HMRC putting increasing pressure on accountants and lawyers

HMRC putting increasing pressure on accountants and lawyers

It has been revealed by RPC that HMRC has issued another 1,400 demands to accountancy and law firms in their attempt to crack down on tax evasion

It might be the bogeyman of the world of taxation, but HMRC has the responsibility of making sure that all UK-based individuals and businesses are abiding by the laws of taxation.

“Production orders are issued by HMRC’s Criminal Investigation Directorate to force third parties, such as professional services firms, to provide it with potentially incriminating information about their clients’ affairs.”

City-headquartered law firm, RPC has revealed that HMRC has issued another 1,400 demands to accountancy, law firms, and other professional services firms last year in relation to clients suspected of tax evasion—this is a far more aggressive way of obtaining results rather than going through a tax tribunal.

“HMRC’s policy of commencing criminal investigations into taxpayers who have participated in tax planning arrangements is concerning,” said Adam Craggs, partner at RPC.

HMRC has essentially increased their focus in launching criminal investigations against those who have participated in tax planning arrangements that it suspects have been designed to reduce tax liability.

“When HMRC apply to the court for a production order, it is important that the intended recipient obtains expert legal advice as soon as possible and makes appropriate representations to the court. This can lead to the court rejecting HMRC’s application.”

The law firm added: “Production orders are issued by HMRC’s Criminal Investigation Directorate to force third parties, such as professional services firms, to provide it with potentially incriminating information about their clients’ affairs.”

Common ways in which an individual might go about reducing their tax liability would be through Employee Benefit Trusts (EBTs) or film finance investments.

“If they do not comply with a production order, this could lead to criminal sanctions, but, if they provide too much information, they could face a legal claim from their client.”

Craggs highlighted the fact that HMRC can obtain evidence more easily through a production order, thus leading to a criminal prosecution. Whilst previously done through tax tribunals, this is proving to be a more immediately and aggressive form of investigation—HMRC are procuring results.

He explained: “When HMRC apply to the court for a production order, it is important that the intended recipient obtains expert legal advice as soon as possible and makes appropriate representations to the court. This can lead to the court rejecting HMRC’s application.”

Whilst this is proving to be effective for HMRC, it is causing all sorts of complications for professional services firms who end up being investigated, particularly when considering the sharing of data and GDPR regulations.

“The mere commencement of a criminal investigation can create serious practical difficulties for taxpayers and their businesses. Such as, for example, lenders calling in loans. Such commercial damage can be irreparable for an SME.”

Firms are struggling to find the right balance between coordinating their efforts with HMRC when handing over the requested documents and maintaining client confidentiality.

“If they do not comply with a production order, this could lead to criminal sanctions, but, if they provide too much information, they could face a legal claim from their client.”

“It is of little comfort to a taxpayer to be informed that, after several years of investigation, often at great personal and emotional cost for the taxpayer concerned, HMRC have decided not to pursue criminal proceedings.”

It is proving to be very much a case of being between a rock and a hard place for firms who have caught the attention of HMRC. It is vital that a solution is found as to what can be done to help enforce a clearer set of regulations that will both aid HMRC and protect client data.

“The mere commencement of a criminal investigation can create serious practical difficulties for taxpayers and their businesses. Such as, for example, lenders calling in loans,” Craggs pointed out. “Such commercial damage can be irreparable for an SME.”

Craggs concluded: “In addition, HMRC criminal investigations normally take several years to compete and, although they frequently do not lead to a subsequent criminal prosecution, taxpayers are subjected to a great deal of stress and uncertainty whilst they await the conclusion of the criminal investigation.

“It is of little comfort to a taxpayer to be informed that, after several years of investigation, often at great personal and emotional cost for the taxpayer concerned, HMRC has decided not to pursue criminal proceedings.”

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