HMRC Criminal Investigation: Legal Framework for Advisers

When HMRC elects to treat suspected tax fraud as a criminal rather than a civil matter, the entire procedural landscape shifts. Civil information-gathering powers are suspended. The Police and Criminal Evidence Act 1984 governs searches and seizures. The right to silence becomes substantive rather than theoretical. And the adviser who has handled the civil compliance work to date may no longer be the appropriate professional in the room. This guide sets out the complete legal framework, from HMRC’s statutory power to investigate through to the Code for Crown Prosecutors, at the level of detail required for a competent professional adviser.

Introduction, Why the Civil/Criminal Distinction Matters

HMRC operates two fundamentally distinct investigation regimes. Its civil compliance work, s9A TMA 1970 enquiries, Code of Practice 9 investigations, Schedule 36 FA 2008 information notices, operates on an administrative basis. The taxpayer is compelled to cooperate; civil penalties apply for non-compliance; the outcome is a financial settlement. The criminal investigation regime is categorically different in character, powers and consequences.

Once HMRC’s Fraud Investigation Service (FIS) opens a criminal investigation, the full apparatus of English criminal law is engaged. HMRC officers act as constables for the purposes of their investigation. Suspects have the right to silence and the right to free legal advice. Evidence must be gathered in accordance with PACE 1984 and the Codes of Practice made under it. Any resulting prosecution, in England and Wales, by the Crown Prosecution Service, is tested against the evidential and public interest standards in the Code for Crown Prosecutors. A conviction may result in a custodial sentence; the sentencing judge may also make a confiscation order under the Proceeds of Crime Act 2002 (POCA 2002) requiring the convicted person to pay the benefit obtained from their criminal conduct.

For advisers, the critical practical consequence is this: the skills and authority required to act in a criminal investigation are entirely different from those required in a civil compliance matter. An accountant or tax adviser who attempts to manage a criminal investigation without the involvement of a specialist criminal defence solicitor exposes the client to serious risk.

The Statutory Framework, CRCA 2005 s60 and HMRC’s Discretion

The Power to Investigate

Section 60 of the Commissioners for Revenue and Customs Act 2005 (CRCA 2005) is HMRC’s primary statutory authority to conduct criminal investigations. It provides that HMRC officers may conduct investigations into criminal offences relating to HMRC’s functions and may exercise the powers available to constables under PACE 1984 and other criminal investigation legislation. The provision is intentionally broad: it gives HMRC the full toolkit of criminal investigative powers rather than limiting it to any particular set of offences.

HMRC’s Discretion: Civil or Criminal?

HMRC retains discretion over whether to treat suspected tax fraud as a civil or criminal matter. This is a significant discretion: in many cases where there is clear evidence of deliberate and substantial fraud, HMRC may nonetheless choose the civil route, typically via Code of Practice 9 (COP9), because a financial settlement under the Contractual Disclosure Facility recovers the unpaid tax, interest and penalties more efficiently than a prosecution.

HMRC has published guidance setting out the criteria that point toward criminal rather than civil investigation. These include cases involving:

• Organised criminal gangs where the investigation has a deterrent purpose that goes beyond the individual taxpayer;
• Persons holding a position of trust or public responsibility (MPs, public officials, professional advisers) where the breach of trust aggravates the fraud;
• Cases where a materially false statement has been made in the course of a civil investigation, a taxpayer who lies during COP9 proceedings may be referred to FIS for criminal investigation of the false statement itself;
• Cases where false or altered documents have been submitted in the context of a tax avoidance scheme;
• Money laundering offences connected with tax fraud;
• VAT Missing Trader Intra-Community (MTIC) “bogus” registration repayment fraud, also known as carousel fraud;
• Organised tax credit fraud.

The list is indicative, not exhaustive. HMRC’s FIS retains residual discretion to investigate criminally any case where the evidence and public interest supports it.

Document Sharing After Criminal Investigation Closes

An important practical point for advisers: where a criminal investigation is closed without charge, whether because the evidence is insufficient or because HMRC decides to revert to a civil settlement, HMRC is entitled to retain copies of documents seized or obtained during the criminal investigation and to share those materials internally with the civil investigation team. The seizure was lawful; the materials were legitimately obtained; the fact that no prosecution results does not deprive HMRC of the ability to use the intelligence in the civil context. Advisers should therefore never treat the closure of a criminal investigation as a clean slate from an HMRC exposure perspective.

Tax Offences: The Key Charges

HMRC can investigate, and the Crown Prosecution Service can charge, a wide range of criminal offences relating to tax fraud. The following table sets out the principal charges, together with the relevant statute and maximum sentence.

Cheating the Public Revenue

The common law offence of cheating the public revenue remains widely used by prosecutors despite the enactment of the Fraud Act 2006. It carries the maximum sentence of life imprisonment, the same as common law conspiracy and its breadth is one of its principal advantages for prosecutors. In Inland Revenue Commissioners v Aken [1990] 1 WLR 1374, the Court of Appeal confirmed that the offence extends beyond the person liable to pay the tax to anyone who participates in the fraud, whether or not they are themselves a taxpayer. This is a crucial point for advisers: a professional who assists in the preparation of fraudulent returns may be charged as a principal, not merely as an accessory.

TMA 1970 s106A, The Income Tax Evasion Charge

Section 106A of the Taxes Management Act 1970 makes it a criminal offence to be “knowingly concerned” in the fraudulent evasion of income tax. Like the common law cheating offence, it extends beyond the taxpayer to any person who knowingly assists or participates in the evasion, including an accountant who is aware that returns are false. The maximum sentence on conviction on indictment is seven years’ imprisonment.

Corporate Offences Under the Criminal Finances Act 2017

Sections 45 and 46 of the Criminal Finances Act 2017 created “failure to prevent” offences for corporates. An organisation is liable if an “associated person”, an employee, agent or subsidiary, facilitates tax evasion and the organisation failed to have reasonable prevention procedures in place. There is a full defence if the organisation can demonstrate reasonable prevention procedures. The offence carries an unlimited fine. Professional services firms, accountancy practices, law firms, insolvency practitioners, are directly in scope and should have a prevention framework documented.

PACE 1984 and HMRC

The Police and Criminal Evidence Act 1984 (PACE 1984) and the Codes of Practice issued under it apply to HMRC’s criminal investigations in the same way as to police investigations. HMRC officers exercising criminal investigation powers are subject to the same procedural requirements as police constables.

Search Warrants

HMRC may apply to a magistrate for a search warrant where there are reasonable grounds to believe that an indictable offence has been committed and that the premises contain evidence of that offence. The application must be made on sworn evidence (an information in writing on oath). The warrant must specify the suspected offenders and the offences in question. Where a warrant has been obtained but the material to be seized has not been identified with sufficient precision, it may be challenged and quashed on judicial review, courts treat search warrants as a serious infringement of the liberty of the person and will scrutinise applications carefully. HMRC officers executing a search warrant may seize and retain anything to which the warrant relates and may search persons found on the premises if there are reasonable grounds to believe that they hold material of substantial value to the investigation.

Production Orders (PACE s9 and Schedule 1)

Where HMRC seeks specific material that is not covered by a search warrant, it may apply to a circuit judge for a production order under s9 and Schedule 1 to PACE 1984. The requirements are more stringent: HMRC must satisfy the court that there are reasonable grounds to believe the material constitutes evidence of an indictable offence, that the public interest in making the order outweighs the right of the person to whom it is directed and that other methods of obtaining the material are bound to fail or would be inadequate. Importantly, if the judge concludes that a production order would prejudice the investigation, for example, because the subject would destroy the material before complying, the judge may instead issue a search warrant.

Powers of Arrest and Search Post-Arrest

HMRC officers have the power to arrest without warrant any person they reasonably suspect of having committed or being in the process of committing an indictable offence. Following arrest, HMRC officers may search the suspect, enter and search premises associated with the arrested person (with a superintendent’s authority under PACE s18) and use reasonable force in the exercise of their powers. These powers are co-extensive with police powers and carry the same safeguards, including the right to have a person informed of the arrest and the right to consult a solicitor under PACE s58.

General Seizure Power (PACE s19)

Section 19 of PACE 1984 confers a general seizure power on any constable (including an HMRC officer acting as a constable) who is lawfully on any premises. The officer may seize anything found on those premises if they reasonably believe that it has been obtained in consequence of the commission of an offence or that it is evidence in relation to any offence that the officer is investigating. The scope of this power is wide: it is not limited to the specific offences for which a warrant was obtained, and it can be exercised even where the officer had no prior knowledge that the item existed.

POCA 2002 and Ancillary Powers

In cases involving suspected money laundering or criminal proceeds, HMRC may additionally exercise powers under the Proceeds of Crime Act 2002, including search and seizure warrants and production orders under that Act and the power to seize suspected criminal cash. Disclosure notice powers under the Serious Organised Crime and Police Act 2005 (SOCPA 2005), surveillance authorisations under the Regulation of Investigatory Powers Act 2000 (RIPA 2000) and the Investigatory Powers Act 2016 (IPA 2016) and police surveillance powers under the Police Act 1997 are also available in appropriate cases.

Unexplained Wealth Orders

The Unexplained Wealth Order (UWO) is a civil procedure available to HMRC (and other specified enforcement authorities) in the High Court. Where a person holds property with a value greater than £50,000 and their known lawfully obtained income appears insufficient to have enabled them to acquire the property, HMRC may apply for an order requiring the respondent to explain their interest in the property and how they obtained the funds to acquire it. The UWO is a powerful investigative tool: failure to comply or providing a false or misleading response, can lead to the property being presumed to be recoverable under POCA 2002.

Exclusion of Evidence, PACE s78

Section 78 of PACE 1984 gives the criminal court a discretionary power to exclude evidence where, having regard to all the circumstances including the circumstances in which the evidence was obtained, admission of the evidence would have such an adverse effect on the fairness of the proceedings that the court ought not to admit it. This provision is of direct practical importance in HMRC criminal cases: where HMRC has obtained documents by executing a search warrant that was procedurally defective or has exceeded the scope of a production order or has failed to comply with the Codes of Practice during a seizure, the court may exclude the resulting evidence under s78. Building and running such an argument is the province of a specialist criminal defence solicitor.

Legal Professional Privilege and Raids

Legal professional privilege (LPP) operates as an absolute bar to HMRC seizing privileged material during a search. HMRC officers are not permitted to seize documents that are properly subject to LPP. Where the privileged and non-privileged material is intermingled, for example, on a computer hard drive and it is not practicable to separate the material during the raid, HMRC may image the drive but must make arrangements to identify and return or quarantine privileged material before reviewing it. Any breach of LPP is likely to give rise to a s78 exclusion application and may itself be susceptible to judicial review.

The Code for Crown Prosecutors

HMRC does not decide whether to prosecute. In England and Wales, that decision rests with the Crown Prosecution Service (CPS), though HMRC does have its own in-house prosecution function for certain categories of case and is an authorised prosecution authority. Whether prosecution is by the CPS or by HMRC’s own legal team, the applicable decision-making framework is the Code for Crown Prosecutors.

The Two-Stage Test

The Code imposes a two-stage test that must be satisfied before a prosecution can be authorised:

Stage 1, Evidential sufficiency. The prosecutor must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction. This is an objective assessment: would a properly directed jury, properly applying the law, be more likely than not to convict? This is a higher threshold than mere probable cause; it requires a detailed review of the evidence and a realistic appraisal of its strengths and weaknesses, including anticipated defence arguments. Witnesses’ credibility, the reliability of documentary evidence and the admissibility of disputed evidence (including material subject to a potential s78 application) are all relevant.

Stage 2, Public interest. Where the evidential stage is passed, the prosecutor must then consider whether prosecution is in the public interest. In tax fraud cases, the factors pointing toward prosecution typically include: the seriousness and sophistication of the fraud; the scale of the revenue loss; the personal culpability of the suspect; any breach of trust or professional position; the deterrent effect a prosecution would have on others; and whether the suspect has relevant previous convictions. The Code acknowledges that “public interest” encompasses both the interests of the victim (here, the public revenue) and the interests of the suspect, including any cooperation they have provided and any impact that prosecution would have on their dependants.

HMRC’s Additional Published Prosecution Criteria

HMRC has published supplementary guidance on its approach to the public interest test in tax fraud cases. This guidance identifies, as factors pointing strongly toward prosecution: the involvement of organised criminal networks; the making of materially false statements during a civil investigation; the use of false or altered documents in connection with tax avoidance schemes; and MTIC carousel fraud. These criteria map directly onto the civil/criminal discretion criteria described in section 2 above.

For advisers, the significance of the evidential stage is that it creates a potential point of intervention: where evidence has been improperly obtained (and may be excluded under s78) or where the documentary chain is incomplete or where there are credible explanations for the transactions under investigation, a proactive presentation of the defence case to the prosecuting authority at an early stage, through a written representations document prepared by criminal defence solicitors, may result in a decision not to charge.

Privilege Against Self-Incrimination

Section 98 TMA 1970 Does Not Apply

One of the most important points for advisers to understand and to communicate clearly to clients, is that HMRC’s statutory civil compulsion powers do not apply in the context of a criminal investigation. Section 98 of the Taxes Management Act 1970 imposes penalties for failure to comply with HMRC’s information and document requirements. Schedule 36 FA 2008 information notices carry similar penalty provisions. But these civil compulsion mechanisms have no application once HMRC has elected to investigate a matter as a criminal case. A taxpayer whose affairs are under criminal investigation cannot be compelled under TMA 1970 or Schedule 36 FA 2008 to produce documents or answer questions. To do so would infringe the privilege against self-incrimination enshrined in both common law and Article 6 of the European Convention on Human Rights.

This point cuts both ways. It protects the suspect from compelled self-incrimination. But it also means that any document or statement provided “voluntarily” during a period when the investigation was in fact criminal in character, but before the suspect was aware of that, may be challenged on the basis that the production was not truly voluntary. Where HMRC has used civil compulsion to obtain material for a purpose that was in substance criminal, the admissibility of that material in any subsequent prosecution is likely to be contested vigorously.

Schedule 36 FA 2008 in the Criminal Context

Paragraph 23 of Schedule 36 FA 2008 expressly preserves the privilege against self-incrimination: a person is not required to provide information or produce a document if doing so would incriminate them (or their spouse or civil partner). This privilege applies in the civil as well as the criminal context, but it takes on particular importance when HMRC’s investigation has criminal overtones.

Voluntary Interviews Under Caution

In criminal investigations, HMRC interviews a suspect by means of a voluntary interview under caution. The interview is voluntary in the sense that the suspect cannot be compelled to attend, unlike a Schedule 36 inspection visit or a formal examination in civil proceedings. The full PACE caution must be administered before questioning commences: “You do not have to say anything. But it may harm your defence if you do not mention when questioned something which you later rely on in court. Anything you do say may be given in evidence.” The interview will be recorded; the recording is evidence. The right to free legal advice under PACE s58 applies.

No suspect should attend a voluntary HMRC interview under caution without a criminal defence solicitor. The caution itself reflects the legal position: anything said can be used against the suspect in criminal proceedings. A “no comment” interview prepared by a criminal defence solicitor, with or without a prepared statement, is a legitimate strategy. Attending without criminal representation and attempting to explain a complex financial position to HMRC investigators without appropriate legal advice is among the most serious errors an adviser’s client can make.

Adviser Duties

When to Refer to a Criminal Defence Solicitor

The duty to refer arises immediately, not after initial advice, not after a “first assessment,” but as soon as a client reports any of the following: (i) arrest by HMRC officers; (ii) execution of a search warrant at business or residential premises; (iii) receipt of a letter from HMRC’s Fraud Investigation Service (as distinct from standard compliance); (iv) a request to attend a voluntary interview under caution; or (v) any indication from HMRC that the investigation may be criminal in nature.

The general tax adviser’s role in a criminal investigation is peripheral. The specialist criminal defence solicitor takes the lead. The tax adviser may have a supporting role in providing the criminal team with the financial and tax background that contextualises the transactions under investigation, but that is a secondary, supporting function, not the primary advisory relationship.

Conflict of Interest

Where the adviser who calls for specialist guidance is the same adviser who prepared the returns or advised on the transactions under investigation, a conflict of interest is likely to arise or may already exist. The adviser’s interest in avoiding personal liability (including liability under TMA 1970 s106A for knowingly assisting tax evasion or under CFA 2017 s45 for failure to prevent facilitation) conflicts directly with the client’s interest in the investigation being handled optimally. An adviser in this position should consider whether they can continue to act at all, should obtain their own legal advice and must certainly not act as the primary adviser in the criminal investigation context.

The SRA Solicitors Code of Conduct 2019 and the ICAEW Code of Ethics both impose duties that require the professional to address conflicts of interest promptly. In a criminal investigation context, the consequences of failing to address a conflict, both for the client and for the adviser personally, are severe enough that caution should be the default.

Legal Professional Privilege in the Criminal Context

LPP in a criminal investigation context operates on the same basis as in a civil context: communications between a solicitor and client for the dominant purpose of obtaining legal advice on the client’s legal position and communications made in connection with or in contemplation of litigation, are privileged and cannot be compelled by HMRC. However, the crime-fraud exception modifies this principle: advice sought and obtained for the purpose of furthering a criminal purpose, including advice on how to structure a fraud or how to conceal assets from HMRC, is not protected by LPP. This exception applies whether the client or the adviser initiated the criminal purpose.

The practical implication is that an adviser who is asked to provide advice that assists in the continuation or concealment of fraudulent activity has no LPP shield for those communications. Indeed, providing that advice may itself constitute participation in the criminal enterprise.

Reporting Obligations Under the Proceeds of Crime Act 2002

Advisers in the regulated sector, including most accountants and solicitors, are subject to the money laundering reporting obligations in POCA 2002 Part 7. Where an adviser knows or suspects that a client is engaged in money laundering (which includes the use or concealment of the proceeds of tax evasion), they are required to make a Suspicious Activity Report to the National Crime Agency before continuing to act. Continuing to act without making a SAR in circumstances where one is required is a criminal offence. The existence of a criminal investigation by HMRC into a client’s affairs is a circumstance that should prompt the adviser to assess whether a SAR is required.

Escalation Worked Example: From Civil Enquiry to Crown Court

The following step-by-step illustration tracks how a matter can escalate from an apparently routine compliance check to criminal proceedings. The pathway is illustrative; not all cases follow every stage.

1. Routine s9A TMA 1970 enquiry opens. HMRC’s compliance team opens an enquiry into the taxpayer’s self-assessment return. Schedule 36 FA 2008 information notices are issued. The enquiry appears civil in character.
2. Discrepancies identified, possible deliberate evasion. During the course of the enquiry, the compliance officer identifies patterns that appear inconsistent with innocent error, for example, substantial unexplained credits, suppression of turnover or offshore accounts not disclosed. A referral is made internally to HMRC’s Fraud Investigation Service.
3. FIS referral and criminal investigation opened. FIS reviews the referral and decides to open a criminal investigation under CRCA 2005 s60. At this point, the civil information-gathering powers are suspended and HMRC reverts to its criminal powers under PACE 1984 and associated legislation.
4. Dawn raid, execution of search warrant. FIS officers execute a search warrant at the taxpayer’s business and residential premises simultaneously. Documents, computers and electronic media are seized. The taxpayer is present; the warrant is shown and read to them. The taxpayer has the right to consult a solicitor before responding to questions, but not the right to delay the search while they do so.
5. Arrest under PACE s24. Either at the time of the raid or at a later date following analysis of seized material, FIS officers arrest the taxpayer without warrant on reasonable suspicion of a relevant offence. The PACE caution is administered. The taxpayer is conveyed to a police station designated under PACE.
6. Voluntary interview under caution. Following release without charge or bail, the taxpayer is invited to attend a voluntary interview under caution. With proper criminal defence representation, the decision is made whether to answer questions, give a prepared statement or answer “no comment.” The interview is recorded.
7. File submitted to CPS for charging decision. FIS prepares an investigation file and submits it to the CPS (or HMRC’s in-house prosecution team). The two-stage Code for Crown Prosecutors test is applied.
8. Charge and magistrates’ court appearance. The taxpayer is charged with one or more of the offences set out in section 3 above. The matter comes before the magistrates’ court for an initial hearing. Indictable offences are sent to the Crown Court.
9. Crown Court trial. The trial proceeds before a judge and jury. HMRC’s criminal investigation team gives evidence; seized documents and recordings are adduced in evidence. Defence arguments, including any PACE s78 exclusion application, are run.
10. Conviction and POCA 2002 confiscation proceedings. On conviction, the Crown Court judge must consider whether to make a confiscation order under POCA 2002. The prosecution assesses the defendant’s “benefit from criminal conduct”, a figure that is not limited to the amount of tax evaded but may include the full value of the gross turnover that generated it. The defendant must demonstrate the extent of their realisable assets. POCA confiscation can dwarf the underlying tax liability in value and is among the most financially devastating consequences of a criminal conviction for tax fraud.

Practitioner Checklist: Client Contact After Arrest or Dawn Raid

The following checklist is designed for the professional who receives a call from a client who has just been arrested, has had their premises searched by HMRC or has received a letter indicating that a criminal investigation has commenced.

1. Do not advise on the criminal matter itself. Your engagement as a tax adviser or accountant does not extend to criminal defence work. Acknowledge the call, provide reassurance and make immediate contact with a specialist criminal defence solicitor. Do not attempt to interpret the warrant, assess the merits of the investigation or advise on what the client should or should not say to HMRC.
2. Instruct criminal defence solicitors immediately. The client has the right to free independent legal advice at any police station (PACE s58). If the client is at a police or HMRC detention facility, they should request solicitor attendance before any interview commences. Do not allow the interview to proceed without criminal representation.
3. Assess your own conflict of interest. If you prepared the returns or advised on the transactions under investigation, you may have a conflict. Obtain your own legal advice before taking any further steps in the matter. Do not allow your interest in the outcome to influence the advice you provide to the client.
4. Do not contact HMRC on behalf of the client in the criminal context. Any communication with HMRC’s FIS team should be made by the criminal defence solicitors, not by you. HMRC investigators are experienced at drawing admissions from cooperative third parties. Communications you make could be disclosable and used in proceedings.
5. Preserve all files and correspondence. Do not destroy, delete or alter any documents, files or records relating to the client, even if the client requests you to do so. Destruction of evidence is itself a criminal offence and may implicate you personally. Seek legal advice on your own position before taking any action in relation to your files.
6. Consider your SAR obligations under POCA 2002. As an adviser in the regulated sector, you must assess whether the circumstances require a Suspicious Activity Report to the National Crime Agency. Take advice on this point if you are uncertain. The tipping-off offence under POCA 2002 s333A means you cannot inform the client that you are considering or have made a SAR.
7. Brief the criminal defence solicitors comprehensively. Your role in a supporting capacity is to provide the criminal team with the financial and tax background to the matter. Prepare a clear chronological summary of the tax history, the nature of the transactions under investigation and any advice you gave that is relevant. Be frank and complete, the criminal team cannot advise properly on an incomplete picture.
8. Document your own actions carefully from this point. Keep a contemporaneous record of every step you take and every conversation you have from the moment you become aware of the criminal investigation. If your conduct is subsequently scrutinised, whether by HMRC, a regulatory body or in civil proceedings, a clear record of what you did and why will be essential.

Frequently Asked Questions