DEALING WITH AN HMRC DAWN RAID

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Background

In recent years, HMRC raids have been more cost effective in terms of recovering revenue.  The Telegraph commented on the developing policy - ‘hit squads will be looking specifically for errors in PAYE, VAT, corporation tax and income tax records but they’ll also report any breaches of the law around the minimum wage and the use of illegal migrant labour.’  They could have added that HMRC officers are being encouraged to record and refer evidence of other alleged wrongdoing to prosecuting agencies such as The Health and Safety Executive, The Food Standards Agency, The Department For Business And Enterprise and The Financial Services Agency (Now the Financial Conduct Authority and The Prudential Regulation Authority) amongst others. A greater use of asset recovery legislation and greater levels of co-operation between agencies has meant that a raid on commercial or domestic premises can open up a number of avenues for different investigators. Enquiries have a habit of gaining momentum if they are not met with a robust response and we are proud of our record in that respect.

The premises named in a search warrant may not be the main target. A raid on particular premises may have been organised because executing a warrant might be the only practical way in which evidence of wrongdoing by others can be gathered. Consequently, businesses should take sensible precautions and have measures in place to deal effectively with an HMRC intervention, whether or not they are concerned about their own commercial activity.

Professional officers will not object when properly challenged by a business trying to protect its legal rights and legitimate commercial interests. Unprofessional officers will think twice about taking advantage when challenged by a properly prepared protocol. Businesses across the UK need to have support of a committed and experienced legal team, as well as a strategy in place for what to do if they are targeted.

What and where can be targeted?

 HMRC can raid either a home or business of someone they suspect may be committing tax offences. The raids are usually early in the morning and different branch offices of the same company may be targeted at the same time to avoid any ‘tip-offs’ between locations.

What do I need to know?

 A detailed knowledge of the law is not required to protect your company but a basic protocol should be put in place. It is prudent to nominate one employee (plus a back up in case they are absent) who will take charge of proceedings should a raid occur.  All employees who are likely to be first contact for HMRC Officers should be fully briefed with a plan of action. From here on in, the nominated employee will be referred to as ‘Supervisor’ and their role is explained below. The Supervisor should be fully trained on the protocol and take charge and other employees should be aware who the Supervisor is so that person can be alerted immediately in the event of a visit from HMRC.

Arrival of HMRC Officers – don’t panic!

 Keep calm and follow the protocol in the guide below. Do not become aggressive or obstructive.

Officers do not have to wait for your Solicitor to arrive before they begin their search but they should be prepared to wait a reasonable time, not least because proceeding in spite of a request for legal assistance on-site can produce evidential difficulties later in the case. The officers will usually agree to speak with your solicitor by telephone before commencing the search. We always ask to speak to the officer in charge of the search by telephone at the earliest opportunity so that we can ask questions about the obtaining and execution of the warrant. A telephone conversation can sometimes be sufficient if the search is very specific and limited to particular evidential requirements. However, officers will normally seek a warrant permitting a wider search because they often run into unforeseen issues and they will want a power to deal with the unexpected.

Should the officers not agree to wait for your Solicitor to arrive before beginning their search, an employee should ‘shadow’ each Officer as they make their way around the office. Records should be kept of all documents examined, copied or removed. Employees should make reasonable requests to copy all documents which are removed to avoid as little disruption as possible to the business in the period following the raid. Making sure employees are aware of their role and rights during a raid is imperative so as not to give HMRC Officers free run around the premises. In fact, many officers encourage co-operation and 'shadowing' because they can find it difficult to deal with subsequent accusations that officers have somehow attempted to covertly remove evidence they were not entitled to seize. This can seriously undermine their case and an officer's credibility. 

Employee’s rights

 Officers cannot interview or interrogate employees whilst they make their way around the office. However, they may ask practical questions (e.g. the whereabouts of documents, hardware or passwords for computers etc.) Such information should be provided wherever possible, as obstructing an Officer in the course of executing a warrant can be a criminal offence. The separate offence of 'prejudicing an investigation' under The Proceeds of Crime Act 2002 is broadly defined and staff need to know that the consequences of committing the offence can be serious.

Officers are permitted to use reasonable force to enter and search locked rooms, safes etc. and will do so if a key or other requested assistance is not provided. Personal searches of employees by Officers may be permitted but must be completed by an Officer of the same gender and searches must be in pursuance of the terms of the warrant. Arrests can be made where (i) they have reasonable grounds to suspect the commission of an arrestable offence and (ii) a suspect can be properly identified. In other words, a search warrant is not a licence to empty the premises and remove belongings which have nothing to do with the enquiry.  

Preparing

 Subject to the terms of the warrant, paper documents and data can be seized. This will often cause major problems for any business in the period following the raid, so management should ensure that all data is backed up on a regular basis and officers should not object to reasonable requests that documents are copied before originals are removed. Producing your own electronic data back-up during the course of the search itself will not normally be possible because it might disturb the evidential integrity of the data. However, officers will normally be accompanied by a computer forensic technician to deal with the copying of data in a manner which maintains evidential integrity. This is especially the case in large enquiries or where IT is critical to the running of the business. Businesses should not hesitate in making officers aware of how important certain IT might be to the commercial operation. If an HMRC technician is not present, it may be possible to have a specialist called to the site to perform a forensic back-up or 'image' data on behalf of the company. Our team includes suitably qualified and experienced computer forensic experts, specialising in 'disaster recovery' for small and large networks across a range of platforms.

Keeping a record of seized hardware

 Sometimes, hardware has to be removed but when the computers are eventually returned, you will want them to be the ones which were removed in the first place. Employees should have access to a camera, or be instructed to use their mobile phone camera, to take pictures of the serial numbers of any hardware removed from the premises. Ideally, a business should keep an inventory including hardware serial numbers and this should be kept off-site (along with data back-ups). This may be a requirement in the relevant insurance policy.

Records of the Search

 Officers may request that employees sign for documents or hardware seized. The receipts should be checked properly and the description of the item should be well-defined before a signature is provided. For example, ‘bag of papers’ is not sufficient, especially if HMRC officers need to remove a large number of bags in a complex enquiry.

Can the Officer’s seize everything?

 Documents protected by Legal Professional Privilege (LPP) are not within the scope of the warrant. Legal professional privilege entitles a client to refuse to disclose some of their confidential communications to another party, (e.g. HMRC, the Court). LPP exists because the client must be sure that what he tells his lawyer in confidence will not be revealed without his consent or by order of the court. A diligent officer should recognise when a document might be protected by LPP but if agreement cannot be reached, the documents should be placed in sealed envelopes until issue is resolved. Sometimes, LPP documents do not come to light until officers consider the evidence in more detail after it has been removed from the premises. In the event, they are obliged to follow a particular protocol and specific legal advice is recommended so that rights can be protected.

Whether a document is protected by LPP is not always obvious and legal advice is recommended. However, employees should have an idea of what may be protected so they can flag this up and delay/prevent the Officer scrutinising the document(s).  Briefly, LPP exists in two situations –

  1. legal advice privilege (evidence of communications between lawyer and client) and
  2. Litigation privilege (communications between lawyer and client created for the     dominant purpose of obtaining legal advice or preparing for imminent legal proceedings.)

If you suspect a document falls into this bracket refer it to the Supervisor. If there is a disagreement, the document should be placed in a sealed envelope until the Solicitor arrives.

After the Search

 Once the Officers have completed the search and have left the premises, one employee should be nominated to compile all the information regarding what was searched and what was removed so that management and the Solicitor (if one is not already on site) can be fully briefed. This exercise can be critical in establishing whether or not the officers acted within the scope of the warrant.

Following the raid itself, it may be appropriate to explain the position to staff, clients and other affiliates because HMRC may wish to interview them at some point in relation to the enquiry. Care must be taken in relation to how this is done in order to avoid an allegation that a briefing 'prejudiced the investigation'. It is also prudent to consider possible press coverage of the raid and broader PR ramifications. JMW's media lawyers can provide specific advice on 'reputational management' and other issues arising out of press reports.

How can JMW help?

 Whether you wish to protect your business in high risk areas, or you seek assistance during/following a recent HMRC intervention, we can offer:-

  • Risk assessments and policy development to minimise the impact of HMRC intervention.
  • Expert accountancy advice from forensic specialists, including former HMRC investigators.
  • Tax Risk health checks to discover whether your business might be at risk from an investigation.
  • Advice on Liechtenstein disclosure facility, UK /Swiss tax cooperation agreement.
  • Assistance with 'Code 8' enquiries and the Civil Investigation of Fraud (CIF) process.

Should the worst happen, we can arrange legal, forensic and accountancy representation on-site during an HMRC raid or after the event. We can also be present to advise during interviews under caution and we can represent the business or individuals in the event of proceedings at the Tribunals or criminal courts.

For a no obligation discussion on how we can assist, please contact the regulatory team by using the contact box, call us on 0345 872 6666 or email evan.wright@jmw.co.uk

 

We also have a quick look step by step guide for you and your employees here.

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