New Civil Investigation of Fraud Procedures

Issue

Both HM Customs and Excise and the Inland Revenue had procedures for tackling serious acts of evasion using civil powers. The former Inland Revenue’s Hansard procedures and the former Customs & Excise Civil Evasion procedures (excluding Customs Duties Civil Evasion Penalties applied to traveller at ports and airport controls) are being replaced with a common Civil Investigations of Fraud procedure for HMRC.

Date

The new procedures will come into effect on 1st September 2005 for new cases with a new Code of Practice 9 (2005). Existing cases will be worked to a conclusion under the old Hansard procedures (Code of Practice 9 ), New Approach or Notice 730. Initially the procedure will only be used by officers serving in HMRC Special Civil Investigations.

Why has HMRC introduced a new civil fraud procedure?

It is being introduced to ensure that HMRC has in place a single procedure for dealing with cases of serious fraud which is consistent across all indirect and direct tax regimes.

What are the main changes?

The main procedural change will impact on the former Inland Revenue Hansard policy. Under the new procedure, it will not be necessary to conduct interviews under caution or to tape record those meetings.

What does this mean for the taxpayer?

Where HMRC decide to investigate using the Civil Investigation of fraud procedure they will not seek a prosecution for the tax fraud which is the subject of the investigation. The taxpayer will be given an opportunity to make a full and complete disclosure of all irregularities in their tax affairs. However, where materially false statements are made or false documents are provided with intent to deceive, in the course of a civil investigation, HMRC may conduct a criminal investigation with a view to prosecution of that conduct.

Does this mean HMRC no longer conduct criminal investigations for tax fraud?

No. HMRC reserves complete discretion to pursue a criminal investigation with a view to prosecution where they consider it necessary and appropriate. Where a criminal investigation is not considered necessary or appropriate HMRC may decide to investigate using the Civil Investigation of Fraud procedure.

Will there be single meeting to discuss indirect and direct tax matters?

Once the new procedure is introduced, where suspicions of irregularities cut across direct and indirect taxes, one single meeting can be held to cover all regimes. However, the meeting will be structured so that each tax is covered separately using powers appropriate to that tax; and so that it is clear at all times to the taxpayer which tax is being dealt with and what information is being requested for which tax.

Does this mean that any disclosure reports prepared by professional advisers will now cover direct and indirect tax irregularities in the same document?

Yes, there are cost savings and other benefits to the taxpayer in submitting a single disclosure report.

Are the procedures compliant with the Human Rights Act?

Yes, we believe they are. The civil fraud processes currently operating in both departments have received considerable scrutiny in terms of Human Rights and, in particular, Article 6-Right to a Fair Trial. The views of the courts in the lead Human Rights Act (HRA) rulings of Han & Yau and Gill & Gill and advice from leading counsel have provided the background to defining the outline for a consistent approach, which incorporates important Human Rights safeguards within the procedures.

The recent case of Khan v Commissioners of Customs and Excise (2005) has endorsed these principles, which will be inherent in the new procedure.