TaxPersonal TaxRevenue tax fraud

Revenue tax fraud

Last month I wanted to keep Revenue powers in relation to employment within limits. This month it's the heavy stuff - serious fraud.

The Revenue wants a new power to get information on serious tax fraud from innocent third parties. At present they have to resort to raids on business premises. These are always a disturbance and an embarrassment.

The Revenue wants to replace as many raids as possible with orders from judges to produce documents within seven days.

The idea of replacing raids with something more civilised is a good one.

I want to see a new procedure for obtaining documents. But several details of the Revenue’s proposals worry me.

For a start, the Revenue wants access to a wider range of documents than under the raid procedure. In a raid, officials can only take documents that may be needed as evidence in a prosecution. The new power allows the Revenue to demand documents that are evidence or may assist in the detection or investigation of the fraud.

The trouble is, practically anything associated with a suspect could assist in detection or investigation. For instance, a credit card voucher would show that he or she had been in a particular shop at a particular time. The Revenue could then make enquiries at the bank next door about large cash transactions at about the same time. Private family documents could also help, by showing who was related to the suspect and might have been persuaded to help in the alleged fraud.

But surely, at least legal documents are safe? Actually, no. If a document is in the possession of a lawyer and was produced by the lawyer or client to give or obtain legal advice, then legal privilege safeguards it. But if the same document is with the client, or the bank or accountant, there is no safeguard.

This is not new: we found in a special commissioners’ case in 1999 that privilege is limited in tax law. But if the Revenue is going to have easy access to a much wider range of documents than before, it would have been a nice gesture to redress the balance by restoring a decent level of privilege.

The Revenue will have slightly easier access than under the raids rules because of the level of judicial safeguard. A raid needs a warrant from a circuit judge. An order to produce documents will be available from the next level down, a district judge (a stipendiary magistrate in Scotland or an Irish resident magistrate). There is nothing wrong with district judges: they are lawyers and they know their jobs. But why drop a level?

The Revenue says it is acceptable to go to district judges because orders to produce documents will be far less intrusive than raids. But they will still put innocent accountants and banks to a lot of trouble, and will involve them in gross breaches of client confidentiality.

I can only think of one really good reason for stepping down to district judges. The Revenue may intend to get far more orders than they currently get raid warrants. If this is so they must say so before parliament starts to consider the Finance Bill.

As the name suggests, a district judge operates in a district. But an order will be valid throughout England and Wales (or Scotland or Northern Ireland). This is sensible: an order against a national firm of accountants may need to be used in several of the firm’s offices. But it does carry a danger. The Revenue may fall into the habit of getting all their orders from the nearest judge to headquarters. They could get too close to that judge and develop procedures to speed up the process. The result could be to undermine the level of judicial safeguard. This would not happen deliberately, but it could still happen bit by bit. How easy is it for any of us to take a detached view of people we see every day?

Finally, the accountant or bank on the receiving end of an order may wish to make representations before the order is made. Producing the documents within seven days could be difficult. There will be no automatic right to make representations at that point. But we all have the right to make our views known now: the technical note is on www.inlandrevenue.gov.uk/consult/tnfraud.htm – Richard Baron is deputy head of the policy unit at the Institute of Directors.

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