Tax-related offending is never too far from the headlines

High-profile celebrity tax failings, the elaborate tax dodging revealed by the likes of the Panama Papers and the UK’s creation, in the 2017 Criminal Finances Act, of corporate criminal offences for failure to prevent the facilitation of tax evasion are just some notable issues from the past decade.

Given such general awareness of the issue, a few eyebrows were raised in surprise at the news that the number of HM Revenue and Customs (HMRC) investigations into serious tax fraud and avoidance has fallen to its lowest level in six years.

The Financial Times reported that the total number of such investigations, known as Code of Practice eight and nine cases or Cop 8 and Cop 9 cases, dropped from 1,091 in 2022-23 to 480 in 2023-24. Cop 9 investigations, which are the most serious, fell from 669 four years ago to 268 in the last financial year.

Possible reasons for the decline

The immediate response to this is to ask ‘why?’ Any talk of HMRC shortcomings eventually tends to come around to the tax authority’s lack of resources and staff retention difficulties. This was something acknowledged in the recent Budget, with Chancellor Rachel Reeves’ announcement that HMRC would be taking on an extra 5,000 or so compliance staff and will be given improved technology.

Like many chancellors, however, this was a case of giving with one hand, while expecting to take with the other. The government hopes, or more likely expects, that its largesse will be rewarded with HMRC raising an extra £6.5 billion in unpaid taxes. Many will see the FT’s report as casting doubt on such an outcome.

In its defence, HMRC has put the fall in numbers down to a change in tactics rather than shortages of bodies and kit. It has, it said, been targeting investigations on the ‘highest-harm and highest-value fraud’. As a result, it argues, the number of such investigations will ‘change from year-to-year based on changing risks’.

HMRC is never slow to quote statistics when called on to justify its approach. And it is worth recognising that while the number of HMRC serious tax fraud investigations has dropped, they did bring in a record £1.1 billion in tax between 2023 and 2024. Although £652.6 million of this came from the civil settlement reached with former F1 head, Bernie Ecclestone.

The way forward

What remains to be seen is whether HMRC’s approach continues. Any strategy based on a small number of investigations bringing big rewards is heavily dependent on those rewards being secured. If such investigations do not bring the anticipated results, or take far too long to achieve them, HMRC will face more awkward questions in the future.

There will not then be the scope for answering those questions by falling back on the lack of resources and staff argument. The Chancellor has taken that one out of the equation. Having to justify an approach that relies on catching the big fish of tax evasion becomes difficult if you have been given all the equipment but fail to net the big ones. HMRC, however, may view its extra resources as a chance, to carry on the fishing metaphor, to cast its net wider and commence more investigations. But whatever course of action it takes, it has to gain results.

And there are perhaps two points to be considered when looking to the likelihood of future HMRC investigation successes, regardless of what size targets it chooses. The first is that the chances of a big Bernie Ecclestone-sized case being concluded each year to bump up the annual figures would appear to be slim. The second is that the National Audit Office recently reported that HMRC’s lack of a focused strategy for tackling tax evasion schemes has resulted in it failing to prevent small businesses from evading the payment of taxes totalling over £4.4 billion.

Regardless of how big or small its targets are, HMRC faces a sizeable challenge.