Income tax fraud is dealt with by the statutory offence of being ‘knowingly concerned’ in the ‘fraudulent evasion’ of income tax under section 106A Taxes Management Act 1970. That provision was originally introduced into the Finance Bill 2000 in the form of what became section 144 Finance Act 2000 and at a late stage unease was expressed about the imprecision inherent in the phrases ‘knowingly concerned’ and ‘fraudulent evasion’. In response the Paymaster General explained the use of these phrases as follows:
“I will deal with the important point about the words “knowingly” and “fraudulent evasion” … My officials will smile when they hear this, but initially, I said to them, “Surely evasion is fraud”, and asked why it needed to be qualified as “fraudulent evasion”. I have received assurances which I will pass on to the Committee. The juxtaposition of the words “knowingly” and “fraudulent evasion” reinforces exactly which offences the provision is aimed at.
Let us take the question of someone who is knowingly concerned in the evasion of income tax. I want to make it clear that it is not enough for this purpose to show that a person should have suspected that someone was evading tax. The person must have knowledge and involvement in the fraud. For example, he could help someone evade tax by the helping to produce false business records.
People may ask why we have put the words “fraudulent” and “evasion” together. I am reliably informed by people who know better than I do that, in English usage, “to evade” can mean to dodge, without any dishonest intent. Although “evasion” has come to imply dishonesty in the context of tax, the Bill needs to be drafted tightly. “Fraudulent” may not appear to add much to “evasion”, but the expression “fraudulent evasion” is well precedented and subject to interpretation by the courts.”
(HC Official Report, Standing Committee H, 29 June 2000, col 1010.)’
Therefore the phrase ‘knowingly concerned’ requires knowledge of (rather than mere suspicion) and involvement in the evasion of tax, and the phrase ‘fraudulent evasion’ requires proof of dishonest intent. In relation to tax planning, assurances were sought as to the meaning of ‘evasion’ and in particular whether those involved in tax avoidance schemes might be charged with the commission of this offence where the scheme was adjudged to have failed on technical grounds. In this respect the Paymaster General said:
“No one could be convicted as a matter of general law unless it was proved that he or she had a dishonest intention…
The Right Hon. Member for Wells asked about tax advisers who gave advice on avoidance schemes that failed. A failed scheme whose details are not hidden from the Revenue amounts not to tax evasion, but to tax planning … The Government may not like some of that planning and may legislate against it, but, as it is not hidden, it does not fall within the remit of the measure …
… avoidance is not evasion; there are separate laws to deal with the latter. The Right Hon. Gentleman asked when avoidance became evasion. Unless he can give an example, I cannot think of such an eventuality.”
(HC Official Report, Standing Committee H, 29 June 2000, cols 1012 and 1013.)’
Indeed and consistently with the above remarks, the Court of Appeal held in R v Godir  EWCA Crim 2294 that recklessness was not sufficient to convict someone of this offence although wilful blindness as distinct from recklessness could be sufficient grounds to convict.
Separately, cheating the public revenue is a judge made criminal offence and in order to obtain a conviction the prosecution only have to show that the defendant has made a false statement with the intention of defrauding HMRC: see R v Hudson  2 QB 252. Positive acts are not required and a failure to act can still amount to cheating the revenue.
In the case of R v Mavji, 84 Cr. App. R 34 it was held by the Court of Appeal that an actual act of deception is not necessary. The defendant’s failure in that case to submit a VAT return or pay the VAT due was sufficient because he had done so with dishonest intent to evade tax.
What matters in tax fraud cases is whether you were behaving dishonestly and intended to cause a loss to HMRC or perhaps was wilfully blind to the fact.
In the end whether the offence you are charged with is section 106A Taxes Management Act 1970 or the common law offence of cheating the revenue, the ultimate question will be whether there was an intent to defraud – i.e. was the defendant acting honestly or not?
It is vital that your defence in a tax fraud case is prepared with precision and care. No detail should be considered too small and the difference between acquittal and conviction may in the end rest on some apparently obscure fact or explanation or by pressing for thorough disclosure and examination of the prosecution’s case.
If you are being investigated by HMRC in connection with income tax fraud or penalties and would like help please contact Patrick Cannon for an initial discussion or advice.