What this article does is provide a short practical guide to searches of premises under warrant by HMRC, and how to minimise the chance of that happening to you. It's not a substitute for legal advice, so if HMRC turn up with a warrant, or if you fear they might, call us before they call on you.
You are first to arrive at your company HQ one morning. As you open the door, eight men and women in stab-proof vests get out of an unmarked van and approach you. One of them hands you a document. It's a warrant to search the company premises.
What should you do?
Don't panic. The first thing is to check the warrant. It should state clearly which regulatory authority is visiting; what they are looking for; how many people are allowed to look for it; for how long; and on how many occasions. You should also be able to work out whether or not it is your company that is the focus of the regulatory authority's investigation (bad) or whether spotlight is trained on another company and they are just seeking documents that relate to that other company (likely to be much less unpleasant).
The next thing to do is to check in with one of the senior management team of your company. If it is your company that is under investigation there's a sporting chance the senor management have had a visit from the same authority themselves and are in custody. So they may not be contactable even on their emergency numbers.
Then call a lawyer. Fieldfisher has a single 24-hour emergency number you can call for assistance in the event of a regulatory raid- 0161 981 0989. All you need to tell our operator is who you are, where you are, and which regulatory authority has come to call and you will be connected through to a Partner in the firm with experience in dealing with unexpected visits by that authority.
Dawn Raids by HMRC
On reading it you find the warrant has been made out to HMRC. This is much more likely than it used to be. The Government (and the CPS) have said repeatedly that their target is to raise the number of tax cases prosecuted 'five‐fold' by the end of this tax year. HMRC carries out raids when it suspects a tax fraud has been committed and it believe there is relevant evidence on the premises in question. Given the commitment to prosecute many more people, HMRC's criminal investigations activity ‐ interviews under caution, arrests, and searches of premises under warrant ‐ has been dramatically stepped up.
Where HMRC turn up with a warrant to search your premises they are not doing so on a whim. Criminal investigations, and especially raids, are extremely expensive for HMRC to undertake. If it is indeed your company that is the focus of the investigation, there will have been a significant period where HMRC have been gathering information and conducting surveillance. Permission to apply for a warrant will have had to have been given at a senior level within HMRC. HMRC will also have had to present evidence to a Judge to persuade that Judge to issue the warrant to search for the company premises. So while it is conceivable that HMRC are acting under a misapprehension, and we have seen occasional cases where we believe this to be the case, it is much more likely that, somewhere in your organisation, someone has some explanations to make.
Once you have your lawyer on the phone ask the HMRC team leader to speak to them. Ask HMRC to wait until your lawyer arrives on the premises before starting the search. HMRC do not have to wait but may do so if you ask and can provide a timescale for the lawyer's arrival; and it's also more likely they will wait if your company is not the primary focus of the investigation. If HMRC refuse to wait, ask them at least not to take anything away until your lawyer arrives.
Once the lawyer has arrived, your role is going to be to minimise disruption to the business where possible. You should check if any clients are planning to visit the company HQ that day- and if possible cancel any appointments. If clients are going to be coming in you don't want them seeing a group of HMRC officers riffling through the paperwork, so find a room for HMRC to use as a base that is out of sight of reception. Make sure it's a room with a photocopier nearby so seized documents can be photocopied if they are business critical. HMRC can take away any documents they want, as well as any electronic devices they want; if they do take them away, it will be months before you see them again.
Ideally agreement can be reached with HMRC that the documents be brought to HMRC in the room they have been installed in. If not, and if other staff from your company have started arriving by this point, get one of your staff to shadow each member of the search team and take a detailed note of what they are doing. You will get copies of 'log sheets' at the end of the raid but they are often not sufficiently descriptive to enable you to work out what has been taken from where. So it's better to have your own note.
Your staff should be told not to physically obstruct the search team and not to destroy or conceal information or documents. All of these can be criminal offences and can lead to arrest. (A reputation management tip: your staff should be instructed not to tell anyone that the search is going on. I have seen Facebook status updates saying "We're being raided :-o"...)
If the warrant is issued in England or Wales the search team cannot interview anyone at the premises about the alleged offences which have led to the issue of the warrant. So questions asked of your staff should be restricted to matters relating to the search (i.e. 'where would I find document x?', 'what is the password for y?').
An HMRC officer can arrest any member of your staff ‐ without a warrant ‐ if they have reasonable grounds for suspecting that an offence has been committed and that that person is guilty of it. The search warrant may also allow HMRC to search your staff without arrest. Searches must be carried out by an officer of the same gender.
As mentioned earlier it is possible that members of staff (especially, where your company is the focus of the investigation, senior staff) may have been arrested at home in advance of the search of the premises. If this is the case, they will also need legal advice, including about whether to answer questions in any interview under caution. It is possible they may need legal advice independent of the company, but that is a discussion for whoever attends them at the police station to have with them.
Notify your insurers if you have legal expenses insurance, check the conditions of any bank debt or debt factoring facilities to see if notifications are also necessary there, and talk to your PR company about lines to take if you anticipate media interest.
Could this happen to your company?
Our experience is that the companies that find themselves falling foul of an HMRC criminal investigation are often ones that are successful and have been growing quickly. It is often the case in high-growth companies that the administrative systems fall behind the growth of the business, the management are focussed on growth and profit rather than internal controls, and available funds are spent accordingly. This is where the opportunity for tax malpractice can creep in- often perks for the workforce, which are not properly captured on employees' PAYE returns but also, more rarely and more seriously, cash bonuses, facilitation payments and so on. Proper tax compliance is sometimes conceived of by charismatic and successful business leaders as 'boring'. And it is. But if it is not done right, tax can become exciting for all the wrong sorts of reasons.
There are sometimes signs that HMRC are conducting a criminal investigation. Investigations often grow out of a normal civil enquiry into the company, sometimes an 'aspect' enquiry into something like the benefits declared on the PAYE returns for the Directors. Always be cautious if after a first round of explanations have been given the officer conducting the enquiry comes back to ask more questions. Ask yourself, why are they asking these further questions? Are they leading you into a situation where you might be defending the indefensible? And if such an enquiry 'goes quiet' for any period of time, the officer conducting the enquiry may be obtaining internal advice from the criminal investigations team, or acting under their instructions. You should call a lawyer.
How to make sure it doesn't happen to you
You should be aware that the financial costs of dealing with a regulatory raid can be enormous. Working out who and what HMRC suspect, and engaging with those people and with HMRC going forward, can be an enormously time intensive process for your lawyers and accountants. It is not unusual for investigations to go on for two years, or more, after a raid and your company may need specialist professional assistance throughout that period. It is much, much, better and ultimately much, much, cheaper to have robust systems in place, in advance, such that you can clearly demonstrate the policies and procedures by which the company ensures compliance with all applicable tax laws. We strongly recommend you work with a reputable firm of business accountants to put appropriate systems in place.
If, in the process of working with your accountant to put such robust systems in place, you uncover evidence of past tax malpractice within the organisation, again you should instruct specialist lawyers immediately, work with them to make an early notification to HMRC of the issue that has arisen, and make an application for the Contractual Disclosure Facility. Our experience is that where this happens promptly HMRC are content to let you complete your own investigation of the issue and are happy for you to put your own house in order- rather than for them to have to do it for you. While the tax, interest, and penalties that are the result of such a disclosure are painful, and often difficult for the company to meet, and while it can be traumatic for the organisation if it is necessary to dismiss directors or employees for gross misconduct, the reality is that this is much better that the seismic disruption that an HMRC criminal investigation will cause- which will sometimes be fatal for the business.
Regulatory Raids and Incidents Hotline- 0161 981 0989
Field Fisher Waterhouse have a wealth of practical experience over many years of assisting with attendances under warrant by HM Revenue & Customs, the European Commission, the Office of Fair Trading, the Serious Fraud Office and the Financial Conduct Authority, as well as attendances by the Health and Safety Agency following accidents. We attend and advise at interviews under caution clients arrested by any of the above regulatory authorities. And we deal with attendances at the premises of clients where search and seize orders, freezing orders, and employment related injunctions are being served.
Please call the number above- it's manned 24 hours a day, 365 days a year should you need our urgent assistance following a raid or arrest by any of these regulatory authorities. You will be asked a few questions by our operator to enable them to direct you straight to the correct Partner within our experienced team. Please note that we do not provide advice under any duty solicitor scheme and we do not advise on criminal legal matters other than in the specific categories set out above.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
