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HMRC targeting smaller tax evasion cases

A fall in the average length of custodial sentences given to criminal tax evaders suggests that HMRC is increasingly targeting more marginal cases, according to Pinsent Masons, the law firm behind Out-Law.com.03 Jun 2015

The average length of custodial sentence for criminal tax evasion has fallen by around 60% over the last four years, from 41.3 months in 2011 to 17.7 months in 2014.

The total number of tax evaders given a custodial sentence has risen in the same period, from 171 in 2011 to 220 in 2014.

Taken together, the numbers suggest a change in how HMRC is using its prosecution powers, pushing for maximum punishment in a wider range of cases, tax investigation expert Fiona Fernie of Pinsent Masons said.

"HMRC wants to make examples of tax evaders by sending more of them to prison," Fernie said.

"It is no longer focusing narrowly on the very wealthiest culprits, guilty of the most serious evasion. It is clamping down on tax evaders from all walks of life and adopting a much more aggressive stance when it comes to pushing for criminal sanctions," she said.

"HMRC is also likely to be coming down harder on taxpayers who have been offered settlement terms in return for a full declaration of any unpaid tax - in the course of a COP9 investigation or via an offshore disclosure facility, for example - but have failed to fully disclose. The original tax offence may not have been serious or clear cut enough to warrant a custodial sentence, but making a false statement or an incomplete disclosure to HMRC may," Fernie said.

A COP9 investigation is opened when HMRC suspects serious tax fraud, and offers suspects a guarantee that HMRC will not begin a criminal investigation in return for full disclosure of any unpaid tax.

HMRC set up an Affluent Unit in 2011 to target tax payers who are considered wealthy, but are not high net worth individuals (HNWIs). This has increased the amount of tax brought in through investigations be 60%, collecting £137.2 million ($209.6 million) in 2013/14, Pinsent Masons said.

Voluntary disclosure campaigns targeting specific groups have also been successful, such solicitors, dentists and doctors.

"HMRC is keeping up the pressure on HNWIs and the super-rich but is also now looking more closely at moderately successful professionals and businesspeople," Fernie said.

"The new government has promised to continue the coalition’s’ clampdown on tax offences, meaning we are likely to see the number of custodial sentences meted out for evasion increase even further," she said.