When Tax Dodging Becomes Financial Crime

HM Revenue and Customs (HMRC) are taking an increasingly tough stance on tax evasion and have recently won a case in the Court of Appeal which establishes that in appropriate circumstances money gained by cheating HMRC can constitute the proceeds of crime.

The case involved a legitimate trade (i.e. there was no overtly criminal activity) set up as a money-exchange business. The business arranged transfers of money to and from Pakistan. The owners of the business committed various acts of false accounting to conceal cash transactions totalling nearly £6m. One of the owners also had a grocery business and under-declared the profits of that business, transferring the undeclared sum to Pakistan. The amount involved was £200,000. He argued that the money was not criminal property, because it was derived from a legitimate trading activity.

The Court of Appeal judged that the Proceeds of Crime Act 2002 (PoCA) had to be construed to include sums which derived from cheating HMRC. Accordingly, the sum of £200,000 was the proceeds of crime and as such was potentially subject to confiscation under Ss 6 and 7 of the PoCA.

What this case shows is that where HMRC prove the offence of ‘Cheating the Revenue’, the tax which has been evaded can represent the proceeds of crime and be subject to confiscation. The confiscation would presumably be in addition to any penalty which may be levied under the tax law. For tax evaders, the clear message is that HMRC are getting tough.