The government seems determined to introduce new opportunities to use the criminal law to tackle tax misdemeanours, through the medium of new strict liability offences. The decision to introduce new fraud offences without a requirement for intent is highly controversial.
James Quarmby argues that strict liability offences for tax evasion have no place in our legal system.
Tax evasion is already a criminal offence in the UK and we have seen a marked change in HMRC’s attitude to tax evasion and the prosecution of offenders. For instance, in 2013 there were 770 prosecutions, of which there were 540 convictions (then a high water-mark); but in 2014 this jumped to 915 prosecutions, with 760 convictions.
In the past, HMRC’s primary concern was to maximise the amount of revenue it raised from taxpayers by using its statutory investigatory powers. Since initiating criminal proceedings did little to bring in extra cash, this was seen as an option for only the most egregious cases of tax evasion.
However, in the wake of the Panama papers the government wants to be seen as acting tough and it has therefore brought forward plans to introduce new tax crimes for offshore tax evasion. It is questionable whether HMRC actually needs more criminal powers, as there are already plenty of statutory and common law criminal offences at its disposal. The most commonly used is the common law offence of ‘cheating the public revenue’, which is wide enough in scope to catch nearly every kind of tax fraud. There are more specific statutory offences relating to the fraudulent evasion of income tax and VAT.
However, the existing offences do require a fraudulent intent on the part of the defendant and this irksome requirement seems to bother the government, as it makes securing a conviction more difficult. The proposed remedy – a strict liability offence for taxpayers and a separate one for companies that fail to prevent tax evasion – is designed to make it easier for HMRC to secure convictions. It is also highly controversial.
The problem is that imposing strict liability for tax evasion means that there is a very high chance of serious injustice.
People who make innocent mistakes, or who have simply been forgetful, are in danger of being criminalised. For instance, one of the new offences is a failure to submit a tax return. This means that if you forget to submit a return or you are late (‘late’ meaning beyond the withdrawal period), then you could become a criminal. This looks disproportionate.
There is a threshold of £25,000 and the tax due must relate to offshore assets, but that is quite easy to exceed if, for instance, you are engaged in foreign trading or investment. In our globalised world, this is very common.
There is a similar offence for submitting an inaccurate return or, in other words, making a mistake.
Our tax code is now the longest – and certainly the most complex – in the world, so it’s quite easy to find yourself on the wrong side of the law. Tax matters are rarely black and white and there will be cases where you think you are engaging in entirely legitimate tax planning only to find that the ground has shifted under your feet.
Currently, such cases are investigated under civil legal procedures and underpayments of tax will be recovered, together with interest and (increasingly severe) financial penalties. This seems a reasonable outcome.
However, the government seems determined to introduce new opportunities to use the criminal law to tackle such misdemeanours, through the medium of new strict liability offences.
Strict liability offences are not new to the UK and most people will have committed one at least once in their lives. For instance, speeding is a strict liability offence, as is drink driving and certain low level regulatory offences relating to health and safety. You can understand that the police should not have to prove intent in order to convict someone of drink driving, for instance, as they would then have to deal with difficult issues about whether the accused had intended to get drunk.
Road traffic offences, health and safety rules and so on are a totally different thing from tax evasion, however. Tax evasion is far more serious as it is fraud against the Crown; and fraud, under English law, has always required a criminal intent.
This is why the decision to introduce new fraud offences without a requirement for intent is highly controversial. Yes, this will increase convictions for HMRC – no doubt pleasing the tax justice campaigners and the newspapers – but at what cost to our justice system’s well-deserved reputation for fairness?
If you think strict liability offences for tax evaders is bad news, then what about a new strict liability offence for failing to prevent other people from committing tax evasion? The new offence is based on the existing (and much hated) Bribery Act; and it means that a failure to introduce and maintain proper procedures to prevent the facilitation of tax evasion could lead to criminal prosecutions.
There are real problems with both the Bribery Act and its proposed new offspring in that it criminalises an institution not for what it has done, but for what it has failed to prevent. This goes against the normal criminal law principle that you should only be punished for acts not omissions.
The criminal law exists to punish those people who act deliberately outside the law, not the tardy, forgetful or foolish. The imposition of strict liability crimes for offshore tax evaders and for companies that ‘fail to prevent’ is a draconian development and one that will inevitably lead to grave injustice. It has no place in our legal system and the proposals should be dropped.
The government seems determined to introduce new opportunities to use the criminal law to tackle tax misdemeanours, through the medium of new strict liability offences. The decision to introduce new fraud offences without a requirement for intent is highly controversial.
James Quarmby argues that strict liability offences for tax evasion have no place in our legal system.
Tax evasion is already a criminal offence in the UK and we have seen a marked change in HMRC’s attitude to tax evasion and the prosecution of offenders. For instance, in 2013 there were 770 prosecutions, of which there were 540 convictions (then a high water-mark); but in 2014 this jumped to 915 prosecutions, with 760 convictions.
In the past, HMRC’s primary concern was to maximise the amount of revenue it raised from taxpayers by using its statutory investigatory powers. Since initiating criminal proceedings did little to bring in extra cash, this was seen as an option for only the most egregious cases of tax evasion.
However, in the wake of the Panama papers the government wants to be seen as acting tough and it has therefore brought forward plans to introduce new tax crimes for offshore tax evasion. It is questionable whether HMRC actually needs more criminal powers, as there are already plenty of statutory and common law criminal offences at its disposal. The most commonly used is the common law offence of ‘cheating the public revenue’, which is wide enough in scope to catch nearly every kind of tax fraud. There are more specific statutory offences relating to the fraudulent evasion of income tax and VAT.
However, the existing offences do require a fraudulent intent on the part of the defendant and this irksome requirement seems to bother the government, as it makes securing a conviction more difficult. The proposed remedy – a strict liability offence for taxpayers and a separate one for companies that fail to prevent tax evasion – is designed to make it easier for HMRC to secure convictions. It is also highly controversial.
The problem is that imposing strict liability for tax evasion means that there is a very high chance of serious injustice.
People who make innocent mistakes, or who have simply been forgetful, are in danger of being criminalised. For instance, one of the new offences is a failure to submit a tax return. This means that if you forget to submit a return or you are late (‘late’ meaning beyond the withdrawal period), then you could become a criminal. This looks disproportionate.
There is a threshold of £25,000 and the tax due must relate to offshore assets, but that is quite easy to exceed if, for instance, you are engaged in foreign trading or investment. In our globalised world, this is very common.
There is a similar offence for submitting an inaccurate return or, in other words, making a mistake.
Our tax code is now the longest – and certainly the most complex – in the world, so it’s quite easy to find yourself on the wrong side of the law. Tax matters are rarely black and white and there will be cases where you think you are engaging in entirely legitimate tax planning only to find that the ground has shifted under your feet.
Currently, such cases are investigated under civil legal procedures and underpayments of tax will be recovered, together with interest and (increasingly severe) financial penalties. This seems a reasonable outcome.
However, the government seems determined to introduce new opportunities to use the criminal law to tackle such misdemeanours, through the medium of new strict liability offences.
Strict liability offences are not new to the UK and most people will have committed one at least once in their lives. For instance, speeding is a strict liability offence, as is drink driving and certain low level regulatory offences relating to health and safety. You can understand that the police should not have to prove intent in order to convict someone of drink driving, for instance, as they would then have to deal with difficult issues about whether the accused had intended to get drunk.
Road traffic offences, health and safety rules and so on are a totally different thing from tax evasion, however. Tax evasion is far more serious as it is fraud against the Crown; and fraud, under English law, has always required a criminal intent.
This is why the decision to introduce new fraud offences without a requirement for intent is highly controversial. Yes, this will increase convictions for HMRC – no doubt pleasing the tax justice campaigners and the newspapers – but at what cost to our justice system’s well-deserved reputation for fairness?
If you think strict liability offences for tax evaders is bad news, then what about a new strict liability offence for failing to prevent other people from committing tax evasion? The new offence is based on the existing (and much hated) Bribery Act; and it means that a failure to introduce and maintain proper procedures to prevent the facilitation of tax evasion could lead to criminal prosecutions.
There are real problems with both the Bribery Act and its proposed new offspring in that it criminalises an institution not for what it has done, but for what it has failed to prevent. This goes against the normal criminal law principle that you should only be punished for acts not omissions.
The criminal law exists to punish those people who act deliberately outside the law, not the tardy, forgetful or foolish. The imposition of strict liability crimes for offshore tax evaders and for companies that ‘fail to prevent’ is a draconian development and one that will inevitably lead to grave injustice. It has no place in our legal system and the proposals should be dropped.
