IPT assessments and other matters: Fraud, avoidance and evasion
This part of the guidance deals briefly with these issues. It is not intended to serve as an introduction on how to recognise or investigate fraud, avoidance or evasion.
Where you discover an error during a visit, which you think is evidence of fraud, you should not make an assessment. There are two reasons for this. Firstly, there is a danger of alerting the insurer to your suspicions. Secondly there is a risk that such action might prejudice the outcome of any further investigation or prosecution.
Fraud and evasion
Fraudulent evasion of IPT is a criminal offence. Fraud is one of a series of criminal offences established by paragraph 9 of Schedule 7 of the 1994 Finance Act. The principal provision relating to fraudulent evasion of IPT is in subparagraph (1) of paragraph 9, which deals with any person who is knowingly concerned in the fraudulent evasion of the tax. Criminal and civil penalties are dealt with in paragraphs 10, and 12 to 18 of Schedule 7 respectively.
You should always be alert to the possibility of fraud; and where it - or any other offence - is suspected you should be careful that you do not hinder the possibility of a successful investigation by alerting the insurer concerned to your suspicions.
Any case of suspected fraud or any other IPT offence should be reported in accordance with local procedures to the Regional Referral Team (RRT) in Criminal Investigations.
Apart from fraudulent evasion, paragraph 9 of Schedule 7 creates the following IPT offences:
- subparagraph (3): producing or furnishing a document with intent to deceive;
- subparagraph (4): knowingly or recklessly furnishing false information;
- subparagraph (5): conduct involving commissioning one of the offences in paragraph 9;
- subparagraph (6): entering into or arranging contracts with reason to believe tax will be evaded;
- subparagraph (7): entering into contracts without security where that is required.
Note: This is an abbreviated summary only. Refer to paragraph 9 for the full statutory wording.
Tax avoidance takes many forms, but all of them are legal. You may come across schemes which operate by offering benefits equivalent to those obtained under an insurance contract without actually entering into such a contract. If there is no contract of insurance and no related premium then the transaction does not come within the scope of IPT and so this is not tax avoidance as such (remember there may be a VAT liability). Tax avoidance schemes may vary in terms of how artificial or aggressive they are, and in terms of their cost.
Anti Avoidance Group and Deduction & Financial Services Team should be kept informed of any tax avoidance schemes, whether or not such schemes succeed in their intention. These reports should give:
- full details of the insurer and other parties (intermediaries, insured, advisers) involved;
- an explanation of how the scheme is said to operate;
- an indication of the revenue potentially at issue, and an explanation of how that figure was arrived at.
You should also send details of any schemes which offer benefits similar to those which are usually obtained under a contract of insurance (i.e. healthcare trusts) to the Financial Services Team. As indicated above such schemes do not constitute IPT avoidance, but information about them will help the Deduction & Financial Services Team monitor the extent to which the introduction of IPT has encouraged the growth of such schemes.