'Dawn Raids' – what to do should HMRC come knocking!

In the post-pandemic world, the number of dawn raids being carried out is on the increase. Against such a backdrop, it is crucial that businesses are fully prepared should the unthinkable happen.

This blog is based on an article published in Taxation magazine on 1 June 2023.  The article can be viewed here 

Introduction

An HMRC dawn raid is an unannounced search of premises by HMRC and is one of the most effective weapons in HMRC's arsenal when conducting a criminal investigation. They are referred to as 'dawn raids', because they usually commence early in the morning. Dawn raids take place when HMRC suspects serious tax evasion and there is a likelihood that evidence could be destroyed if HMRC make a planned visit or request the required information in correspondence.  In response to a freedom of information request made by RPC, HMRC advised that in the last five years (2017-2022), it has carried out a total of 4,314 property searches.  

The risk of a dawn raid for businesses is a real one given the ever increasing regulatory landscape, and the introduction of failure to prevent offences, such as the corporate offence of failure to prevent tax evasion (introduced by the Criminal Finances Act 2017) and the expansion of money laundering regulations.  It is therefore essential that all businesses are fully prepared should the unthinkable happen and they find themselves  the subject of a dawn raid.  

HMRC's raid powers 

HMRC can only conduct a dawn raid if it is authorised to do so by a search warrant. Generally, HMRC obtain a warrant under section 8, Police and Criminal Evidence Act 1984 (PACE), from the Crown Court. Such a warrant can be obtained if there are reasonable grounds for believing that:

• an indictable offence has been committed;
• there is material on the premises which is likely to be of substantial value to the investigation of the offence; 
• the material is likely to be relevant evidence (i.e. evidence which is admissible in evidence at a trial for the offence); and
• the material does not consist of or include items subject to legal privilege, excluded material or special procedure material.

One of the following conditions must also be met:

• it is not practicable to communicate with any person entitled to grant entry to the premises;
• it is practicable to communicate with a person entitled to grant entry to the premises but it is not practicable to communicate with any person entitled to grant access to the evidence;
• entry to the premises will not be granted unless a warrant is produced;
• the purpose of a search may be frustrated or seriously prejudiced unless a constable arriving at the premises can secure immediate entry to them.

In addition to being able to search for and seize material identified in a search warrant, HMRC has the power to:

• break-and-enter the premises, if they are not provided entry;
• search persons on the premises if it has reasonable cause to believe that a person has material likely to be of substantial value to the investigation of the alleged offence on his or her person; and
• to arrest individuals if the officer has reasonable cause to suspect that those individuals are guilty of an offence.

Can you challenge a search warrant? 

A search warrant can be challenged by way of an application for judicial review of the decision by the relevant court to issue the warrant. The decision can be challenged, for example, on the basis that the above criteria was not met and therefore the warrant should not have been granted, or on the basis that it is too broad, either in relation to the amount of materials identified, or the extent of the time period it covers. For example, if the suspected fraud relates to a period of two tax years, but the warrant provides for search and seizure powers in relation to a ten-year time period, it can be argued that HMRC is on a 'fishing expedition', which the Court should not permit. 

What can HMRC search for and seize?

HMRC can only search for and seize material which is identified in the search warrant and which relates to the time period identified in the search warrant. 

HMRC cannot search for and seize material which is outside the scope of the search warrant, or material which is subject to legal professional privilege (LPP). There are two types of LPP:

• legal advice privilege - confidential communications between a lawyer and their client in the context of seeking or giving legal advice; and
• litigation privilege - confidential communications between a lawyer and their client, or the lawyer or client and a third party, that come into existence for the dominant purpose of being used in connection with actual or pending litigation.

It is important to remember that communications between a taxpayer and their other professional advisers, such as accountants or tax advisers, will not attract legal advice privilege, even if they give legal advice.

What should you do if you are the subject of a dawn raid?

(i) Actions to be taken when HMRC arrive at the premises

 1. Who – Identify the HMRC officers in attendance and ask whether their team leader will speak to your solicitor on the telephone.

2. What – Request to see a copy of the search warrant (you should be presented with a copy in any event). This document contains critical information about the powers of the HMRC team and the scope of the search. Immediately send a copy of the warrant to your solicitor. You should examine the warrant and check the following:

(i) the name of the person(s) who is the subject of the investigation;
(ii)  the address to which the warrant relates;
(iii)  the date of issue and any expiry date;
(iv)  the judicial authority under which it has been issued; and
(v)   whether there are any stated reasons for authorising the search.

3. How – Discuss and understand how the HMRC team intend to conduct the search i.e. what are they looking for and how do they plan to locate it.

4. When – Ask that the search is not commenced until your solicitor is in attendance at the premises. This request may be refused by HMRC. If the HMRC officers insist on beginning their search, it is important that you do not physically obstruct them. 

5. Response – You should assemble an internal team to respond to the raid. You should allocate one member of staff to 'shadow' each HMRC officer. The main purpose of each shadow is to monitor the search undertaken to ensure that HMRC only uplifts material permitted by the search warrant.  The shadow should also make a note of all questions asked/answered and take a copy of all documents examined, copied or removed by the HMRC officer they are observing. Other members of the internal team might include your IT representative and administrative support.

(ii) Issues to consider during the search

1.  Bear in mind that the HMRC officers are there to examine, copy or remove documents. They are not permitted to interview you or any member of your staff. Accordingly, HMRC should not be asking questions that go beyond issues relating to the search and the location of the documents sought. Consult with your solicitor where there is any doubt.

2.  All members of the internal team should keep a note of the questions asked by HMRC and any answers provided.

3.  The HMRC officers must not be physically obstructed and it is important that no one attempts to destroy or conceal documents.

4.  The shadow team should monitor the search undertaken by each HMRC officer and raise any concerns if it appears that their search may be going beyond the scope of the warrant, or they wish to copy or remove legally privileged material. As noted above, documents subject to LPP are outside the scope of a warrant. 

5.  If HMRC disagrees with the classification of a document, it should be placed in a sealed envelope/bag for determination at a later date.

6.  HMRC does have the power to seize material that is outside the scope of the warrant, including legally privileged material, where it is not reasonably practicable to determine on the premises whether the material is within the scope of the warrant, or contains any such material. HMRC generally uses this power to image (copy) electronic devices, which might take several months to filter for privileged and irrelevant documents. 

7. HMRC will be accompanied by an IT expert and will interrogate any electronic material, such as computer hard drives, email, text messages, word processing documents, and documents stored on portable devices such as memory sticks. While HMRC can seize these, it is not entitled to view them and therefore you may need to discuss the following points with HMRC during the search:

(i)    limiting disclosure of material on grounds of relevancy;
(ii)   the use of agreed key word searches;
(iii)  methodologies to be used to identify material that attracts LPP and for this material to be examined by the taxpayer's lawyers;
(iv)   arrangements for material that attracts LPP to be secured until the issue of whether the material is privileged can be determined; and
(v)   the use of agreed software to interrogate the taxpayer's IT systems.

(iii) On conclusion of the raid

1.  Obtain a copy of any HMRC notes taken during the raid and a copy of all documents examined, copied or removed by HMRC.

2.  Compile and check the internal team’s notes of the questions asked by HMRC and the responses provided.

3.  Ask whether HMRC plan to return to the premises and, if so, agree on the arrangements for any such visit.

(iv) Following the raid

1.  Once HMRC has concluded the raid, it can take a considerable period of time (often several years) for it to review the material. HMRC will also contact and interview relevant third parties.

2.  Review all documents and information seized by HMRC. Ensure that any incorrect information provided to HMRC is rectified as soon as possible. 

3.  Consider setting up an internal investigation team to audit the relevant area of business.  Refrain from generating unnecessary documents which may be disclosable to HMRC at a later date. Make sure that any internal investigation is appropriately protected by LPP.

4.  Under paragraph 7.14 of PACE Code B, HMRC can only hold material "for as long as necessary". You should consider requesting the return of materials from HMRC.  Materials can be retained by HMRC for specified reasons, for example, for use as evidence at a trial for an offence. In such a case, HMRC should, on request, provide you with a list or description of the property in reasonable time and allow access to the property to examine it or take a copy.  HMRC can only deny access if there are reasonable grounds for believing that access would prejudice the investigation of any offence, or criminal proceedings.

How can you prepare for a dawn raid? 

A business should have a comprehensive dawn raid policy in place which it can immediately turn to if HMRC come knocking.  In addition, key staff (including reception and security staff) should receive appropriate training on how to manage a dawn raid.    

To assist you and so that you can be fully prepared, we have developed 'RPC Raid Response', which is an app toolkit featuring all the guidance needed to successfully navigate a dawn raid. The app enables you to successfully manage the legal risks involved in such a process. It also has a live report incident button which connects you immediately to RPC's specialist lawyers and is supported by a 24/7 helpline.  It is available to download via the Apple and Google Play stores.