Taxman goes on warpath
Sunday 21 May 1995
It will use the tried and tested techniques of poring over business records and bank documentation, and will have access to the vast amount of sensitive information stored on computer and regularly exchanged with Customs & Excise and sometimes foreign authorities.
Typically, the SCO will comprise three groups each dedicated to a distinct area of the Revenue's investigative effort - prosecution, serious fraud, and tax counter-avoidance.
The personnel in each group will be inspectors of taxes and accountants, and in addition the prosecution group will include investigators of the Inland Revenue Board Investigation Office. The creation of a dedicated prosecution group is a significant development that suggests a greater determination to combat serious fraud.
In the year to the end of March 1994, the Revenue collected pounds 1.61bn from challenging tax returns and investigating the accounts of businesses. That included pounds 315m from serious tax fraud and avoidance. In recent years, apart from 1992/93, there has been, however, a gradual decline in the number of persons prosecuted for false accounts and tax returns, and the changes may be seen in part as an attempt to reverse that trend.
The serious fraud group will investigate cases where the Inland Revenue may accept a monetary settlement instead of instituting criminal proceedings. It has to be stressed, for the peace of mind of those under investigation, that most of the 400 cases of serious fraud settled every year by the SCO lead to a financial settlement rather than prosecution in the criminal courts. But the Revenue retains the right to change its mind and instigate criminal proceedings if a taxpayer fails to take advantage of the opportunity to come clean.
The minimum target for an investigation to be launched is a settlement of upwards of pounds 100,000. Anyone under investigation by the SCO can therefore expect to be on the receiving end of any one of a number of highly intrusive information-gathering powers.
These include the now infamous "dawn raid", which can involve the search of private houses and business premises, and the seizure of incriminating material. The warrant invariably includes the power to search persons and premises, and the operation frequently culminates in the arrest and detention of suspects.
Probably the most high-profile use of this power was in 1979, when many van-loads of documents belonging to Rossminster Ltd and some of its directors were seized. Rossminster was a private bank that had funded many sophisticated tax-avoidance schemes.
By resorting to more mundane but none the less heavy-handed powers, the SCO can see business records. It can also require third parties, such as banks and business customers, to hand over information that may prove that tax has been evaded.
Even the best-regulated tax affairs can on occasions fall under the harsh glare of the SCO spotlight. This is particularly so where perfectly legitimate but commercially sensitive arrangements have to be cloaked with confidentiality. All that the taxpayer can do is to ensure that his or her accounts and tax returns are accompanied by as much information as possible so that false inferences are not drawn from what may well be entirely innocent, but superficially suspect procedures.
People often view the Inland Revenue as a slow-moving and pedantic bureaucracy. However, the revamped SCO represents one of the most powerful investigative agencies operating in the UK. It could also prove to be one of the Government's most cost-effective methods of reducing the public sector borrowing requirement, by making existing taxation rules more efficient.
o Andrew Watt is a partner in the firm of Casson Beckman, chartered accountants.
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