COVID-19 and ongoing criminal investigations by HMRC

The current crisis has forced the criminal justice system in England and Wales to a near standstill. This week, the Lord Chief Justice announced that no new trials would now start and that any jury trials or other physical hearings should be paused. Other Crown Court hearings that can lawfully take place remotely will do so but only if suitable arrangements can be made to ensure safe distancing. The same applies to Magistrates' courts which will be focused on urgent matters (for example, cases where a person's liberty is immediately at stake, such as bail applications).

A significant backlog of criminal cases is therefore inevitable and presenting charges before a Magistrates' court (as the first court to which all criminal cases are referred) for cases of alleged tax fraud or evasion is unlikely to be an immediate priority. Indeed, the Crown Prosecution Service (CPS) has confirmed that it will be supporting only urgent matters in the Magistrates' courts. Even assembling the physical evidence and personnel necessary to make a charging decision for complex matters such as tax is likely to be a challenge for the CPS at present.

Moreover, although the CPS is the body responsible for deciding whether criminal charges should be made against a taxpayer, it is HMRC that are responsible for investigating suspected tax fraud or evasion and then making a charging recommendation to the CPS. HMRC are currently occupied with implementing a number of unprecedented measures announced by the UK Government to help businesses and individuals remain solvent through the current crisis. With limited resources, HMRC have been forced to commit a further 2,000 employees to help man a dedicated coronavirus helpline and, like the rest of the country, are having to deal with a landscape changing on a daily basis. The fact that HMRC's focus is elsewhere is undeniable: less than a week after confirming in the Budget that the new IR35 rules would go ahead as planned in April this year, for example, HMRC announced that the new rules would actually be deferred until April 2021 as part of the UK Government's coronavirus strategy.

Although no formal guidance has been published to date, it would seems inevitable, therefore, that the progress of any criminal investigations currently underway will be at least slowed, if not paused altogether. We have heard some reports, however, suggesting that, in contrast, investigations are still ongoing and could even progress more expediently.

What should taxpayers be doing?

By the time a charging decision is made, time is always very much against a defendant. Therefore, whilst it is difficult to predict whether investigations will halt or progress, any individuals or businesses currently under criminal investigation by HMRC would be well-advised to use any time wisely to prepare and hone their defence cases with their legal advisors (who should be able to operate remotely very effectively). This will generally involve gathering as much additional evidence as possible and, depending on the facts of the case, might include:

• undertaking complex tasks that are likely to be time-consuming (for example, tax technical analysis, reconstruction of tax returns and forensic accountancy exercises);
  
  
• approaching potential witnesses in order to gather supporting evidence; and
  
  
• approaching other potential defendants via their legal representatives to understand whether those co-defendants are likely to be supportive or not.

These are all tasks that are usually time sensitive at some stage in criminal defence proceedings. With some potential delays on the prosecution side of any investigation, it may be worth spending some time now on the defence aspects. This will be a carefully balanced question and the extent to which any work should be done before charges are actually presented will, of course, depend on the specific circumstances of the case.

Window of opportunity?

Taxpayers under investigation should also consider whether it might be worth approaching HMRC with a settlement proposal. Although this is not something to which HMRC would generally be receptive once a criminal investigation is underway, a settlement is always something that should be considered by defence teams and might represent an attractive option for HMRC in the current crisis (i.e., an immediate financial benefit might appear more advantageous than the burden of conducting a complex criminal investigation with stretched resources). Clearly this will depend on the nature of the offences and the specific circumstances of the case (HMRC would not consider a civil settlement for the most egregious cases of tax fraud or evasion).

In the case of individual taxpayers, HMRC can use Code of Practice 9 / the contractual disclosure facility where they suspect that a fraud has occurred but believe it to be more beneficial to resolve the matter as a civil fraud rather than prosecute criminally (usually where their evidence is not considered strong enough to secure a prosecution or where a person voluntarily discloses their offending). This may not be an option for those already under investigation as it is designed for cases where a criminal investigation has not already started but it does demonstrate the way in which HMRC can sometimes be pragmatic when deciding whether to pursue a criminal prosecution. Equally, corporate bodies under criminal investigation could consider a deferred prosecution agreement in order to settle any offences. It is worth noting that, under both these settlement options (contractual disclosure facilities and deferred prosecution agreements), a taxpayer would be expected to make a full voluntary disclosure of all offending and settle all amounts due.

Whether HMRC will show any increased flexibility during the current crisis remains to be seen. Any window of opportunity will, however, certainly be limited - the recent Budget committed an undisclosed amount of funding for HMRC to collect £4.4 billion of additional tax revenue from tax avoidance and evasion by 2024/25.

Any taxpayers currently under or facing criminal investigation should consult their legal advisors on appropriate next steps. If you would like further information on any of the above or how Bird & Bird could assist with an investigation, please do contact a member of our specialist Tax Disputes and Investigation team. Our team is dedicated full time to the resolution of disputes with tax authorities and offers unique access to tax specialists in addition to strength in defending complex criminal prosecutions brought by HMRC.