When Sports Goes Criminal by Adam Craggs
There has been much talk in the media and amongst politicians in recent months about tax avoidance and tax evasion. The vital distinction between the two is that tax avoidance is the lawful arrangement of one's affairs so as to reduce or avoid a liability to tax which might otherwise arise, whereas tax evasion is unlawful. The difference between the two has famously been described as the thickness of a prison wall!
A number of well known public figures have attracted the attention of HMRC, including Ken Dodd, Lester Piggott and of course Harry Redknapp, who is currently facing charges of cheating the public revenue. The recent announcement by the Chief Secretary to the Treasury that £900 million will be made available to HMRC to reduce non-compliance in the tax system and fund an intended five-fold increase in criminal prosecutions, means that more taxpayers and their advisers are likely to find themselves at the sharp end of an investigation for tax evasion.
Who investigates and prosecutes tax fraud?
HMRC is responsible for investigating suspected crime involving all of the taxes and other regimes for which it is responsible. It does not, however, decide whether a criminal prosecution is to be commenced. The decision whether to bring a criminal prosecution is made by an independent prosecuting authority. In England and Wales this was, until recently, the Revenue and Customs Prosecutions Office (RCPO). However, in January 2010, the RCPO merged with the Crown Prosecution Service (CPS) and tax prosecutions are now carried out by the Central Fraud Group of the CPS.
The main Revenue offences
There is a wide array of offences available to the CPS when it is considering charging a suspected tax evader. These include:
Fraud - (Fraud Act 2006, section 1)
False accounting - (Theft Act 1968, section 17)
Fraudulent evasion of VAT - (Value Added Tax Act 1994, section 72(1))
Fraudulent evasion of income tax - (Finance Act 2000, section 144)
The above carry substantial prison sentences e.g. under The Fraud Act 2006, an offender may face a maximum custodial sentence of 10 years.
However, when dealing with serious tax evasion, the CPS will often rely upon the common law offence of cheating the public revenue, which is triable on indictment only – meaning it must be tried in the Crown Court before a jury. The maximum penalty for cheating the public revenue is life imprisonment!
How a tax prosecution may start
Typically, a tax prosecution will begin with an unannounced search of premises and seizure of evidence (more commonly referred to as a 'dawn raid' as it will usually start very early in the morning). Using powers provided under the Police and Criminal Evidence Act 1984 (PACE) HMRC may:
Enter and search premises (section 8 and Schedule 1, PACE).
Require production of documents (section 8 and Schedule 1, PACE).
Seize items such as computers (sections 8 and 19, PACE and also section 50 and Schedule 1, Criminal Justice and Police Act 2001).
Arrest persons (sections 17 and 24(2), PACE).
What might happen next
Often there will be a lengthy period after the raid during which time HMRC will examine the documentation and other materials which they have removed. Many issues will arise during this period, one of the most pressing of which will be giving the affected person access to the material which has been seized – sometimes HMRC investigators will be reluctant to allow this. Having examined the seized material HMRC will then decide whether the matter should be passed to the CPS with a view to criminal proceedings being brought against the suspected offender. If HMRC are concerned that a suspected offender may leave the UK, perhaps because he is normally resident or domiciled abroad, he will be arrested and appropriate bail conditions set.
All defendants aged 18 or over who are charged with a criminal offence will make their first appearance before the Magistrates Court. In most cases of serious fraud relating to tax the charge will be heard in the Crown Court, and the case will be referred to the Crown Court by the Magistrates Court.
Prior to trial the CPS is required to serve on the defendant all the evidence it will produce to prove the defendant's guilt. The defendant's legal team must then serve a statement, usually referred to as a Defence Case Statement, setting out the nature of the defence and the matters of fact on which the defendant takes issue with the prosecution.
In cases of serious fraud the court may also hold preliminary hearings to identify important issues for the jury and generally to help the Judge's management of the trial.
At trial the jury will be sworn in. Prosecuting Counsel will give an opening speech and will then call the prosecution witnesses who will give evidence and then be cross-examined by the defendant's Counsel. If necessary, they will be re-examined by prosecuting Counsel. If there are any disputes as to points of law or arguments as to the admissibility of evidence a separate trial within a trial (known as a 'voir dire') will take place in the absence of the jury. The Judge will make a decision once he has heard from Counsel and any relevant witnesses.
At the end of the prosecution case, defence Counsel will present the defendant's case. If he is calling witnesses he will make an opening speech to the jury before calling witnesses to give evidence on behalf of the defence. The defence witnesses will then be cross-examined by prosecuting Counsel and if necessary re-examined by defence Counsel.
At the conclusion of the defence case, both prosecuting and defence Counsel will deliver a closing speech to the jury and the Judge will then sum up the issues of fact and law for the jury. Finally, the jury retire to consider their verdict. They must decide their verdict unanimously although the Judge will accept a majority verdict of 11:1 or 10:2 if unanimity is not possible after a period of time (section 17, Juries Act 1974).
The recent arrest of two British citizens on suspicion of using Swiss bank accounts at HSBC bank to evade tax is indicative of HMRC's increasing willingness to pursue criminal prosecution in cases of suspected serious tax fraud. HMRC appear to be pursuing a 'carrot and stick' approach to tax compliance. The carrot has been HMRC's willingness to offer 'tax amnesties', such as the Offshore Disclosure Facility, the New Disclosure Opportunity and the Liechtenstein Disclosure Facility. The stick, for those who fail to take advantage of these opportunities and who continue to unlawfully shield assets offshore, is an increased risk of criminal prosecution. The future for tax practitioners and their sporting clients is going to be very interesting as this strategy unfolds.
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