Those accused of serious fraud will either face criminal proceedings and/or civil proceedings. The standard of proof is higher in criminal proceedings, but a conviction could result in imprisonment or the seizure of assets.
If you have been accused of fraud or another financial crime, please contact us at Ashmans Solicitors. Our experienced fraud and financial crime solicitors can represent you throughout proceedings. We are available to take your call 24 hours a day, 7 days a week.
What’s the difference between civil and criminal proceedings?
Where fraud is suspected, HMRC has the discretion to choose to pursue civil proceedings, criminal proceedings, or both simultaneously.
Civil proceedings begin with a COP9 investigation, named after HMRC’s Code of Practice 9. HMRC sends a letter stating that a civil investigation of fraud is underway. You are asked to co-operate, which involves going through the Contractual Disclosure Facility (CDF) process. HMRC will ask you to divulge all the information relating to the alleged fraud and participate fully in their investigation. If you refuse, then the investigation is conducted without your involvement.
Because it is a civil case, HMRC must establish that you are guilty of fraud according to the civil burden of proof. The standard of proof is the balance of probabilities. In other words, HMRC must prove that it is more likely than not that you are guilty of fraud. If this legal test is met, HMRC can impose a financial penalty. This can be up to 200% of the tax owing plus interest. The outstanding debt can also be recovered.
Criminal proceedings begin with a criminal investigation, which you may remain ignorant of for many months. Often, the first you become aware of the investigation is a dawn raid, an arrest warrant or a request for an interview under caution. We urge you to remember that you are entitled to legal representation at the police station, even if you have not been arrested. This is free under the Legal Aid scheme. Our solicitors provide free police station representation and are available to take your call 24 hours a day, 7 days a week.
HMRC will pass their findings to the Crown Prosecution Service (CPS), which will decide whether or not to pursue a criminal prosecution. The burden of proof of in criminal cases is higher than that in civil cases. In criminal cases, the prosecution must prove your guilt beyond reasonable doubt. While this is harder to establish, the severity of the consequences is greater. A criminal conviction for fraud can result in a lengthy prison sentence, a fine and the confiscation of assets.
Civil and criminal proceedings
Sometimes, a defendant faces both criminal and civil proceedings for fraud. If so, it is common practice for the civil court to stay proceedings until the criminal cases has concluded. This is to ensure that the criminal case is not prejudiced in any way.
HMRC’s criminal investigation policy
HMRC prefers to deal with fraud using civil fraud investigation proceedings. It is more cost-effective and there is a better chance of getting a result, considering the lower standard of proof. Criminal investigations are reserved “for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate”.
HMRC has gone so far as to provide a list of the kinds of circumstances in which it will consider starting a criminal investigation, rather than civil one. This is not an exhaustive list but includes:
- In cases of organised criminal gangs attacking the tax system or systematic frauds where losses represent a serious threat to the tax base, including conspiracy
- Where an individual holds a position of trust or responsibility, such as solicitor, accountant or tax advisor
- Where materially false statements are made or materially false documents are provided in the course of a civil investigation
- Where, pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme
- Where deliberate concealment, deception, conspiracy or corruption is suspected
- In cases involving the use of false or forged documents
- In cases involving importation or exportation breaching prohibitions and restrictions
- In cases involving money laundering with particular focus on advisors, accountants, solicitors and others acting in a ‘professional’ capacity who provide the means to put tainted money out of reach of law enforcement
- Where the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action
- In cases involving theft, or the misuse or unlawful destruction of HMRC documents
- Where there is evidence of assault on, threats to, or the impersonation of HMRC officials
- Where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC
What’s better: civil or criminal proceedings?
Most people prefer to avoid criminal proceedings, given the threat of a criminal conviction and the consequences that come with it – namely a potential prison sentence and confiscation proceedings.
However, there was one unusual case in which the defendant was facing civil proceedings, but appealed against the decision, requesting instead that he face criminal proceedings. The facts of the case are that Mr Linsday Hackett was accused of deliberate inaccuracies on his company’s VAT returns. He was the sole director of the company. HMRC issued him with a personal liability notice to the sum of £12,833,984.49.
Mr Hackett argued that he should have been prosecuted in a criminal court because the allegations amounted to serious fraud. His motivation, it seems, was to be tried according to the criminal standard of proof, rather than the civil one. The Upper Tribunal disagreed with Mr Hackett, saying HMRC’s decision to pursue civil penalties for deliberate errors does not amount to an abuse of the tribunal process. The Upper Tribunal also confirmed that the standard of proof in tax tribunal cases should be the civil standard, even where serious fraud is alleged.
Can you negotiate with HMRC?
The best approach in your case will depend on the circumstances. Ultimately, the decision lies with HMRC as to whether or not a civil or criminal investigation is initiated. However, even where HMRC begins a criminal investigation, it may be possible to negotiate a deal in which you conclude the case on a civil basis, subject to your full co-operation. Alternatively, it may be preferrable to defend the allegations and argue your case in court. As discussed above, the standard of proof is higher in the criminal courts. If the prosecution fails to prove your guilt beyond reasonable doubt, then you must be acquitted.
Contact our fraud and financial crime solicitors
If HMRC has accused you of fraud and is pursuing, or under criminal investigation into your actions, please contact us at Ashmans Solicitors. We have an experienced team of fraud and financial crime solicitors who represent clients across the country. As our notable cases show, we deal with high-profile, high-value allegations of fraud, money laundering, and financial crime. Whatever the circumstances of your case, we can help you.