Tax authorities contemplate strengthening legal means for prosecution in an intensified fight against tax evasion
The UK's HM Revenue & Customs (HMRC) has escalated its efforts to combat tax evasion and fraud, intensifying its criminal investigation powers under mounting pressure to recoup lost revenues.
As part of Labour's 'Close the Tax Gap' initiative, Rachel Reeves proposed raising over £1bn in additional annual gross tax revenue by 2029-30. This ambitious goal is aimed at tackling tax evasion, a significant issue as the latest estimate indicates that it cost £5.5bn in 2022-23, equating to roughly 0.7% of total taxes owed. However, a Public Accounts Committee (PAC) report suggests this figure could be just a fraction of the actual figure.
In her Spring Statement, the Chancellor specifically highlighted tax evaders as a target. The campaign against tax evasion by HMRC has picked up momentum and become increasingly proactive.
Last week, data revealed that HMRC conducted 648 dawn raids over the previous year, a significant increase compared to past years. During the 2023-24 period, the tax agency launched 430 new criminal investigations and more than 10,200 civil investigations into suspected fraud, and imposed around 17,000 penalties for deliberate non-compliance.
Gideon Sanitt, partner at law firm Macfarlanes, noted, "HMRC did not appear to have the same priority over criminal prosecutions." Yet, he expects new funding, commitments to close the tax gap, and measures like the whistleblowing scheme to mark a shift in HMRC's approach to fraud.
According to the PAC, HMRC had far fewer prosecutions for tax evasion compared to pre-pandemic levels. However, the tax agency has announced plans to expand its fraud investigation service from 4,400 people in 2018-19 to 5,400 by 2029-30, signaling a boost in criminal investigations and subsequent prosecutions.
In terms of supply chain scrutiny, HMRC is focused on businesses that have failed to take responsibility for the actions of their suppliers. Debbie Jennings, VAT director at accountancy firm Moore Kingston Smith, explained, "It is not possible to plead ignorance or turn a blind eye." The Kittel principle, a European legal doctrine, grants HMRC extensive powers to combat perceived VAT fraud across supply chains. If businesses lack robust due diligence processes, they risk expensive VAT bills, denied input tax claims, and even the cancellation of their VAT registration.
These developments signify an evolving landscape for businesses, as HMRC's expanded powers make it both easier and costlier for companies to fall under tax enforcement actions, particularly through supply chain scrutiny and adviser accountability. While aimed at reducing tax evasion and fraud, these changes are likely to impose new burdens, slow down commercial activity, and increase regulatory uncertainty for UK businesses.
- The UK government, through the HM Revenue & Customs (HMRC), is taking a more aggressive stance against tax evasion and fraud in the business sector, aiming to recoup lost revenues and tackle tax evasion, as pointed out by the 'Close the Tax Gap' initiative proposed by Rachel Reeves, which aims to raise £1bn in additional annual gross tax revenue by 2029-30.
- In the political arena, the focus on tax evasion has intensified, with the HMRC conducting over 640 dawn raids in the previous year and announcing plans to expand its fraud investigation service from 4,400 people in 2018-19 to 5,400 by 2029-30, initiatives that are expected to lead to increased criminal investigations and subsequent prosecutions.
