The number of “dawn raids” undertaken by HMRC has increased 36% in the past year, from 458 in 2021/22, to 623 in 2022/23*, shows new data from UHY Hacker Young, the national accountancy group.
• Cash-in-hand businesses are likely to be the main targets
• Campaign against sophisticated gangs involved in Covid fraud and VAT fraud gathers pace
HMRC dawn raids are unannounced searches used to gather evidence for a possible prosecution for tax fraud or for furlough fraud (HMRC is responsible for the investigation COVID furlough fraud) .
As well as the increase in property raids relating to COVID fraud, the rise is also due to an increased determination by HMRC to close the tax gap (what HMRC is owed in tax minus what it receives). The tax gap was estimated to be £35.8bn (4.8% of the estimated £739.3bn in tax liabilities) in 2021/22**.
HMRC conducts dawn raids of a wide variety of business and people, with some of the likely targets being:
- Cash-in-hand businesses, such as takeaways – these have traditionally been the main target of HMRC’s unannounced searches as they have a historic reputation for underpaying tax.
- Self-employed builders – painters, plasterers and labourers regularly feature on HMRC’s current list of deliberate tax defaulters – workers not on a PAYE scheme are seen as higher risk by HMRC.
- Residential landlords not declaring their income – “income from property” is another occupation HMRC is keeping a close eye on, with some known offenders owing hundreds of thousands of pounds.
HMRC is also suspicious of any business which has a gap between their reported profits or turnover and what HMRC’s economic models suggest they should be. HMRC maintains detailed models of a typical business’s finances, given relevant factors like sector, location and number of employees. Businesses that earn far less then what the model predicts become prime targets for an investigation that might lead to a raid.
UHY Hacker Young says that some dawn raids will have been businesses that fraudulently took advantage of the Government’s various job assistance schemes during the Covid pandemic. Chief among these were furlough fraud and SEISS*** – intended to protect jobs during lockdown – with furlough fraud alone estimated at £4bn in early 2021.
Phil Kinzett-Evans, Partner at UHY Ross Brooke, says: “There couldn’t be a clearer sign that HMRC is getting tougher on tax evaders and COVID cheats than this sharp jump in property raids.”
“HMRC is focused on raiding businesses that abused the furlough scheme but they also determined to bring in as many tax fraudsters as possible.”
Dawn raids by HMRC
*Year-end March 31.
** https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary
***Self-Employment Income Support Scheme.
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The UHY Hacker Young Group is one of the UK’s Top 20 accountancy networks with 95 partners and around 640 professional staff working from 23 locations around the country. The offices within the Group provide a wide range of accounting, tax and business advisory services, with a reputation for integrity and reliability within the financial community, and particularly with London’s Stock Markets. UHY Hacker Young are also ranked 15th in the ARL Corporate Advisers Rankings Guide amongst other UK audit firms for advising AIM listed companies.
UHY Hacker Young is a founder member of the UHY International network with offices in every major financial centre in the world. Further information can be found at www.uhy-uk.com
