Fraud and the Taxman: the UK Inland Revenue

DOIhttps://doi.org/10.1108/eb025722
Published date01 January 1996
Pages278-282
Date01 January 1996
AuthorMartyn J. Bridges
Journal of Financial Crime Vol. 3 No. 3 Tax
TAX
Fraud and the Taxman: the UK Inland Revenue
Martyn J. Bridges
Over the last 20 years the Inland Revenue has
engineered considerable change in the way that it
investigates fraud and other tax irregularities.
Whereas previously the Revenue had devoted the
overwhelming majority of
its
resources to technical
tax issues this policy changed dramatically during
the mid-1970s. In 1975 new systems were intro-
duced to regulate the selection of business
accounts for investigation. Contemporaneously,
new business intelligence systems were introduced
which were designed to provide Inspectors with a
complete understanding of the business economics
of trades and professions.
In 1976 dramatic new enforcement powers were
introduced, by what became s. 20 Taxes Manage-
ment Act 1970, which greatly extended an Inspec-
tor's powers to demand the production of financial
information both from those being investigated
and third parties. Also included as part of that
package was what was then a unique power in the
British legal system, namely the power to search
the premises of third parties without an arrest. It
was the exercise of such a warrant at 7am on
Friday, 13th July 1979 (in the
Rossminster
case)
which led to a political outcry regarding the avail-
ability and the use of such powers. This led to an
independent inquiry being set up to look into the
tax enforcement powers of the Revenue and Cus-
toms and Excise. The five-person committee
appointed was headed by Lord Keith of Kinkel and
began to report its findings in
1983.1
The Keith Committee Reports actually recom-
mended the introduction of additional enforce-
ment powers and a number of the
recommendations resulted in further legislation.
The infamous s. 20C Taxes Management Act 1970
remained substantially unaltered and has been used
increasingly since 1982. The graph appearing with
this article shows the trend which has developed
over the years and reflects the increased effort
which the Revenue is devoting to investigation
work.
With the introduction of self-assessment in the
UK from 1996-97 and new powers which enable
the Revenue to audit or investigate taxpayers at
random, there is every indication that the estab-
lished trend will continue. Without doubt the
Revenue operates a large and extremely profitable
business and it collected net receipts of some
£77.5bn in 1993-94 at a cost of £1.66bn. In addi-
tion, it collected some £38bn on behalf of other
government departments, principally National
Insurance contributions payable to the Department
of Social Security.
In its annual report for the year ended 31st
March, 19942 the Revenue devotes a whole chapter
to reporting on its work on investigations and
compliance activities, which yielded £4.7bn for the
year, a figure second only to the £4.9bn achieved
in 1993-93. The 1993-94 figure included £3.1bn
arising from technical reviews mainly involving
computational adjustments to accounts and tax
returns submitted to the Department. The balance
of £1.6bn was obtained from specialist investiga-
tion work.
Tax fraud takes many different guises. In
essence it is probably more accurate to consider it
as commercial fraud in which the Exchequer is the
end loser. Many techniques similar to those
adopted in commercial fraud are used by the tax
evader in order to extract funds from a business or
otherwise to window dress a reduced level of
profits attracting tax. Almost invariably, it involves
the type of fraud most difficult to detect and deal
with, namely management fraud by one or more
of the proprietors of
a
business. Consequently, the
Revenue has benefited from an increasing armoury
of powers which are far more wide-ranging than
those available to civil litigants or even other
prosecuting authorities. The Revenue has, over the
Page 278

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