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HMRC tackles professional services tax evasion

Professional services tax evasion is under the HM Revenue & Customs spotlight. Why now? Will the tactic work, or put more businesses under unnecessary strain?

HMRC have recently ramped up formal investigations into tax evasion with a prime target now being professional services firms. This has led to an increase in HMRC production orders demanding access to client data and driving up the number of firms facing criminal tax evasion cases.

Some firms claim the increase in orders is putting undue pressure on too many businesses who are just trying to legitimately reduce their tax bills. However, an HMRC spokesman rejects this suggestion.

Production orders and tax evasion cases rising

Production orders are formal requests for third parties to provide potentially incriminating information about the tax arrangements of their clients suspected of tax evasion. Effectively part of a criminal investigation.

The previous two UK tax years have seen a record number of Production Orders issued by the Revenue’s Criminal Investigation Directorate. Almost 1500 were issued to third-party professional services, accountancy and law firms in the tax year 2017-18 alone.

This surge in criminal investigations signals a clear HMRC policy change, according to City of London law firm RPC. As previously HMRC preferred to challenge tax arrangements such as these via tax tribunals.

Now, RPC believes, HMRC are actively targeting companies who seek to reduce their tax liabilities using certain techniques. Such as film finance investments or even employee benefits trusts (EBTs). That using production orders they are hoping to open criminal prosecutions on the back of information gained from the third party firms.

RPC also believe this policy change is damaging to businesses and owners alike. If so why are HMRC now switching to this line of action?

Professional services tax evasion?

It’s long been suspected that wealthy clients use law firms, accountants and consultants as they attempt to get around national tax schemes. Yet, very little appears to have done to deal with the practice.

For example, the Panama papers were an international tax avoidance scandal but did little to change legislation. Quite the reverse in fact. as ever more stories break about international businesses finding new legal loopholes or the billions apparently being held in offshore tax havens.

As a result, there has been an increase in businesses seeking advice about how they can use professional services tax evasion schemes. Fueling HMRC suspicions that some firms are turning this into an industry.

That the number of production orders has remained high for two years, and criminal cases are increasing, suggests that HMRC are confident that this is a genuine problem.

HMRC hunting tax avoidance schemes, or hurting business?

Of course, many professional services firms are unhappy about the new HMRC approach. One argument against this policy is that even the act of starting criminal investigations, regardless of the outcome, can cause serious issues for both the owners and the business itself.

RPC partner Adam Craggs states “HMRC criminal investigations normally take several years to complete… although they frequently do not lead to a subsequent criminal prosecution, taxpayers are subjected to a great deal of stress and uncertainty whilst they await the conclusion of the criminal investigation.”

“Such commercial damage can be irreparable for a small to medium-sized enterprise,” he said. Suggesting many viable companies may find themselves in need of business rescue services.

In response, an HMRC spokesperson disagreed with the suggestion that honest businesses will be put at risk. Stating that “Tax planning isn’t a crime and HMRC only criminally investigate arrangements presented as avoidance or tax planning if it suspected they were actually fraudulent”. That HMRC cannot turn a blind eye to fully fledged fraud.

Don’t risk your business – avoid tax evasion

Tax evasion schemes can sound incredibly tempting, but is it really worth the risk?

HMRC are now choosing to launch criminal proceedings into any suspected tax avoidance scheme.

And any criminal investigation into your business could have catastrophic consequences. For you personally, as a business owner, and for the health of your business.

Don’t put your business at risk.

  • Ensure you always get the best advice from financial advisory services.
  • It’s essential for any business to squeeze the maximum return, but vital to ensure all actions are taken within legal boundaries.

If you or your business is facing financial problems, then please do not put it off. Seeking advice early on really could be the difference between a business surviving and dying.

We offer a free initial business rescue consultation. You don’t know what we can do until you ask.

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