£1bn Recovered from Tax Fraud – Good News? – John Binns and Harry Travers write for The Barrister

£1bn Recovered from Tax Fraud – Good News? – John Binns and Harry Travers write for The Barrister

BCL partners John Binns and Harry Travers write for The Barrister discussing whether HMRC’s efforts are targeted at the right people.

*Here is a short extract from the article:

A recent HMRC press release trumpeted the £218m recovered by its Fraud Investigation Service (FIS) in 2020-2021, taking its total for the five years since it was set up to just over £1bn[1]. Harry Travers and John Binns, partners in the Financial Crime team at BCL Solicitors ask if we really should be celebrating?

It may seem churlish for any taxpayer to query or complain about the sums recovered from tax fraud: arguably, any amount is good news, and £1bn is surely a big number in anyone’s estimation.

Like any statistic, though, the reader must look beyond the headline and ask what factors have contributed to it. Where the headline is about sums recovered from crime, those factors are threefold: the amount of crime; the methods available to recover them; and the amount of effort and resource put into those methods of recovery.

When we look at it in those terms, sadly £1bn is not such a big number after all. And though the number of methods and the amount of resource are certainly on the increase, there are reasons to be sceptical that this is a wholly good thing.

How much tax fraud is out there?

We do not, for obvious reasons, have reliable figures for the value of tax fraud committed. HMRC produces annual estimates of the ‘tax gap’ – the difference between expected income from tax and the actual receipts – which includes avoidance and non-payment for non-fraudulent reasons, as well as actual evasion. The latest estimate, for 2019-2020, given in September 2021, was £35bn, which campaigners say includes half that figure from fraud.[2]

Assuming this is true – and remembering that the £1bn is a five-year total, and this year’s was £218m – then we might say that FIS is recovering about 1.25% of the tax lost through fraud. For simplicity, that would ignore the fact that the frauds whose proceeds were recovered would necessarily come from previous years rather than this one.

Importantly, we are also not including in that ‘tax gap’ figure the value of frauds committed against the UK government’s Covid-19 support schemes, several of which are administered by HMRC. In case we needed any further help to put that £1bn figure into perspective, HMRC’s own estimate is that around 9% of the £61bn it paid out under the furlough scheme in 2020-2021 was the result of ‘fraud or error’.[3]

How does HMRC recover the proceeds?

It may be premature or unfair to raise Covid support frauds as an issue against HMRC (which, of course, deserves credit for administering those schemes). But it does prompt a question about the nature of the crimes whose proceeds are being recovered: it is not necessarily tax fraud. To explain why, and to look further at how that £1bn figure has been achieved, it is necessary to look at the methods FIS uses to recover these monies.

*This article was first published by The Barrister in February 2022. If you wish to read the full article, please visit The Barrister website.

 

John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). His business crime experience includes representing suspects, defendants and witnesses in cases invoking allegations of bribery and corruption, fraud (including carbon credits, carousel/MTIC, land-banking, Ponzi and pyramid scheme frauds), insider trading, market abuse, price-fixing, sanctions-busting, and tax evasion. He has coordinated and undertaken corporate investigations and defended in cases brought by BEIS, the FCA, HMRC, NCA, OFT, SFO and others.

Harry Travers is a partner at BCL, specialising in business crime. He has had an involvement in numerous high profile commercial fraud and corruption investigations conducted by the Serious Fraud Office including ENRC, BAT, Serco, Balli Steel, Standard Bank, GPT/Airbus, Innospec, Libor, BAE and GP Noble. He was also inducted into the Legal 500 “Hall of Fame” in 2018, which recognises partners who are “at the pinnacle of the profession”.

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