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Corporate criminal tax offences likely to further increase HMRC's use of dawn raids, says expert

'Dawn raids' by HM Revenue and Customs (HMRC) on businesses and individuals are likely to remain high following the entry into force of new corporate criminal tax offences, an expert has said.08 Aug 2017

The number of property raids carried out by HMRC as part of its clampdown on white collar tax evasion has increased by 34% over the last five years, from 499 to 2011/12 to 996 in 2016/17, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. HMRC carried out 1,563 property raids in total last year, up by 8% from 2015/16, according to the figures.

"HMRC has shown it is not afraid to come down hard on large corporates they suspect of tax evasion - and, obviously, the reputational impact of dawn raids can be devastating," said tax expert Jason Collins of Pinsent Masons.

"The new offence means HMRC will be investigating how businesses, or their employees, might be assisting or encouraging tax non-compliance by their business partners, customers, contractors and suppliers. Therefore, there may be an increase in raids after it becomes operational this September," he said.

All businesses, but particularly the banks and professional services firms at particular risk of falling foul of the new offences, should refresh their raids and critical incident procedures and seek professional advice in order to know what to do in case HMRC officers appear without warning, Collins said.

From 30 September, it will be a criminal offence in the UK if a business fails to prevent its employees or any person associated with it from facilitating tax evasion. The new offences, which will apply to both companies and partnerships, will effectively make businesses vicariously liable for the criminal acts of their employees and other 'associated' persons, even if the senior management of the business was not involved or aware of what was going on.

The Criminal Finances Act introduces two new criminal offences. The first will apply to all businesses, wherever located, in respect of the facilitation of UK tax evasion. The second will apply to businesses with a UK connection in respect of the facilitation of non-UK tax evasion. Businesses will have a defence if they can prove that they had reasonable prevention procedures in place to prevent the facilitation of tax evasion, or that it was not reasonable in the circumstances to expect there to be procedures in place.

Dawn raids are enormously useful to HMRC, which can use its legal powers to seize personal documents, emails and electronic files from individuals for evidence to secure prosecutions for tax evasion. HMRC does not, however, have the power to enter business or residential premises without a search warrant, which must be granted by a magistrate.

Despite the long-term increase in the total number of dawn raids conducted by HMRC, the figures obtained by Pinsent Masons also showed a 12% drop in raids relating to 'white collar' tax evasion last year, down from 761 in 2015 to 669 in 2016. However, this drop was less likely to indicate a slowdown in activity than "a move towards starting criminal investigations without undertaking a raid", Collins said.

"HMRC are starting to apply for production orders instead, to get the documents they need," he said.

Production orders allow HMRC to apply to a judge for an order requiring the production of specific documents, including those held by third parties such as advisers or banks. HMRC is also increasingly using notices issued under the 2005 Serious Organised Crime and Police Act (SOCPA) to compel third party individuals to attend interviews and provide information, according to Collins.