Publication featured in: The Times, The i
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 of 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 are owed in tax minus what they receive). 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 on a wide variety of businesses 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 are keeping a close eye on, with some known offenders owing hundreds of thousands of pounds.
HMRC are 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 maintain detailed models of a typical business’ finances, given relevant factors like sector, location and number of employees. Businesses that earn far less than the model predicts become prime targets for an investigation that might lead to a raid.
A number of these 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.
Our tax partner, Phil Kinzett-Evans, 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 are focused on raiding businesses that abused the furlough scheme but they are also determined to bring in as many tax fraudsters as possible.”
*Year-end March 31
***Self-Employment Income Support Scheme.