HMRC gears up for an increase in criminal investigations

In the Spring Statement, Rachel Reeves announced that HM Revenue & Customs (HMRC) would be tasked with increasing the number of decisions to prosecute tax fraudsters by 20% at the end of 2029/30. This would mean an additional 100 cases based on the 2023/24 year.

HMRC is responsible for undertaking criminal investigations to gather the necessary evidence, which it then passes over to the relevant prosecuting authority to make the decision on whether the case can go forward for prosecution.

What does this mean for HMRC?

Most basically, HMRC will have to significantly increase the number of criminal investigations it undertakes to meet this target.

HMRC states that it reserves complete discretion to conduct a criminal investigation, where appropriate.

The Fraud Investigation Service is the directorate with national responsibility for civil and criminal investigations for tax evasion. HMRC makes it clear that most cases are investigated on a civil basis, which result in a financial settlement for the tax owed, interest on tax paid late, and penalties of up to 200%.

Criminal investigations are reserved for the most egregious cases or where a strong deterrent message is needed. This is because criminal investigations are time-consuming and require HMRC to meet the higher criminal standard of proof, "beyond a reasonable doubt," whereas in a civil investigation the civil standard of proof, "on the balance of probabilities" applies, which is a significantly lower bar.

It is not difficult to see that civil investigations bring in as much money, require less resource and are normally completed in a shorter period.

Considering whether HMRC has the resources to meet this target, it is important to look at the historical data on criminal prosecutions. These highlight that HMRC consistently achieved the number of prosecution decisions the Chancellor demands right up until 2020. It is only since the Covid lockdown that numbers have reduced.

Rachel Reeves clearly wants HMRC to crackdown on the level of tax evasion and fraud. This illegality accounts for part of the tax gap -the difference between the total tax estimated to be due less the amount paid each year. At present, the tax gap is estimated to be almost £40bn; of which criminal attacks, evasion and the hidden economy account for 30% or £12bn.

As to how HMRC is going to reduce the tax gap, Rachel Reeves announced in 2024 that an additional 5,000 compliance officers will be recruited to tackle avoidance and evasion. So far, 400 compliance officers have been offered positions, but will need to be trained and integrated into their compliance roles.

It is inevitable that these officers face a steep learning curve, and it is unrealistic to expect them to ‘hit the ground running'.

Looking at the source of the criminal investigations, HMRC considers all cases of suspected tax evasion or fraud to assess whether they are suitable for criminal investigation. It is likely that we will see a greater number of cases selected for the criminal investigation route. While these cases may not result in a prosecution, the suspected persons face the prospect of being interviewed under caution and may even be subject to a dawn raid.

The 2025 Spring Statement confirmed that HMRC intends to implement a new whistleblower scheme, based on the USA and Canadian models, which mean informants are paid a proportion of the tax recovered. This scheme will mostly target corporations and wealthy individuals, with the suggestion that there will be a de minimus limit for the tax at risk for the whistleblower to receive payment.

People selected for a civil investigation, known as Code of Practice 9, should be aware of the increased risk that they may face a criminal investigation if they do not cooperate or fail to make a complete and correct disclosure. HMRC undertakes not to start a criminal investigation in cases where a full disclosure of the deliberate conduct is made. Most investigations of this nature are resolved by civil settlement.

'Clamp down on uncooperative taxpayers'

HMRC is determined to clamp down on uncooperative taxpayers, and until the civil investigation has been settled there is always the risk of criminal investigation. The consequences of which are simply not worth the risk. Successful convictions can result in a custodial sentence of up to fourteen years, as well as confiscation of any assets arising from criminal activity.

It is inevitable that there will be more criminal investigations. Anyone concerned by these announcements should seek specialist advise without delay. It is extremely rare for HMRC to criminally investigate someone who has made an unprompted voluntary disclosure to HMRC.

This will not only limit the risk of criminal investigation but also ensure that the tax-geared penalties are kept to the minimum.

The risks of criminal investigation have already increased, and the new whistleblower initiative is a powerful addition to HMRC's armoury in its battle against tax evaders.

John Hood is a tax partner with Moore Kingston Smith and an ex-inspector for HMRC