There are many definitions of tax fraud – the working definition I use is “the intention to deceive”. HMRC have their own view on life and as such, HMRC does not accept that a taxpayer can commit accidental tax fraud. Moreover, HMRC consider any form of tax fraud to be deliberate behaviour.
Why does it matter?
It matters because the discovery of tax fraud by HMRC can signal grounds for a criminal prosecution or failing that, grounds for levying higher financial penalties if there is a civil settlement. Many taxpayers have said “I didn’t mean to do it” or “I made a mistake” or similar. That is not how HMRC will consider matters. HMRC consider such behaviour as deliberate – there was every intention to deceive and there is nothing accidental whatsoever.
Taxpayers should think carefully before they speak.
But I didn’t do anything!
Whether a taxpayer did or didn’t do something will be a matter of fact.
There are cases where you are just as culpable by not doing something, for example by omitting income or gains off your UK Tax Return. Yes, some taxpayers may have made a mistake or simply forgot about some income and gains. The purpose of any tax investigation will be to identify and consider all the relevant facts. If it is a mistake or as a result of careless behaviour, any financial penalty will reflect that fact.
When answering questions posed HMRC, taxpayers need to be aware of the environment they are dealing with. Taxpayers should not underestimate the amount of work already undertaken by HMRC. And this is before HMRC their first question. An Inspector has access to the internet like anybody else and can see company websites as well as social media websites. An Inspector will have done research and no doubt formed some opinions for themselves.
A taxpayer should appreciate this and adopt a sensible strategy. So should the taxpayer’s adviser. Tax investigations are not undertaken on a whim. The answers provided by a taxpayer will also carry more weight than the answers provided by an adviser – only the taxpayer knows what happened!
So, can there be accidental tax fraud?
No. Yes. On balance, no.
It is vital that all the relevant facts are sought so that a picture can be presented to HMRC that is both true and fair.
- Was it just a mistake?
- Was the taxpayer just being careless?
- Or did the taxpayer deliberately set out to deceive.
The lesson to be learned
From the outset, both the taxpayer and the adviser should consider the end position so far as penalties are concerned. Penalties are levied according to the taxpayer’s behaviour. Admitting a mistake and putting it right quickly differs vastly from deliberately mis-stating something and then trying to cover it up.
As to whether something has been concealed or not, that is a different question to be answered another day.