McDermott Comment I Taxman Fails to Prosecute Evaders

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Commenting on recent press articles on HMRC’s failure to prosecute tax evaders:

Sarah Gabbai, attorney at law firm McDermott Will & Emery, said:

“According to HMRC’s latest figures, HMRC have reviewed a total of 64 potential CCO opportunities in the three years since the Criminal Finances Act came into force, of which a mere 13 have led to live CCO investigations.   When one considers that fact, along with the length of time it takes to resolve an investigation, it’s not really that surprising that we haven’t yet seen any entity-level prosecutions under that legislation.

The lack of individual prosecutions for tax evasion-related offences is a separate matter, although one also needs to look at the longer term trend.   In this vein, the tax gap has actually fallen from 7.5% to 4.7% over the past 14 tax years.   For 2018/19, HMRC reported an overall tax gap of £31bn, of which £4.6bn represents tax lost due to evasion.   The rest is down to a combination of other taxpayer behaviours such as legal misunderstanding, error, criminal attacks, non-payment, failure to take reasonable care and, to a lesser extent, avoidance.   HMRC could therefore narrow the tax gap more efficiently by simplifying the tax system and making compliance easier, which would also have the added benefit of reducing opportunities for evasion and avoidance.

We may well see an increase in the number of CCO investigations in the near future, particularly in connection with furlough fraud and the new off-payroll rules.  For example, an end client could dishonestly decide to treat UK-based contractors as self-employed for UK tax purposes even if the status determination statement concludes that the contractor is a deemed employee, so this will be an area to watch going forward.”

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