As the governmental body overseeing tax legislation, HMRC has the capability to launch criminal investigations when a business is suspected of engaging in tax evasion, VAT fraud or tax fraud.

Standard tax inquiries are non-criminal in nature and can be dealt with on a civil basis, avoiding criminal sanctions. However, if the level of fraud or suspected fraud involved meets certain conditions, HMRC will escalate their investigation from a civil case into a criminal investigation, such as when:

• HMRC is looking to send a strong deterrent message
• When the conduct involved is such that only a criminal sanction is appropriate

If found guilty after a criminal investigation, the convicted parties will face steep financial penalties and, in some circumstances, time in prison.

The type of records HMRC might ask for will depend on the nature of the investigation, but could include any of the following:

• Bank statements
• Payroll records
• Credit card statements
• Sales invoices
• Expense receipts
• VAT records
• Quotes from third parties
• Copies of emails and correspondence

If only minor adjustments to your tax return are necessary, HMRC may not investigate previous returns. However, if larger adjustments are required, then tax returns from earlier years are likely to be looked at.

Generally, if the investigation was triggered by a careless error, then a maximum of six previous years can be looked at in the settlement. However, if the error is deemed to be deliberate, then HMRC has the power to go back 20 years. Discuss your situation with our tax solicitors and we can help you to determine what evidence you may need to provide.

If an HMRC investigation determines that you owe additional tax, you will be liable for a penalty. The severity of this will consider the reason for the error, which could include:

• Mistakes or misinterpretations
• Failure to take reasonable care
• Deliberate understatement
• Deliberate understatement and concealment

If it is clear that you have made a genuine mistake with your return, then the penalty will be less severe than if you have deliberately falsified the return. In these instances, it is likely that you will simply be asked to pay the remaining tax within 30 days of the decision, potentially with interest added.

A deliberate underpayment will lead to a higher penalty. Typically, this could be anywhere between an extra 15% to 100% on top of your payment, but the figure could go up to 300% in severe cases.

In the most serious situations, a criminal prosecution might be brought. Under these circumstances, it is advisable to contact our specialist tax solicitors for help and advice.

HMRC does not limit itself to investigating only income tax. Other types of business taxes that can be investigated include:

• Corporation tax
• VAT
• Insurance premium tax
• Climate change levies
• Landfill tax
• Capital gains tax
• Construction industry schemes

There is no time limit on how long HMRC has to complete a tax investigation, meaning the process could take weeks, months or years for more complex cases.

The duration of the process will depend on a number of factors, including the scope and gravity of each individual case, the nature and extent of HMRC’s concerns, and the conduct of the accused during the case. Our HMRC solicitors can discuss the circumstances of your case in detail and will communicate with you throughout the process so you will always know what to expect and how things are progressing.

HMRC has the power to enter premises to search and seize property. However, it is important to seek advice from a legal representative with the relevant experience when this happens, because HMRC can sometimes exceed their powers. Challenging the exercise of these powers is often crucial in defending your legal rights.

As such, you should contact JMW's tax investigation lawyers as soon as possible after the arrival of HMRC. For more advice on how you can protect your position, check out our guidance on HMRC dawn raids.

HMRC often invites individuals under investigation to attend a "voluntary interview", rather than relying on the powers of arrest. Although you do not have to attend, a refusal could put you at risk of being arrested.

Deciding whether to attend an interview may require expert judgement, and careful preparation for voluntary interviews can make a very important difference to the outcome of the investigation or any criminal proceedings. JMW’s tax investigation solicitors can guide you through the pre-interview process, the interview itself and any resulting action required to protect your position.

If you are being prosecuted over a tax investigation issue, you should immediately instruct an experienced solicitor to advise you on what action to take in your particular circumstances. Doing so will be essential if you are looking to challenge the prosecution case, properly exercise your legal rights and mitigate the indirect commercial or personal impact of prosecution.

At JMW, we can provide expert guidance to help you build the strongest possible defence case, and assist with reputational management, corporate restructuring and other services from our various departments. Different funding options are available, and we can organise a no-obligation discussion to set out your options.

An investigation by HMRC is usually triggered when figures submitted on a return appear to be wrong or unusual in some way - for example, if a small company suddenly makes a large claim for VAT, or a business with a large turnover declares a very small amount of tax.

However, there are other incidents that could lead to a business coming under investigation, including:

• HMRC receiving intelligence or a report
• Working in a high-risk industry - for example, one that regularly takes cash payments
• Having a large increase in costs or drop in income
• Significant inconsistencies between different returns
• Repeatedly filing your tax returns late
• Costs that are larger than the industry norm
• Tax returns appearing to be inconsistent with your standard of living
• Being in a sector that HMRC has decided to target
• Trading in non-tangible products

Unexplained Wealth Orders (UWOs) came into force in January 2018 to help authorities identify and seize property suspected to have been bought by laundered criminal funds, most commonly from foreign sources.

To find out more about what a UWO entails and what could happen if you were to become subject to one, check out our UWO factsheet.