HMRC court wins come in waves

The failure to convict a football manager for tax evasion after a five-year investigation and then see him tipped as the next England manager only hours later must be galling for HM Revenue and Customs.

HMRC’s statement that it had “no regrets” after a jury cleared Harry Redknapp on Wednesday of tax evasion is hard to believe, given how high profile the case was and how much effort was put into it. Like a footballer in post-match interviews, HMRC investigators are likely to be gutted.

“I think HMRC’s view is that this is the one that got away,” says Nigel May, a tax partner at accounting firm MHA MacIntyre Hudson. “HMRC must be feeling very bruised.”

Some media reports have questioned the taxman’s judgement. Reports say the investigation cost £8m although HMRC says it cost under £300,000.

Should HMRC rethink its approach to criminal prosecutions? Tax experts think not. They say the case highlights the unpredictable nature of celebrity tax trials – the comedian Ken Dodd was cleared of tax evasion in the late 1980s – rather than flaws in HMRC’s strategy for criminal prosecutions, which is only a couple of years old.

The Treasury hopes to deliver a five-fold increase in criminal prosecutions for tax evasion by 2015, backed by an additional £900m in funding for HMRC. Criminal prosecutions are a stick to beat hardened tax dodgers who don’t take advantage of various carrots, including tax amnesties offering people favourable terms if they come clean about tax owed.

Any surge in criminal prosecutions is unlikely soon, though, because a criminal prosecution typically takes about four or five years from the arrest to sentencing in court. “Any cases under investigation now won’t go to court until 2014 or 2015 [at the earliest],” says Jason Collins, a tax partner at law firm McGrigors.

Criminal prosecutions go through similar stages. The first stage is information gathering, when tax investigators conduct secret background checks on suspected tax evaders. When the suspect is bailed HMRC investigators continue to gather evidence before handing the file to the Crown Prosecution Service, which decides whether the evidence is strong enough to bring a criminal prosecution.

Criminal prosecutions focus on four main types of tax evasion: aggressive tax avoidance schemes which are judged to cross the line between legal tax planning and avoidance into illegal tax evasion; offshore bank accounts; the grey economy (cash-in-hand work often done by tradesmen); and VAT and benefit frauds, often done by criminal gangs.

Working out the HMRC’s success rate for criminal prosecutions is tricky as failures to convict are not usually publicised. However, one tax expert says successful criminal prosecutions tend to go in “waves”.