The average length of custodial sentences for tax fraud increased 25 per cent* to 4 years 1 month in the last year, up from 3 years 3 months the previous year, as HMRC hardens its stance against tax evasion, says Pinsent Masons, the international law firm.
Pinsent Masons says tax fraud includes tax evasion, VAT, excise duty and customs duty fraud. Tax evasion is dishonest non-payment or underpayment of tax by individuals or businesses.
The rise in length may reflect how HMRC and the Crown Prosecution Service (CPS) are increasingly advocating in court for tax fraud cases to be considered in more serious categories of offence.
Pinsent Masons explains that when passing a sentence, a judge assesses the level of an offender’s culpability or the loss to HMRC using a set of pre-determined categories. A prosecutor can argue that a case belongs in a higher category as a starting point for sentencing and can therefore push for a longer potential custodial sentence.
Pinsent Masons says a prosecutor, such as the CPS working with HMRC, can appeal a sentence if they consider it to be too lenient.
HMRC’s hardening stance against tax evasion may be part of its response to growing political pressure it has come under in recent years. A 2016 report from Parliament’s Public Accounts Committee (PAC) said that HMRC did not have a clear strategy for dealing with tax fraud and was not working up enough cases for prosecution.
Pinsent Masons says the average sentence length for tax fraud may be driven even higher by more successful prosecutions, especially once the strict liability offence for offshore tax evasion comes into force in Autumn 2018.
The offence will apply if a UK taxpayer fails to notify HMRC of his or her chargeability to tax, fails to file a return or files an incorrect return in relation to offshore income, assets or activities. The maximum sanction under the new offence is six months’ imprisonment.
The UK’s criminal law has also been beefed up by the introduction of two new strict liability offences for companies and partnerships which fail to prevent their employees and other associated persons from intentionally facilitating tax evasion. Whilst it will take a while for prosecutions under these offences to work their way through to court, HMRC has made it clear that it intends to actively investigate companies suspected of having committed these offences.
Olga Tocewicz, Senior Associate at Pinsent Masons, says: “HMRC is pushing hard for longer sentences as it clamps down on tax evasion.”
“Even in cases where the prosecution secures a conviction, it may still appeal if it thinks the sentence is not tough enough.”
“HMRC has come under growing political pressure in recent years to prove to the public that it has a workable strategy in place to stamp out evasion. As a result, it has become more dogged in its approach to sentencing.”
“Both individuals and businesses are facing stringent additional new laws for offshore tax evasion later this year, and should anyone be caught out by these rules, they may face an even lengthier sentence.”
*Ministry of Justice, 2016 most recent data available