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Nothing can prepare most people for the emotional turbulence that follows the receipt of a letter from HMRC, particularly if it is from the Fraud Investigation Service. From the moment that the innocuous-looking little brown envelope lands on their doorstep, containing the fateful acronym “FIS”, it is very common for recipients to find every waking moment being entirely subsumed by an overwhelming feeling of dread.
If you are reading this and have recently been notified by HMRC that you are suspected of “serious fraud”, and can’t see a light at the end of the tunnel, then let us skip to the punchline. All is not lost. No matter how hopeless you may feel, it is almost always possible to improve your position with the help of a decent professional adviser. However, almost as important as securing a positive legal outcome is the need to ensure that you don’t suffer from preventable emotional harm along the way.
It is often said that any investigation, especially if it involves the F Word (fraud), can be the most stressful process that any individual can go through. A recent study following the Horizon Post Office scandal found that suspects suffered severe psychological damage, with more than two-thirds experiencing extreme post-traumatic stress disorder and depression. The level of PTSD was even said to be higher than that found in the UK armed forces, and the severity of symptoms did not differ between those pursued through the criminal or civil courts. Strikingly, the harm caused by being wrongfully convicted was roughly the same as merely being wrongfully investigated and cleared of wrongdoing.
The important thing to keep in mind is that whilst every case is different, most individuals seem to follow a typical (albeit non-linear) path when it comes to their reaction to being investigated. In the same way that it can be helpful for those who have gone through loss to understand the five stages of grief, so too can it be useful for those under investigation to be aware of a psychological roadmap which can be used to understand the experience and navigate through the process. Whilst there can be no “one size fits all” framework, knowledge of the following stages might be useful as part of a coping mechanism:
Denial
One of the most common initial reactions is to bury one's head in the sand and hope that the problem somehow spontaneously goes away. It goes without saying that this tactic does more harm than good, particularly given the fact that time can often be of the essence when dealing with HMRC investigators.
For instance, if HMRC suspects serious tax fraud, they can offer the taxpayer immunity from prosecution through a process known as the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9). The essential idea of COP9 is that HMRC notifies the taxpayer that they are suspected of fraud and allows a taxpayer sixty days to “come clean”. If an admission of wrongdoing is made within the time limit, a contractual guarantee is given that the matter will not be investigated criminally, and the taxpayer will not be prosecuted.
That sixty-day timeframe is almost always strictly adhered to. It is, unfortunately, all too common to find clients coming through the doors clutching an unopened envelope from HMRC like a grenade and asking what they ought to do. In many instances, the envelope is opened, and it transpires that weeks or even months have already passed. Sometimes it is too late to enter the CDF.
Although it can feel overwhelming, it is vital to grasp the nettle and engage as soon as possible. Shock, numbness, disbelief and a refusal to accept reality can make life much more difficult when it comes to dealing with an investigator. Open the envelope, pick up the phone, and find someone who can help as soon as possible.
Anger
Other than perhaps receiving a parking ticket or a speeding fine, individuals accused of serious tax fraud have often never previously faced legal difficulties. Many are pillars of society who are justifiably protective of their reputation and pride themselves on their honesty and integrity. In these circumstances, to be accused of dishonesty by the state can be a very troubling experience. The immediate reaction by many is to lash out, either at themselves or at their accusers.
As any boxer will testify, fighting with anger can be counterproductive. Clarity and calmness are essential in dealing with any problem. Individuals who (often justifiably) believe that they have been unfairly targeted by HMRC can instinctively feel that the best form of defence is to attack. It can be tempting to seek the assistance of a “rottweiler” style professional to attempt to bludgeon HMRC into submission, perhaps by making a formal complaint, or threatening legal action and seeking damages. Whilst it is possible to complain about HMRC’s treatment, and compensation can be sought (including for worry and distress), it is important not to allow emotion to dictate strategy. It is crucial to focus on the most important target.
The priority in dealing with any investigation by HMRC ought to be to resolve that investigation in a way that preserves three things: liberty, money, and reputation. The order of importance that an individual might place on each of those three areas will inevitably differ from person to person. However, to achieve all three objectives, a diplomatic approach can often be much more fruitful than one involving anger.
For instance, in many instances not involving allegations of dishonesty, HMRC offers mediation or Alternative Dispute Resolution (ADR) in order to settle disputes. That process involves an independent facilitator and is designed to settle issues without the stress and expense of a battle before the tribunal. Even where dishonesty is suspected, and ADR is not appropriate, a cooperative approach with HMRC can result in a much more favourable outcome than a fight. Depending on the facts, it can be possible for a careful and conciliatory adviser to persuade a criminal investigator to deal with a matter on a civil, rather than a criminal basis, in circumstances where a more inflammatory approach might result in prosecution.
Equally, where there is unpaid or understated tax, or a failure to submit a return on time, any penalties can be reduced based on the assistance provided to HMRC. Three factors can help to reduce the penalty: Telling HMRC what went wrong; Helping HMRC by cooperating with the investigation quickly and efficiently; and Giving them the material which they require. The more cooperation that is provided, the greater the reduction.
Accordingly, cool heads will always prevail, and anger should be kept at bay where possible. Only once the main priority has been dealt with, namely the primary investigation, should thoughts of legal action and compensation be allowed to resurface.
Bargaining
“How much can I pay to make this all go away?” This is perhaps the most common question that any individual being criminally investigated by HMRC will ask at one stage or another. Some might want to make a payment at the outset in order to avoid the stress of an investigation. Others might later realise, after weighing up the evidence, that payment of all tax and penalties might be preferable to potential conviction.
In some jurisdictions in Europe, in order to avoid criminal prosecution before a formal criminal charge, it can indeed be possible for a taxpayer simply to pay the full amount of tax owed, plus interest and penalties. However, in England and Wales, it is not possible to divert a case from prosecution simply by making an offer to pay.
The only analogous method of doing so is via the CDF as explained above. If a taxpayer wants to avail themselves of the immunity from prosecution offered, it is possible to actively seek entry into the facility rather than waiting for HMRC to make an offer. However, it is not possible to do so whilst already under criminal investigation, and there is no guarantee that HMRC will allow the individual to enter into the facility. There is therefore a risk that the taxpayer might “own up” to wrongdoing and have that admission used against them subsequently in a prosecution.
Where HMRC suspect that a crime has been committed and are not prepared to dispose of the criminal investigation through their civil investigation of fraud procedure, no amount of bargaining will help. The matter will need to be dealt with as any other criminal investigation, with a good lawyer laying out the planks for a solid defence and using every strategy available to avoid a criminal charge where possible and to achieve an acquittal if not.
Equally, even where HMRC do not suspect criminality, bargaining in the ordinary sense is not possible. In non-criminal cases, HMRC are bound by their formal Litigation and Settlement Strategy (LSS), which effectively prohibits it from accepting purely pragmatic or commercial settlement offers, even where they might appear sensible and even favourable. HMRC are precluded from “cutting a deal” to achieve an expedient outcome. Any settlement must be grounded in proper legal analysis and cannot be resolved in the manner of a normal dispute involving money on a utilitarian percentage basis. As such, if a case cannot be settled, then, as with a criminal investigation, the most positive outcome can only be achieved by strong legal representation before the tribunal.
Depression
Given the above, individuals often reach a point in any tax investigation where they feel that it will never end. A sense of hopelessness, frustration and despair can set in. The average complex tax investigation can take more than two years to resolve, with COP9 investigations frequently lasting more than three years. A criminal tax investigation will often take more than five years to reach a conclusion, particularly if there is a prosecution.
It can be difficult for anyone to live their lives for the best part of half a decade with the spectre of HMRC hanging over their heads, and the constant uncertainty can be profoundly damaging to the mental health of those being investigated. It should always be remembered that HMRC has a duty of care towards the taxpayer. This includes a requirement for them to make reasonable adjustments, such as allowing longer deadlines, and to consider civil settlement where appropriate, particularly if an investigation is causing harm to a person’s health.
However, it is only possible for adjustments to be made if the taxpayer’s adviser is aware of the problem. Some people feel the need to demonstrate a level of stoicism and bravado that can be against their best interests. Many people investigated by HMRC for serious and complex fraud tend to be high-functioning professionals who like to present themselves as strong, unflappable and tough. This is usually a mistake. If an individual is feeling overwhelmed or anxious, those feelings should not be bottled up. Professional advisers need to be able to understand the emotional impact of the investigation to do their job, and HMRC needs to be aware of the same in order to comply with their duty of care.
The bottom line is that professional help does not just mean that lawyers, accountants and tax advisers need to be involved. Often, it is necessary to seek the assistance of a mental health professional to deal with the intense strain caused by a prolonged investigation.
Acceptance
At the outset of an investigation, acceptance can seem almost impossible to fathom. Perhaps the most difficult aspect of an enquiry to grapple with is caused by a loss of control. Business people at the top of their professions, who are often in charge of vast teams, and who are in many cases responsible for every decision that can affect their destiny, frequently cannot initially accept that they are no longer able to steer their ship single-handed. Skills developed over the years, such as negotiation, risk analysis, persuasion, influencing, and decisiveness under pressure, can immediately be neutered. The ability to use business acumen in order to leverage a positive outcome can become impossible. This can be hard to come to terms with.
Simply put, the need to “let go” is crucial. This does not mean that individuals should simply become passive passengers during their own investigation, but it does mean that they ought to lean heavily on experts, who are able to navigate them towards the finish line. Once a taxpayer finds a set of trusted advisers who are able to take control of their case, it can be liberating. Attempting to shoulder the burden without that help is not only unlikely to result in the best legal outcome but will also usually result in a poor outcome in terms of mental health.
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.
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