Tax

Horizon scanning

HMRC's use of Account Freezing Orders skyrockets

What is happening?
What are AFOs and FOs?
Account Freezing Orders (AFOs) and Account Forfeiture Orders (FOs) were introduced into Part 3B, Proceeds of Crime Act 2002 (POCA) in January 2018, as part of the wide-ranging powers provided to law enforcement agencies in the Criminal Finances Act 2017.

AFOs freeze the monies in a bank or building society account to enable a full investigation to be conducted as to whether the monies in that account are the proceeds of crime. AFOs can apply to accounts with balances over £1,000 and enable authorities to preserve funds for subsequent forfeiture. AFOs are granted by a Magistrates' Court on application of an officer and do not require authorisation by a senior judge, or indeed a qualified lawyer.

FOs and Account Forfeiture Notices (AFNs) are the two procedures by which monies already frozen may be forfeit as being the proceeds of crime.

Since their introduction, AFOs and FOs have been adopted by all eligible investigators, including HMRC officers. They are wide-reaching and can, if granted, significantly impact a party with assets in the UK both financially as well as reputationally.

HMRC's rise in the use of AFOs and FOs
According to data revealed by the Freedom of Information request made by RPC, the number of AFOs granted to HMRC has risen from 125 in the 2021/22 financial year to 252 in 2022/23, and has increased to 341 in 2023/24, representing
an increase of more than 170% over a
three-year period.

Additionally, the value of assets frozen by AFOs has increased from £43m in 2021/22 to £57m in 2023/24.

The number of FOs has also increased over the same period, rising from 92 in 2021/22 to 144 in 2023/24, when the total value of assets seized was close to £23m.

Why does it matter?
In Autumn Budget 2024, the government made clear that they intend to invest in HMRC to crack down further on tax evasion. On this basis, we are likely to see a continued rise in the use of AFO's and AFN's.

The low evidential threshold for obtaining an AFO means that this increase in their use is concerning. Since their introduction, given that the application process is straightforward and

inexpensive, we have seen HMRC invoking these powers on an increasingly regular basis, even though we know that in many cases they do not lead to a subsequent successful forfeiture of assets or criminal prosecution. While money can be returned, this is of little consolation for the individuals and businesses that see their operations unduly impacted as a consequence of their funds being frozen.

What should you do?
As AFOs and FOs become more frequent, it is critical that individuals and businesses are aware of their rights and how to successfully challenge them. Those affected should immediately contact a specialist solicitor, who will be able to consider the lawfulness of any order and advise on appropriate next steps to minimise disruption to their lives and business operations.

Time is of the essence. If you want to register an objection to an AFO, AFN or FO, there are narrow timeframes in which this can be done. It is essential that the grounds for an AFO, AFN or FO application are carefully reviewed, particularly as there is often a very short timeframe in which to obtain evidence to support any objection.

It will be necessary to demonstrate with compelling evidence the "clean" origins of money and this may take some time to assemble. There is no protection for information provided at any stage of the process and what is said in objecting to an AFO, AFN or FO, may be used in a criminal prosecution against the person, a joint owner of the property, or third party. In addition, AFO applications are generally made in open court which means that grounds contesting the application will be heard in open court and therefore can be reported by the media. It is essential therefore that expert legal advice is taken at the outset and a considered long-term strategy devised.

Michelle Sloane
Partner
+44 7545 100373
michelle.sloane@rpclegal.com

Recent developments

Tackling tax evasion in the retail and online sectors

The National Audit Office’s recent findings reveal a series of likely priorities for HMRC as it works to address tax evasion in the small business, retail, and online sectors, where losses have surged to £5.5bn annually.

HMRC has tended to focus its efforts on tackling non-compliance amongst wealthy individuals and large business. Given that the National Audit Office has highlighted weaknesses in HMRC's approach to tackling tax evasion in small businesses – and notably among high street and online retailers, we can expect increased HMRC scrutiny in this area.

Some of the key areas where HMRC’s focus may be directed over the coming years that businesses should be aware of are as follows.

1. Enhanced small business compliance
With small businesses now responsible for over 80% of tax evasion losses, HMRC is likely to develop more tailored compliance strategies specifically for high-risk sectors like retail, hospitality, and e-commerce. The complex nature of small business tax evasion, which often includes tactics like unreported cash sales or repeated “phoenixism”, suggests a need for deeper, sector-specific analysis and enforcement. HMRC may introduce more robust auditing measures, develop educational initiatives to help small business owners understand their tax responsibilities, and increase penalties for repeat offenders to discourage evasion.

2. Data-driven digital oversight
Tax evasion tactics like electronic sales suppression (ESS) have highlighted the need for HMRC to invest more in digital monitoring tools. Advanced data analytics and machine learning could play a central role in tracking suspicious transaction patterns, flagging discrepancies in reported sales, and identifying unregistered cash flows. HMRC may also begin leveraging real-time data from electronic payment systems, online sales platforms, and financial institutions to strengthen oversight. In addition, it could increase collaboration with digital platforms to enhance transparency in reporting and further discourage sales suppression practices.

3. Improving online and VAT compliance
The online retail sector remains a major source of VAT losses, especially with overseas sellers misrepresenting themselves as UK-based businesses to evade VAT obligations. While HMRC has already implemented measures to make online marketplaces accountable for VAT collection through the Fulfilment House Due Diligence Scheme, there is room to expand these policies to cover more digital storefronts and cross-border transactions. Stricter verification of seller identities, automated VAT collection systems, and expanded collaboration with online platforms could be on the horizon to help HMRC close remaining loopholes in VAT compliance, and secure additional revenue.

4. Company registration transparency
The rapid rise in company registrations in the retail sector, particularly among small businesses, suggests potential risks in the ease of setting up UK companies online. New registration rules that took effect earlier this year are likely just the start of HMRC’s efforts to enhance transparency in company ownership. By verifying the identities of company directors and introducing more stringent incorporation standards, HMRC can help prevent fraudulent businesses from exploiting these processes. Additionally, HMRC are likely to work closely with Companies House to monitor trends in high-risk sectors, preventing companies from using quick registrations to hide non-compliance and avoid tax obligations.

Looking ahead: building a stronger strategic framework
HMRC’s lack of a dedicated small business tax evasion strategy has long left gaps in enforcement. Moving forward, HMRC are likely to focus on developing a more structured plan that addresses high-risk industries and focuses on common evasion tactics like cash suppression and phoenixism. Enhanced collaboration across government agencies, targeted compliance initiatives, and improved digital oversight tools are likely to provide

HMRC with a more effective toolkit to address the challenges of tax evasion in the retail and online sectors, which businesses should prepare themselves for in the years ahead.

Read The National Audit Office’s report in full, here.

Michelle Sloane
Partner
+44 7545 100373
michelle.sloane@rpclegal.com

Alexis Armitage
Senior Associate
+44 7711 353785
alexis.armitage@rpclegal.com

Tax Take +

Everything the small to mid-size accountancy firm and tax advisor needs from specialist lawyers in one handy platform – and it's free.

Staying up to date with developments in the tax and regulatory world is no easy task for accountants and tax advisors, with HMRC guidance and tribunal decisions to absorb and a myriad of deadlines to meet all while doing the day job of supporting clients.

That's why we've developed Tax Take + to help you, with over 30 easy-to-read practical guidance notes on a wide range of tax-related topics. It also provides all key upcoming dates and HMRC filing deadlines, tax and regulatory news, blogs and our latest podcasts.

Visit our Tax Take + platform for all your legal and regulatory guidance.

Tax Take +

Recent developments

Key implications of the 2024 Autumn Budget for businesses

On 30 October 2024, Rachel Reeves announced the 2024 Autumn Budget (the Budget).

One of the most striking features of the Budget was the rise in employer NICs by 1.2%, to 15%, coupled with a reduction in the per-employee threshold from £9,100 per year to £5,000. The Chancellor hopes that this move will raise £25bn per year by the end of the forecast period.

In an attempt to ensure the UK's tax regime remains competitive, and in order to provide some certainty and stability, the government has capped Corporation Tax at 25% for the duration of the current Parliament.

Sector-specific measures
Smaller businesses in the retail, hospitality and leisure (RHL) sectors will welcome the 40% relief on business rates liability (up to a cap of £110k) and the lower multipliers for RHL properties in future years.

The energy sector was a target for tax rises, with an increase in the Energy Profits Levy from 35% to 38%, and the corresponding 29% investment allowance was abolished.

Retailers will be impacted by a number of measures relating to smoking products and
soft drinks:

the tobacco duty escalator will increase at RPI plus 2% on all tobacco products until the end of the current Parliament
the rate on hand-rolling tobacco will increase by a further 10%
a flat-rate excise duty on all vaping liquid at £2.20 per 10ml vaping liquid, will be introduced from 1 October 2026
the Soft Drinks Industry Levy will increase over the next five years to reflect inflation.

There was a series of environmental measures included in the Budget, including: an increase in Air Passenger Duty across the board with higher increases for business class passengers and private jets; an increase in the Climate Change Levy and Plastic Packaging Tax, in line with inflation; and the introduction of a UK

Carbon Border Adjustment Mechanism (CBAM) on 1 January 2027, placing a carbon price on goods imported to the UK from the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors.

What impact has it had?
The impact of the Budget on business and the UK economy remains to be seen, but many are predicting that the increase in employer NICs will put significant pressures on businesses and stifle growth in key sectors. This additional cost may also be passed on to employees in the form of pay freezes and fewer job opportunities.

Conclusion
The Budget provided for an investment of £1.4bn over the next five years to recruit an additional 5,000 HMRC compliance staff. Whilst this will be welcome news to anyone involved in HMRC enquiries or compliance checks, more resource needs to be allocated to HMRC's training budget – it is not sufficient to have the staff if they are not sufficiently skilled to do the work for which they are needed.

The late payment interest rate has been increased by a further 1.5 percentage points, although it will be noted that there is no equivalent increase on the rate paid by HMRC on repayments of tax.

Adam Craggs
Partner
+44 7545 101656
adam,craggs@rpclegal.com

Daniel Williams
Associate
+44 7541 683881
daniel.williams@rpclegal.com

RPC Raid Response app

Your dawn raid survival toolkit

While you may invest significant time and money in maintaining compliance processes and procedures, even the best organised businesses can become the subject of an unannounced visit by a regulatory or criminal investigatory authority, commonly known as a dawn raid. Often, this is not due to any suspected wrongdoing by the organisation itself, but because one of their clients or customers is under investigation by regulators (such as HMRC, the SFO, the NCA and the FCA) and simultaneously being raided.

A dawn raid is one of the most stressful events you can experience. This is because getting it wrong can have such serious repercussions, including significant financial and reputational damage or even prison time for individuals. We have significant experience of dawn raids,and have assisted clients from a range of industries and backgrounds to navigate their way through this challenging time. Drawing on this experience, we have developed a truly market leading dawn raid response toolkit to assist you should the unthinkable happen.

RPC Raid Response is a free toolkit which provides all the guidance you need to successfully navigate and manage a raid in one easy to use interactive app.

Key features of the toolkit include:

live report incident button which instantly connects to RPC’s specialist lawyers
interactive step-by-step guide on how to manage a dawn raid
task list has a date and time stamp along with space for comments which can be used for evidential purposes
ability to upload photos of key documents eg search warrant
ascertain status of employees
detailed Resources Library, including FAQ’s.

Download RPC Raid Response via the Apple App Store and Google Play for free.

Recent developments

HMRC updates its guidance on off-payroll working

What is happening?
HMRC has recently updated its guidance on off-payroll working. The off-payroll working rules (IR35) ensure that a worker (sometimes known as a contractor) pays broadly the same amount of Income Tax and National Insurance as an employee. The rules apply, broadly, if the worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly to that client. The rules apply to all public sector clients and medium and large-sized private and voluntary sector clients. There are also rules which cover groups of connected and associated companies.

HMRC's updated guidance provides further information for businesses as to the tax treatment of a worker who provides services to them. This is important as businesses will need to decide the employment status of every worker who operates through their own intermediary, if they are not employed by another party in the supply chain, even if they are provided through an agency.

The guidance provides a link to a tool called "Check Employment Status for Tax" to help businesses decide if the off-payroll rules apply. This tool will give HMRC's view of a worker's employment status based on the information provided. Once a business has made a determination in respect of the employment status of a worker, it must tell the worker and the agency, or the person or organisation the business contracts with, and issue a "Status Determination Statement".

The business must also provide reasons for its determination. The business is responsible for deducting Income Tax, employee National Insurance contributions, and paying employer National Insurance contributions until it tells the worker, and the person or organisation it contracts with, of the determination and the reasons for it.

A worker may raise a disagreement with a determination and businesses must introduce a process to make sure they consider the worker’s views if they disagree. A business must respond to any disagreement within 45 days, and a failure to do so will result in payment of the worker’s Income Tax and National Insurance contributions becoming the business' responsibility.

What does it mean?
Deciding the application of the off-payroll rules can be difficult and, coupled with HMRC's high-profile and aggressive approach to the interpretation of the rules in recent years, is an area of general concern for businesses. HMRC's revised guidance and the Check Employment Status for Tax tool should provide businesses with some welcome clarity, and hopefully some certainty, on their obligations and responsibilities in respect of the off-payroll rules.

What should you do?
Businesses should familiarise themselves with HMRC's new guidance to ensure they understand whether the off-payroll rules will apply to them and, if so, what their responsibilities are.

Adam Craggs
Partner
+44 7545 101656
adam,craggs@rpclegal.com

Liam McKay
Senior Associate
+44 7927 584578
liam.mckay@rpclegal.com

Recent developments

HMRC updates its guidance on reporting requirements for digital platforms

In the last edition of Regulatory Radar, we wrote about The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023 (the Regulations), which require certain UK digital platforms to collect information relating to the income of sellers of goods and services on their platform and report this information to HMRC.

For the UK, these rules came into effect on
1 January 2024, with the first reporting due from January 2025.

HMRC's updated guidance
This article considers HMRC's guidance which was updated on 8 August 2024 and is contained in its International Exchange of Information Manual.

HMRC's guidance covers the scope of the Regulations and key definitions, due diligence obligations, registration and notification and the reporting of information.

HMRC also intends to publish in due course a list of the overseas jurisdictions whose tax authorities will exchange information with HMRC.

How does HMRC define "digital platforms"?
This measure affects digital platforms in the UK that facilitate the provision of services or the sale of goods by UK or other taxpayers and affects UK taxpayers, including individuals and companies, who provide services or sell goods on digital platforms.

HMRC's guidance relies on the OECD Model Reporting Rules for Digital Platforms for the definition of platform, and summarises that software will qualify as a platform if it is accessible by users and allows sellers to be connected to other users (customers), and it facilitates the provision of goods or services by sellers to their customers. The operations of the platform may also include the collection and payment of compensation, the amount of which is known or reasonably knowable by the platform operator, in any form that is paid to the seller for the provision of goods or services.

Digital platforms therefore include apps and websites which facilitate the provision of goods and services, such as the provision of taxi and private hire services and food delivery services.

What due diligence obligations are there?
The obligation to carry out due diligence applies to all reporting platform operators (RPOs). The Regulations require RPOs to set up and implement procedures to collect information about sellers and property listings, verify that information, and identify reportable sellers.

The due diligence procedures must be carried out by 31 December of the relevant reportable period, and HMRC suggests that platform operators may find it easiest to collect information from sellers at the onboarding stage rather than at a later time.

This obligation increases compliance costs for businesses. Whilst an RPO can rely on a third party to carry out the required due diligence procedures, the legal responsibility to meet the obligation rests with the RPO. HMRC has made it clear that it will not accept reliance on a third party as a reasonable excuse for failure to carry out due diligence procedures.

RPOs are required to keep all records relating to their due diligence procedures for a period of five years after the end of the reportable period to which the records relate. HMRC may request this information from the RPO, if necessary, as part of its compliance activities to ensure that RPOs are meeting their due diligence obligations under the Regulations.

What registration and notification processes are in place?
All platform operators will need to be registered with the HMRC Digital Platform Reporting Service (DPRS). This includes excluded platform operators, such as those that demonstrate that their business model does not allow sellers to derive a profit from the consideration paid, and RPOs that are relying on an exemption from reporting, as well as those that are in fact going to make reports. Registration on the DPRS will enable platform operators to make notifications and to report information to HMRC.

Once notification has been made, it will remain valid until the platform operator makes an alternative notification.

What information must be reported?
HMRC's guidance provides details of what must be reported. It identifies the basic information that must be reported and provides guidance on how to deal with information that may be sensitive, such as financial account identifiers.

The guidance also addresses the normal reporting timelines as well as the extended reporting timelines which are part of the transitional relief introduced while new RPOs adjust to the new rules.

What are the consequences of
non-compliance?
Any UK digital platform operators that fail to comply with these new obligations may be liable to a penalty.

Penalties can range from £1,000 to £5,000, with potential daily penalties of up to £600 per day following the issue of a notice of assessment. The penalty for failure to apply the required due diligence procedures is £100 per seller.

A platform operator will not be liable to a
penalty if they can demonstrate that they had
a reasonable excuse for their non-compliance. An insufficiency of funds, or relying upon another person, are excluded as being reasonable excuses.

Adam Craggs
Partner
+44 7545 101656
adam,craggs@rpclegal.com

Jasprit Singh
Senior Associate
+44 7523 686651
jasprit.singh@rpclegal.com

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