Corporate report

Fraud Investigation Service: technical note

Published 30 July 2024

HMRC’s Fraud Investigation Service’s 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: 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. These include:

• when a fraud is particularly serious
• when we want to send a strong deterrent message that reassures the honest majority that there is a level playing field
• 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 we use them selectively to ensure they deliver both value for money for the taxpayer and the maximum impact on tax fraud. In recent years, we have deliberately focused them on the most harmful, complex and sophisticated frauds.

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

For more detail please refer to HMRC’s approach to tax fraud - GOV.UK (www.gov.uk)

Compliance yield for the Fraud Investigation Service in financial year 2023 to 2024

The following table shows the compliance yield generated by the Fraud Investigation Service (FIS) during the financial year 2023 to 2024.

	2023 to 2024 (£m)
Corporation Tax	762
Excise	1,593
Income Tax	1,099
VAT	1,074
Other compliance interventions	440
Total	4,968

Criminal Case Data

As noted above, FIS 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 datasets represent the criminal aspects of our work across 2023 to 2024.

Key Definitions

• Adoption: the formal point at which a criminal operation is taken on for investigation by FIS
• Positive Charging Decision: (PCDs) are 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 2023 to 2024

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 reflect our activity in the same period. HMRC works in partnership with prosecuting authorities to progress our cases to conclusion through the criminal justice process.

Adoptions	Search Warrants executed	PCDs	Prosecutions	Convictions	Acquittals	Court Success Rate
430	648	501	344	302	42	88%

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 2023 to 2024

This is the summary data of the sentencing outcomes, as determined by HM Courts & Tribunals Service (HMCTS) once our investigations have concluded and the outcome of the associated prosecutions have been determined. The courts may also impose other sentencing, such as fines, curfews, director disqualification for example. 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)
142	4,874	34.32	65	1,211	18.63

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.

In many cases, when we have looked at the full facts, it becomes clear that there is some lesser liability or even no further liability at all. 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.

The following table shows a snapshot, as of 31 March 2024, of the tax under consideration figure for our civil enquiries by HMRC’s FIS Directorate.

	Sum of Yield (£m)
Grand Total	2,066

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. 

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 and 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 2023 to 2024 alongside the yield collected from those closed in 2023 to 2024. 

	Total on Hand	Opened in year	Closed	Interest (£m)	Penalties (£m)	Total Yield (£m)
COP 8	937	212	314	6	2.4	83.2
COP 9	2,077	268	618	135	357.4	991

Note: The interest, penalty, and yield figures do not capture the full amount of yield from these cases as a proportion of the yield is allocated to other business areas in HMRC. The total yield from COP 9 delivery in 2023 to 2024 was significantly higher than in 2022 to 2023 as it includes a particularly large settlement being reached during the period.