Not a single company charged with tax evasion under stronger HMRC powers

HMRC has not charged a single company under landmark legislation passed six years ago to crack down on corporate tax evasion.

Critics say the data, released after Freedom of Information requests by the Bureau of Investigative Journalism and TaxWatch, suggests that HMRC is undermining its own deterrents against corporate tax evasion by failing to use its criminal enforcement powers.

Margaret Hodge MP called the findings appalling and said the lack of enforcement had rendered the law “a paper tiger.”

The Criminal Finances Act 2017 introduced new powers to charge companies and partnerships operating in the UK that failed to stop their employees or associates from facilitating tax evasion, regardless of where in the world the tax was evaded.

One part of the new law, known as the Corporate Criminal Offences clause, drastically lowered the bar for prosecuting businesses that enabled tax evasion. It introduced “strict liability”, meaning that a company cannot plead ignorance of the wrongdoing to evade a criminal charge, and prosecutors do not have to prove intent in order to secure a conviction.

It also threatened unlimited fines in the case of established wrongdoing. Companies can avoid punishment if they have reasonable procedures in place to prevent the facilitation of tax evasion.

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The law both made criminal prosecutions easier to pursue and strengthened the penalties. But critics say the refusal to charge a single company has cast serious doubts on the landmark legislation.

TBIJ, TaxWatch and The Observer previously revealed that the number of concluded prosecutions after HMRC investigations had fallen by more than two-thirds in five years, with only 11 wealthy taxpayers prosecuted in 2022.

“The lack of any Corporate Criminal Offence prosecutions is, I think, quite serious,” said Dan Neidle, founder of Tax Policy Associates and formerly head of tax at Clifford Chance. “A deterrent that you never use is no deterrent.”

Criminal penalties were the only reliable way to change behaviour, while the overreliance on civil penalties and fines often failed to curb serious wrongdoing, Neidle said. “If you disarm yourself and don’t use the criminal tools that you have available, then you are missing the trick.”

A spokesperson for HMRC said: “Corporate criminal offences were introduced to encourage organisations to put preventative measures in place to stop tax evasion. Our efforts have helped drive a corporate culture shift towards anti-tax evasion awareness, which has led to new procedures across business sectors.”

HMRC told TBIJ it has 11 live investigations and is looking into a further 24 possible cases. It has also reviewed and rejected an additional 94.

Hodge said: “We are in the midst of a cost-of-living crisis, and tax evasion is costing our economy billions each year. So it is appalling that HMRC has failed to prosecute a single enabler of tax evasion.

“We know that there continues to be a whole industry that supports those who don’t want to pay their fair share of tax. We cannot drive cultural change in that industry if its members are under the impression that this offence is just a paper tiger.”

HMRC prioritises the recouping of money lost to tax avoidance and evasion through civil settlements rather than prosecutions, according to Robert Palmer, the director of Tax Justice UK. He cited the risk and cost of prosecuting powerful opponents with deep pockets.

“HMRC is routinely outgunned by the private sector,” he said. “It’s a real problem, because the minute you go against someone who's rich, they can lawyer up and drag things out. HMRC are outmatched … particularly when it comes to the professional enablers and facilitators.”

Other legislation with similar “failure to prevent” clauses has resulted in charges and convictions. The UK Bribery Act 2010 made it a crime to fail to prevent bribery and has led to high-profile prosecutions, including the oil and gas company Petrofac in 2021.

The realistic threat of criminal prosecutions means “the Bribery Act continues to be taken very, very seriously,” said Neidle, “whereas the Criminal Finances Act is dropping off the radar.”

Susan Hawley, director of Spotlight on Corruption, said: “Legislation only has a deterrent effect for so long without any meaningful enforcement.

“The government urgently needs to get to the bottom of whether this lack of prosecutions is related to failures of political will or resourcing issues at HMRC, or deeper problems with the wording of the offence.”

Reporter: Ed Siddons
Enablers editor: Eleanor Rose
Deputy editor: Katie Mark
Impact producer: Lucy Nash
Editor: Franz Wild
Production editor: Frankie Goodway
Fact checker: Alice Milliken

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