Contractors' advisers 'walking a tightrope over HMRC production orders'

Contractors’ advisory firms are increasingly having to walk a tightrope between complying with the taxman and honouring client confidentiality, a law firm is warning.

In fact, so-called ‘Production Orders,’ which HMRC is upping its use of to force third-parties to furnish it with data to help it prove evasion, place recipients in a “difficult position,” says RPC.

Issued by the Criminal Investigation Directorate, the orders require firms to hand over details on usage of an EBT, among other arrangements, so officials can bring a criminal case.

'Struggle to find a balance'

“Firms that receive an HMRC production order can often struggle to find a balance”, says Adam Craggs, partner at RPC, which provides legal advice to a range of sectors.

“[That balance is] between the requirement to hand over requested documents whilst also making sure client confidentiality remains intact.”

And if firms refuse the order, he warned, “this could lead to criminal sanctions” from HMRC -- but if they provide too much information, “they could face a legal claim from their client.”

'Concerning'

The law firm was speaking after it uncovered such orders from HMRC trying to investigate suspected tax evasion to have exceeded the 1,000 mark for the year ending March 31st 2018.

Specifically, some 1,414 orders were issued by HMRC last year to accountants, lawyers and other professional services firms for data on their clients which it wants to probe for evasion.

But described as “concerning” is the trend for the Revenue to use the orders to build a case against arrangements that, in the past, it challenged by the civil route via the tax tribunals. 

“It is now increasingly launching criminal investigations into such arrangements,” said Craggs, pointing to Employee Benefit Trusts as an example.

“The mere commencement of a criminal investigation can create serious practical difficulties for taxpayers and their businesses such as, for example, lenders calling in loans. Such commercial damage can be irreparable for a small to medium sized enterprise.”

'Frequent' failure

Recipients of the orders were advised to obtain independent advice and make representations to a court, as doing so can see judges reject the application by HMRC.

However, HMRC criminal investigations typically take several years to complete, imposing stress and uncertainty on the taxpayer, even though “frequently [they] do not lead to a subsequent criminal prosecution,” Craggs said.