The recently published High Court judgment in Calor Gas Ltd v Chorley Bottle Gas Ltd and others  EWHC 2426 (QB) involved the request for a search order under section 7 of the Civil Procedure Act 1997. Where granted, these orders require one party to legal proceedings to admit representatives of the other party (i.e., the party applying for the search order) to specified business or residential premises in order to carry out a search for the purpose of preserving any relevant evidence or property. The High Court granted the order in this particular case, taking into account the COVID-19 pandemic and imposing special conditions for the search to take place.
Although the case did not concern tax issues, it does serve as a reminder that HMRC searches can continue regardless of any lockdown imposed or social distancing requirements in place, and shows how the courts are likely to react when confronted with search warrant requests by HMRC.
In this case, the retailer Chorley Bottle Gas Ltd was contractually obliged to collect empty cylinders of natural gas from customers and return them to the supplier, Calor Gas, but the company's owners were accused of instead carrying out their own refill operation. The search order requested was intended to allow a team to search business and residential premises for gas cylinders belonging to Calor Gas (or whose ownership was disputed).
In the judgment (made in July 2020 but only recently published), the Judge welcomed the fact that Calor Gas' legal team had already taken COVID-19 into account in the draft search order, which sought narrower terms than you would normally expect. For example, the draft order sought only for the back garden and exterior sheds of the private residence to be entered and searched, and there was no request to search for or remove documents or computer equipment. The draft search order was therefore deliberately restricted in scope in the face of social distancing requirements and targeted specifically at identifying and removing Calor's gas cylinders.
However, the Judge went further before agreeing to grant the order, setting out a series of measures or "COVID undertakings" designed to protect the affected individuals or search parties, including that:
- all members of the search party should have a temperature test before entering the premises (with anyone having a temperature above 38 degrees barred from doing so);
- the search parties must first check that no one on the premises is treated as vulnerable to or otherwise shielding from COVID-19;
- appropriate social distancing measures are taken, maintaining a distance of at least two metres where possible;
- hand sanitiser, gloves and masks are worn by the search parties on entering the premises, with spare gloves and masks to be brought and offered to any other persons present.
HMRC search warrants
As part of their criminal investigatory powers (generally set out under the Police and Criminal Evidence Act 1984), HMRC can carry out searches of home and business premises under a search warrant (often referred to as "dawn raids" because they generally take place in the early hours of the morning).
Similar to searches orders under the Civil Procedure Act 1997, HMRC search warrants must be issued by a magistrate or judge. The High Court judgment in Calor Gas therefore provides a useful indication of what factors the courts will consider when approving a search warrant and what extra precautions are likely to be needed.
More importantly, the decision clearly shows that physical searches by enforcement authorities like HMRC are still possible even with social distancing requirements in place (although navigating the rules may become somewhat more difficult if HMRC are targeting physical documents or computer equipment, or need to enter a personal residence). This is a useful reminder for all taxpayers who may be concerned about a possible search that they should remain vigilant and ensure they are adequately protected, particularly at a time when HMRC are ramping up enforcement action against COVID-19 related fraud (see here).
What to do if you are faced with a search
As well as being alarming and intimidating for any members of staff or family present, HMRC searches can be potentially time-consuming and complicated affairs. In the event of a search, it is critical to examine the terms of the search warrant (including the scope of the premises and any COVID-19 restrictions) and to seek appropriate legal advice as soon as possible (and those faced with a search should politely request that HMRC do not begin the search until their legal team arrives). However, the search warrant will generally restrict the amount of time for the search to take place and so HMRC will likely be reluctant to delay. HMRC officers are not obliged to wait for your legal team and it is critical that they are not physically obstructed in any way.
During the search, it is important to ensure that HMRC officers are accompanied where possible whilst on premises and a record kept of all documents examined, copied or removed. HMRC officers are not permitted to examine or seize any material subject to legal professional privilege and your legal team will be able to assist with identifying any such material.
In the event of a dawn raid or a letter from HMRC which suggests you have made any errors that are being investigated, please contact us as soon as possible.
If you would like further information on any of the above, please do contact a member of our specialist Tax Disputes and Investigations 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.