Winter 2002 Top Tip

When making a disclosure of taxation irregularities, be wary as the Inland Revenue may prosecute even if that disclosure is entirely voluntary.

Following recommendations in the Lord Grabiner report on the informal economy, the Inland Revenue has taken steps to encourage disclosure of tax irregularities. In a two pronged initiative, it aims to incentivise and to threaten. The former is spearheaded by a new fraud helpline . Advice and guidance is given to those who wish to voluntarily disclose that they have not fully returned income. An outline of how the Inland Revenue will deal with the matter is provided, so long as full facts have been given, before identity has to be revealed. In the less serious cases lenient treatment is often promised.

The threat comes in the form of a new criminal offence of tax cheat , which was introduced on 1st January 2001. Previously all prosecutions were via the High Court, now they may stay there, but there is a Magistrates Court option also. The indications are that less serious matters will now be prosecuted. Indeed, Dawn Primarolo has said that following introduction of the new offence, the number of prosecutions will likely increase to the ‘low hundreds’. This more than doubles the number of prosecutions carried out by the Inland Revenue during previous years.

Bearing in mind the above, it is fair to say that the chances of prosecution are greater now where the Revenue discovers that tax fraud has occurred. Those wishing to avoid this course of action may believe that they will not be prosecuted if they disclose voluntarily. Unfortunately, this is not necessarily the case. The Inland Revenue does prosecute certain cases, even where disclosure is voluntary, particularly where what has happened is considered to be heinous. This might include instances where:

i) An opportunity has been given to disclose, but was not taken;

ii) An accountant or solicitor is involved;

iii) There is conspiracy by more than one person to defraud;

iv) There has been a previous offence;

v) There is evidence on which to prosecute, such as fictitious or doctored invoices;

v) A significant source of income has not been disclosed, or only partly disclosed.

In the present taxation environment, the chances of detection continue to increase, and voluntary disclosure has to be the right way forward. Where serious fraud has occurred the primary aim must be to avoid prosecution, and then to concentrate upon minimising the level of monetary settlement. In larger/more serious cases, this will be achieved by obtaining the protection of ‘Hansard’, i.e. persuading the Inland Revenue to deal with the matter under their Code of Practice 9. This can often be a delicate process, with the Inland Revenue wanting the facts before ‘Hansard’ is given, and those seeking to disclose wanting a decision before full details are given. For those unfamiliar with the procedures involved, advice from a specialist is a must.

For expert advice, free of charge, on making disclosures to the Inland Revenue, or other investigation issues, click here.

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