113: HMRC puts the brakes on Bernie Ecclestone: why are they prosecuting the former F1 boss?
It is noteworthy that HMRC have decided to pursue a criminal prosecution against Bernie Ecclestone in relation to his alleged tax fraud arising from his failure to pay tax on £400 million of offshore assets.
Tax evasion: the deliberate failure to pay tax which the individual knows is due, is a criminal offence. But HMRC prosecute in only a minority of cases of tax fraud. In 2017-18 there were about 4,000 cases of tax fraud, but only 896 prosecutions and 815 convictions. Last year, prosecutions fell to a low of 304. This is not because HMRC are easing up on fraudsters. Far from it! With the roll-out of the Common Reporting Standards and Tax Information Exchange Agreements, HMRC now receive unprecedented amounts of information on the offshore financial accounts of UK residents which greatly assists them in pursuing their crackdown on non-compliance, especially offshore non-compliance.
In most cases, HMRC prefer to use their civil fraud investigation powers under the ‘Code of Practice 9’ procedure. Why? There are a number of advantages over criminal prosecution:
- a civil investigation results in the recovery of the tax due. Where a taxpayer has deliberately evaded tax, HMRC can recover unpaid tax going back 20 years;
- the taxpayer has to pay interest on the unpaid tax;
- HMRC can also recover penalties which vary depending on the location of the assets and the degree of cooperation from the individual. In the case of deliberate non-payment of tax involving a non-cooperative tax haven, the penalties payable can be up to 200% of the tax evaded, in addition to the tax itself and interest on the tax. So there is a strong financial incentive to use civil measures;
- it is easier to get a ‘conviction’. In the civil courts, HMRC only have to show that it is more likely than not that the individual acted deliberately. In the criminal court they must prove their case beyond reasonable doubt;
- civil investigations involve less time, resources and cost compared with criminal proceedings;
- HMRC can ‘name and shame’ deliberate tax evaders on their website; and
- if a taxpayer fails to make a complete clean breast of things, they can still be prosecuted, so they need to make full disclosure to be safe, which may mean HMRC get more tax than they expected.
A major consideration in deciding whether to prosecute is HMRC policy. As a matter of published policy, HMRC will only prosecute where there is a need for a strong deterrent message or only a criminal sanction is appropriate. This includes situations where the fraudster is in a position of trust eg a charity trustee or a professional, or where organised crime is involved. A further category is ‘where deliberate concealment, deception, conspiracy or corruption is suspected’. Given the comments of Simon York, the director of HMRC’s Fraud Investigation Service, it looks as if Mr Ecclestone is being prosecuted because he is alleged to have concealed assets offshore and did so deliberately. Also, the prosecution of such a high profile figure would align with HMRC’s policy of sending a strong deterrent message. The clear message is that no-one is above the law.