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New 'unexplained wealth orders' give increased powers to HMRC

New UK powers to require individuals to explain where their wealth has come from and to freeze and forfeit funds in bank and building society accounts come into force today. 31 Jan 2018

The powers, which were brought into force by regulations made this month, can be used by HM Revenue & Customs (HMRC) as well as the Serious Fraud Office, the National Crime Agency and certain other agencies.

The legislation increasing HMRC's powers is contained in the Criminal Finances Act 2017, which also introduced two new corporate criminal offences of failing to prevent the facilitation of tax evasion, which apply from 30 September 2017.

An unexplained wealth order requires an individual to explain how they obtained property, where that person's known income does not explain how they could afford it. HMRC or another designated enforcement authority can apply to the High Court for an order. They have to show  there is reasonable cause to believe the individual holds property worth more than £50,000 and there are reasonable grounds for suspecting that the individuals' known income would not explain the ownership of the property.

To grant the order the judge also needs to be satisfied that the individual is a politically exposed person, or there are reasonable grounds for suspecting that they or a person connected with them, have been involved in serious crime, including tax evasion.

An individual who receives an unexplained wealth order has to explain the source of the asset within the time period set by the court. If they are unable or refuse to explain adequately the source of their wealth, the property is presumed to be recoverable property through the civil recovery regime under the Proceeds of Crime Act.

With effect from 16 April 2018, the regulations also bring into force increases to HMRC’s powers covering search, seizure and detention of cash. The definition of ‘cash’ is expanded to include gaming vouchers, fixed-value casino tokens and betting receipts. A new power is also introduced for the issue of ‘administrative forfeiture notices’ to forfeit cash, including money in bank and building society accounts, without a court order.

HMRC officers and other 'relevant officers' will also be granted powers from 16 April 2018 to seize specified  items of valuable property, such as precious metals and stones, watches, artistic works, face-value vouchers and postage stamps.

"The Criminal Finances Act has given HMRC significant extra powers. The powers that these regulations bring into force are on top of the two new criminal offences for businesses whose employees or other associates facilitate tax evasion," said Penny Simmons, a tax expert at Pinsent Masons, the law firm behind Out-Law.com.

"The corporate criminal offences are already in force, but many businesses have still not put in place the policies and procedures which could protect them if one of their employees facilitates tax evasion," she said.

The new corporate criminal offences effectively make businesses vicariously liable for the criminal acts of their employees and other persons 'associated' with them leading to the facilitation of tax evasion, even if the senior management of the business was not involved or aware of what was going on.

The offences apply to both companies and partnerships. One offence applies to all businesses, wherever located, in respect of the facilitation of UK tax evasion. The other applies 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.

"It is now four months since the new rules came into force. Because of the tight timescale for the introduction of the rules, HMRC did not expect businesses to have everything in place from day one. However, the longer the offence has been in force, the more difficult it will be to rely on the reasonable prevention procedures defence if you have not implemented any revised procedures and trained your staff," Penny Simmons said.