Modernisation must not blur lines between civil and criminal

The taxman will require a few Chinese walls to implement some of the changes
mooted in its latest modernising powers consultation.

HM Revenue & Customs has stated in its consultation that it can achieve
separation of civil and criminal investigations, including a separation of these
duties in the Special Compliance Office.

But the CIoT, in particular, has raised concerns that HMRC has to fully
separate criminal and civil investigations, fearing problems with a distinction
between tax avoidance and tax fraud.

Powers to investigate tax fraud must not be used to handle tax avoidance,
says the CIoT. ‘The difficulty that arises is that officers of HMRC, whose main
job is to protect revenue, may not recognise the distinction,’ the institute

‘It is insufficient to say that HMRC policy will safeguard against intrusive
investigation under the guise of a genuinely held belief that criminal activity
is involved.’

‘Experience demonstrates that, once something is categorised as “wrong”, many
people are unable to distinguish what is criminal and what is not.’

The CIoT also has concerns about information gained under civil
investigations being passed onto those involved in criminal investigations.

But how easy is it for HMRC to differentiate fraud from avoidance? CIoT
member Anne Redston says the distinction is clear. ‘If you deliberately mislead
or misrepresent, to lie, is fraud. With tax planning you have a choice of
routes, whether to make a tax bill lower or not – your intention is only to rely
on the rules and avoiders you would explain and disclose,’ she says.

But Richard Mannion, head of tax at Smith & Williamson, believes that the
distinction can be ‘cloudy’ in terms of judging whether tax was avoided

‘Experience tells you which side of the fence you’re on. In reality, HMRC is
more likely to settle [with your clients] but they always have the ultimate
sanction there.’

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