A significant decline in prosecutions for those who aid clients in evading tax in the UK has plummeted by at least 75% over the past five years, according to recent figures.
Prosecution of People Who Help Clients Evade Tax in the UK Falls by 75% in Five Years
The Decline of Prosecutions for Enablers of Tax Evasion
In recent years, there has been a significant decline in prosecutions for those who aid clients in evading tax in the UK. According to figures obtained by the Bureau of Investigative Journalism, the number of such prosecutions has plummeted by at least 75% over the past five years.
Tax evasion is the intentional avoidance of paying taxes owed to a government.
It can take many forms, including underreporting income, inflating deductions, and claiming false exemptions.
According to the IRS, tax evasion costs the US economy billions of dollars annually.
In 2020, the average penalty for tax evasion was $53,000.
The consequences of tax evasion can be severe, including fines, imprisonment, and damage to one's reputation.
The Targeting of Enablers
The targeting of enablers – individuals who knowingly help a client evade tax – is a central part of HM Revenue and Customs’s (HMRC) strategy to claw back cash owed to the Treasury. This approach aims to tackle tax avoidance and evasion, which are estimated to cost the public coffers billions of pounds.
The HMRC, or Her Majesty's Revenue and Customs, is a non-ministerial department of the UK government responsible for collecting taxes, customs duties, and enforcing tax laws.
Established in 2005, HMRC replaced the Inland Revenue and Customs and Excise departments.
The agency operates under the UK's tax authority, with its main goal being to collect revenue on behalf of the government.
HMRC employs over 60,000 staff members across the country and handles billions of pounds in tax revenues annually.
The High-Water Mark
The figure of 16 enablers prosecuted in 2018-2019 was the high-water mark of HMRC’s criminal enforcement action, which then declined sharply and has remained low. This downturn is part of a larger recent decline across HMRC’s enforcement teams, which have struggled with the joint shocks of Brexit and the Covid pandemic.
The Current State
Last year, The Observer revealed that prosecutions after HMRC investigations had fallen by more than two-thirds in five years. Not a single company had been prosecuted for enabling tax evasion since landmark powers were introduced in 2017.
Labour’s Pressure on HMRC
The current Labour government has put pressure on HMRC to crack down on tax dodging to help support its substantial spending commitments. The tax gap – a term used for the difference between the tax revenues HMRC receives and what it calculates it should receive – stood at almost £40bn in 2022-2023, the most recent year for which figures are available.
Experts’ Views
Experts have expressed concerns about the decline in prosecutions for enablers of tax evasion. ‘The thriving industry of people enabling tax evasion… will continue until there are visible prosecutions.’ Dan Neidle, a former head of tax at law firm Clifford Chance and founder of the independent thinktank Tax Policy Associates, stated that he added that ‘a handful of prosecutions won’t change anything,’ emphasizing the need for public confidence in the tax system.
HMRC’s Response
A spokesperson for HMRC said: ‘The numbers provided to parliament in 2023 on the prosecution of tax fraud enablers were not accurate and we apologise for that. We issued these figures in good faith and understood them to be correct at the time but have since identified errors, corrected them and lessons have been learned.’ The agency emphasized its commitment to tackling enablers of tax fraud, stating that it currently has more than 150 enablers under criminal investigation.
Freedom of Information Requests
Responses to freedom of information requests were subject to appeal. Officials said that the decision to withhold the exact figures on prosecutions and convictions for 2023-2024 was a ‘wild misrepresentation of confidentiality.’
