Tax Investigations and Business Crime

When a Civil Tax Investigation Becomes More Serious

Many HMRC enquiries begin as civil compliance checks. That label should not, however, create a false sense of security. The tone, scope and legal significance of an investigation can change as HMRC obtains documents, compares explanations with third-party information or forms a view about the taxpayer's behaviour.

Indicators that a case may be becoming more serious include:

• questions directed at the taxpayer's knowledge, intention or honesty

• allegations of deliberate behaviour, concealment or the use of false documents

• requests for personal as well as business banking records

• enquiries into offshore accounts, trusts, companies or beneficial ownership

• contact with customers, suppliers, banks or other third parties

• requests for an interview, particularly an interview under caution

• references to fraud, money laundering, criminal property or prosecution

• a proposed Code of Practice 9 investigation

• steps affecting bank accounts, property or other assets

• parallel interest from a professional regulator or another enforcement agency

The correct response depends upon the legal basis of the request, the evidence already available, the taxpayer's true explanation and the potential use of any answer. The immediate objective is not simply to reply quickly. It is to reply accurately, lawfully and with a clear understanding of the consequences.

HMRC Criminal Investigations

HMRC states that it generally uses civil fraud procedures where appropriate, but reserves criminal investigation for cases in which a deterrent message is considered necessary or the alleged conduct is regarded as requiring a criminal sanction. Its published policy identifies matters such as systematic fraud, materially false statements or documents, deliberate concealment, deception, conspiracy, corruption, money laundering and links to wider criminality.

A criminal investigation is different from a civil enquiry. The rules governing interviews, search and seizure, disclosure, privilege and the use of evidence require specialist criminal advice. A taxpayer should not assume that explanations previously given to HMRC will remain confined to the calculation of tax or penalties.

VAT Fraud and Kittel Allegations

HMRC may deny input tax where it alleges that a trader knew, or should have known, that its transactions were connected with the fraudulent evasion of VAT. These cases are commonly described as Kittel cases. They are often fact-heavy and may turn upon what the business actually knew, what a reasonable trader in its position should have recognised and what due-diligence evidence existed at the relevant time.

The consequences can be severe. A denial of input tax may create a substantial assessment, followed by interest and penalties. Directors may also face personal, regulatory or reputational consequences. In more serious cases, the same factual allegations may attract criminal or money-laundering scrutiny.

I advise on:

• the legal test of actual and constructive knowledge

• transaction chains and HMRC's evidential case

• commercial records and contemporaneous due diligence

• credibility findings and the treatment of witness evidence

• VAT assessments, penalties and appeals

• the interaction between tribunal proceedings and potential criminal exposure

A strong response requires more than a general assertion that the business acted honestly. The transaction history, documents, commercial context and HMRC's reasoning must be tested in detail.

Information Notices Document Demands and Disclosure

HMRC has extensive statutory powers to require information and documents, including under Schedule 36 to the Finance Act 2008. Those powers are substantial but not unlimited. The material requested must fall within the applicable statutory power and, where the test applies, must be reasonably required for checking the relevant tax position.

Questions may arise about relevance, scope, proportionality, possession or power, privileged material, personal records, third-party information, the period covered by a notice and whether the correct statutory procedure has been followed.

I have direct experience of litigating HMRC information powers. I appeared in R D Utilities Ltd v HMRC [2014] UKFTT 303 (TC), a reported decision concerning a Schedule 36 information notice.

In a serious investigation, disclosure strategy should be considered in the context of the entire case. A document may bear upon tax liability, penalties, the taxpayer's credibility and potential criminal allegations. Equally, an unjustified refusal to provide material may expose the taxpayer to penalties or cause HMRC to draw adverse conclusions.

I advise on the validity and scope of information notices, proposed responses, applications and appeals before the First-tier Tribunal, and the relationship between HMRC's information powers and public-law remedies.

Offshore Assets and International Taxpayers

International wealth is not inherently suspicious, but it can be difficult to explain where assets, businesses and family arrangements have developed across several countries and over many years. HMRC may examine residence, domicile, remittances, beneficial ownership, offshore income and gains, trusts, companies, property, bank accounts and transfers between family members.

The central task is to establish the true history of the assets and transactions. This may require records held abroad, evidence from former advisers, translated documents and an understanding of legal or commercial arrangements that do not correspond neatly with their UK equivalents.

I advise UK and overseas clients facing HMRC investigation where the case involves international assets or cross-border facts. I have deep experience working with Asian, Middle Eastern, and American businesses and families where regulatory friction has occurred and needs forensic calming and resolution.  

I can work with UK solicitors and accountants, overseas lawyers, tax advisers, translators and forensic specialists so that the explanation provided to HMRC is legally accurate and supported by evidence.

International cases also require care about information exchange, parallel proceedings, immigration or nationality consequences, professional regulation and the position of family members or companies implicated in the same transactions. Those issues should be identified at the beginning rather than after inconsistent positions have been adopted in different jurisdictions.

Judicial Review of Unlawful Investigative Action

HMRC is a public authority. Its investigative and enforcement decisions must remain within the powers conferred by Parliament and comply with public-law requirements. In an appropriate case, judicial review may be available to challenge unlawful action, procedural unfairness, an irrational decision, an improper purpose or a failure to take relevant matters into account.

Judicial review is not a substitute for a statutory appeal. The availability of an alternative remedy, the stage reached in the tax process and the practical utility of the proposed challenge must all be considered. Proceedings must also be brought promptly and strict time limits apply.

I can assess whether HMRC has used the correct power, whether a decision is properly reasoned, whether the procedure adopted was fair and whether the matter should be pursued through a tax appeal, judicial review or a coordinated combination of remedies.

Potential issues may arise from compulsory information demands, decisions affecting the conduct of an investigation, unlawful reliance on policy, failures of procedural fairness or investigative action producing consequences that cannot adequately be remedied by a later tax appeal.

When to Obtain Advice

Specialist advice should be obtained as early as possible where:

• HMRC alleges deliberate conduct, dishonesty, concealment or fraud

• a COP9 or Contractual Disclosure Facility letter has been received

• HMRC requests an interview or an interview under caution

• the taxpayer is considering a disclosure of previously undeclared tax

• an information notice seeks extensive, personal or historic records

• HMRC contacts banks, customers, suppliers or other third parties

• VAT input tax is denied on Kittel or fraud grounds

• offshore accounts, trusts, companies or property are under investigation

• a bank account or asset has been frozen or restrained

• a professional regulator or another enforcement agency is involved

• there is concern that a civil enquiry may develop into a criminal investigation

Advice is particularly valuable before the client sends a narrative explanation, signs a certificate, accepts or rejects the CDF, attends a meeting, answers allegations of dishonesty or supplies a large body of documents without first establishing their relevance and context.

Direct Access and Professional Instructions

I accept instructions from solicitors, accountants and other professional advisers. I also accept instructions directly from businesses and members of the public under the Public Access scheme where the case is suitable. I hold the right to conduct litigation.

Not every investigation is appropriate for Direct Access. A solicitor may be required where the client needs police-station representation, extensive evidence gathering, the management of disclosure, client-account facilities or the day-to-day conduct of criminal proceedings. Where that is the position, I will say so clearly and I work with leading and down-to-earth firms who can assist on all the above.

Instructions can be structured in stages. These may include an initial conference and document review, a written opinion, advice on an urgent response to HMRC, the settlement of representations or appeal documents, and continuing advice as the investigation or litigation develops.

Michael Paulin is a barrister regulated by the Bar Standards Board. He practises from London and Belfast, is a member of the Bar of England and Wales and the Bar of Northern Ireland, and was nominated as Legal 500 Tax Junior of the Year 2025.