The vital distinction between the two is that tax avoidance is the lawful arrangement of one’s affairs so as to reduce or avoid a liability to tax which might otherwise arise. Tax evasion is unlawful. Former Chancellor of the Exchequer Denis Healey once said that ‘the difference between tax avoidance and tax evasion is the thickness of a prison wall’.
Although HMRC is responsible for investigating suspected tax crime, the decision whether to bring a criminal prosecution against a suspected tax evader is made by the Crown Prosecution Service (‘CPS’).
The CPS has a number of offences which it can deploy to charge suspected tax evaders, including the common law offence of cheating the public revenue which is triable on indictment only – meaning it must be tried in the Crown Court before a jury.
Typically, a tax prosecution will begin with an unannounced search of premises and seizure of evidence (more commonly referred to as ‘dawn raids’ as they usually start early in the morning). Using powers under the Police and Criminal Evidence Act 1984, HMRC may enter and search premises (including domestic premises), seize items such as computers and arrest persons.
Having examined the seized material, HMRC will then decide whether the matter should be referred to the CPS with a view to criminal charges being brought. In most cases of serious fraud relating to tax the trial will take place in the Crown Court and the case will be referred there by the magistrates court.
At trial the jury will be sworn in. Prosecuting counsel will deliver an opening speech outlining the nature of the case and may then call prosecution witnesses who will give evidence and then be cross-examined by the defendant’s counsel. Defence counsel will then present the defendant’s case and may also call witnesses who may be cross-examined by prosecuting counsel.
At the conclusion of the defence case, both prosecuting and defence counsel will deliver a closing speech to the jury and the judge will then sum up the issues of fact and law for the jury. Finally, the jury retire to consider their verdict. They must decide their verdict unanimously although the judge will accept a majority verdict of 11:1 or 10:2 if unanimity is not possible after a period of time – as set out in section 17, Juries Act 1974.
In cases of serious fraud, custodial sentences of up to seven years have been made by the courts.
In the vast majority of cases following a raid, the suspect will be interviewed under caution at a police station (he may also be under arrest at the time of interview which means a photograph will be taken together with fingerprints and a DNA sample).
However, sometimes months or even years later, HMRC may decide not to proceed further. In addition to the stress and anxiety caused by the raid, the taxpayer may suffer damage to his reputation and business.
It may, under certain circumstances, be possible for an aggrieved person to obtain legal redress by bringing proceedings against HMRC for misfeasance in public office where it has been established that they ignored procedural safeguards and acted with bad faith.
One of the unusual features of this tort is that it is possible to claim damages for pure economic loss, such as the disruption to business that a raid will inevitably cause.
In those rare cases where HMRC has acted unlawfully, there are effective legal remedies which can be deployed to assist an aggrieved taxpayer.
