyle’ and if they have, to have benefited from their ‘general criminal conduct’ (or, if they do not have a criminal lifestyle, they have nonetheless benefitted from their ‘particular criminal conduct’).

Any question arising in connection with whether the defendant has a criminal lifestyle, or has benefited from their criminal conduct, is decided on the balance of probabilities.

In broad terms, a person has a ‘criminal lifestyle’ if they are either convicted of one of a number of prescribed offences, including money laundering, or the offence constitutes conduct forming part of a course of criminal activity, or was committed over a period of at least six months. ‘General criminal conduct’, is all the defendant's criminal conduct, whenever it occurred.

The recoverable amount is broadly equal to the defendant's benefit from the conduct concerned. The amount may be reduced if the defendant can demonstrate that the realisable value of his assets is less than the recoverable amount.

Unexplained wealth orders

An unexplained wealth order (UWO) is designed to confiscate the proceeds of crime by using civil powers instead of criminal powers. The power was introduced by section 1 of the CFA 2017 and HMRC is one of the enforcement bodies who can obtain an UWO. In order to apply to the court to order an UWO, the following conditions must be satisfied: 

1. the respondent must hold the asset;
2. the value of that asset must be greater than £50,000;
3. there must be reasonable grounds for suspecting the known source of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the asset; and
4. the respondent is a politically exposed person, or there are reasonable grounds for suspecting that:

(i) the respondent is, or has been involved in serious crime in the UK or elsewhere; or

(ii) a person connected with the respondent is, or has been, so involved.

Conclusion

In late 2024, the government estimated that the tax gap (the difference between the annual amount of tax HMRC collects and the amount it believes is payable) stood at £39.8bn. To reduce this figure, it was announced that it will be investing £1.6bn over five years to fund the recruitment of 5,000 additional HMRC compliance officers. With that level of commitment and investment from the government, an increase in the number of HMRC prosecutions for tax fraud is likely to increase significantly.