Corporate report

Customer compliance: our approach to tax compliance and serious fraud for HMRC’s Fraud Investigation Service

Published 17 July 2023

Compliance yield for the Fraud Investigation Service in the financial year 2022 to 2023

The following table shows the compliance yield generated by the Fraud Investigation Service (FIS) during the financial year 2022 to 2023:

	2022 to 2023 (£m)
Total	4,066

HMRC’s Fraud Investigation Service’s (FIS) approach to tax compliance and fraud

We define fraud as any deliberate omission, concealment or misinterpretation of information, or the false or deceptive presentation of information or circumstances in order to gain a tax advantage.

Tax fraud covers a wide range of illegal activity, including:

• deliberately submitting false tax returns
• falsely claiming repayments or reliefs
• hiding income, gains or wealth offshore
• smuggling taxable goods

Some of this is carried out by dishonest individuals but organised criminals also deliberately target the tax system for financial gain.

The best way to tackle tax fraud is to stop it happening in the first place. We do this by:

• building checks and controls into our systems
• changing legislation to make it more difficult or impossible to commit tax fraud
• working with businesses to help them spot when they are at risk of tax fraud

Most of our work to tackle tax fraud makes use of our civil powers. These allow us to get hold of the information we need to identify and collect unpaid tax, while imposing financial penalties on those responsible (up to 200 percent of the tax due in some cases).

In some serious cases of tax fraud, we can use the approach set out in our Code of Practice 9: where - in exchange for individuals admitting their dishonesty, paying all their tax and significant financial penalties - they won’t face a criminal investigation, which otherwise could be the case.

While we reserve complete discretion to conduct a criminal investigation in any case, our approach is to use our criminal and specialist investigation capabilities in certain circumstances. This includes

• when a fraud is particularly serious
• when we want to send a strong deterrent message that reassures the honest majority
• when our civil powers aren’t enough to uncover the truth or recover the tax that is at stake

Criminal cases can be expensive and time consuming, so it’s only right that we ensure they deliver both value for money for the taxpayer and the maximum impact on tax fraud. In recent years, we have deliberately focussed them on the most harmful, complex and sophisticated frauds.

These are significant powers and are rightly subject to rigorous external oversight and safeguards, like other law enforcement agencies.

For more detail please refer to HMRC’s approach to tax fraud.

Criminal case data

As noted above, we reserve complete discretion to conduct a criminal investigation in any case, including in cases where the behaviour is very severe, where civil sanctions alone won’t work and where a criminal prosecution will act as a strong deterrent to others. The below data represent the criminal aspects of our work across 2022 to 2023.

Key definitions

• Adoption: the formal point at which a criminal operation is taken on for investigation by FIS
• Positive Charging Decision (PCDs): the actual decisions made by independent prosecuting authorities to authorise the charging of an individual
• Prosecution: the total number of cases which have gone before the courts, (and can be calculated by adding together total convictions plus acquittals). This will include pre-trial guilty pleas.
• Conviction: when the pre-trial plea or trial outcome is recorded as guilty - this is directly correlated to the prosecution numbers

Breakdown of Criminal Proceedings 2022 to 2023

Criminal cases can be complex and involve several stages of detailed investigation and legal consideration. This can mean that cases take multiple years before being concluded and therefore outcomes achieved in any given year are not likely to be reflective of our activity in the same period. We work in partnership with prosecuting authorities to progress our cases to conclusion through the criminal justice process.

Adoptions	PCDs	Prosecutions	Convictions	Acquittals	Court Success Rate
396	433	240	218	22	90.80%

Note: There is no correlation between adoptions, PCDs and prosecution figures - they are separate occurrences in a particular Financial Year and should not be read in conjunction with each other

Breakdown of Sentencing data 2022 to 2023

This is the summary data of the sentencing outcomes once our investigations have concluded. The courts may also impose other sentencing e.g. fines, curfews, director disqualification etc. This data table only details the custodial / suspended custodial elements of the sentence and a single defendant could be counted in both data sets.

No. Custodial Sentences	Custodial Sentencing (Months)	Average length of Custodial Sentencing (Months)	No. Suspended Sentences	Suspended Sentencing (Months)	Average length of Suspended Sentencing (Months)
130	3,171	24.39	101	1,943	19.24

Civil case data

As noted, most of our work to tackle tax fraud makes use of our civil powers. These allow us to get hold of the information we need to identify and collect unpaid tax, while imposing financial penalties on those responsible.

Tax under consideration

Tax under consideration is an estimate of the maximum potential additional tax liability in each case before we have carried out a full investigation of the specific facts or analysis of relevant law. It is not actual tax either owed or unpaid, it is a tool to guide our enquiries to focus on the most significant risks that exist at any particular time.

In many cases, when we have looked at the full facts, we may find that there is a higher or lower liability than we had originally thought. Tax under consideration will naturally vary from time to time as outstanding issues are settled and new risks are identified.

The total is a snapshot of work in progress at a given point. Tax under consideration covers all taxes and duties.

A snapshot, as of 31 March 2023, of the tax under consideration figure for our civil enquiries by HMRC’s FIS Directorate is shown in the following table:

	Sum of Yield (£m)
Grand Total	1,813

Code of Practice 8 and 9

It’s HMRC’s policy to deal with suspected cases of fraud by use of civil fraud investigation procedures under Code of Practice 9 (COP9) wherever appropriate.  Criminal investigation will be 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 or where Code of Practice 9 is offered and rejected and/or there is a false representation made during the COP9 process. COP9 is also used where taxpayers want to make a full disclosure of all irregularities in respect of their tax on the basis that HMRC will not pursue a criminal investigation into the conduct that they disclose.

HMRC uses Code of Practice 8 (COP8) to investigate any situation where it is believed that there may be a significant loss of tax. This includes the tax affairs of individuals, partnerships, limited liability partnerships (LLPs), companies and trusts and covers all of the taxes, duties, levies and contributions for which HMRC is responsible.

COP 8 & 9 work can straddle a number of reporting years, therefore, this data shows the number of investigations that are ongoing as well as how many were opened in 2022 to 2023 alongside the yield collected from those closed in 2022 to 2023.

	Total on Hand	Opened in year	Closed	Interest (£m)	Penalties (£m)	Total Yield (£m)
COP 8	1,121	674	545	7.9	6.4	72.4
COP 9	2,181	417	661	8.1	14.8	89.2