HMRC discontinue investigation following early challenge to search operation

Rupert Bowers KC, instructed by Evan Wright at JMW, represented nine company directors in an investigation into what HMRC described to the court at the time as their ‘largest investigation of the last five years’.

HMRC has discontinued the six-year tax probe after failing to recover from an early successful challenge to the search and seizure operation.

The investigation centred on a group of children’s nurseries and an allegation that the directors had overstated the number of employees in order to fraudulently obtain working tax credit and public funding in respect of children’s places at the nurseries. Embracing DWP enquiries, civil tax investigations and various seizures of cash from suspects, OFSTED also investigated several nurseries as a result of the Revenue’s intervention. When HMRC applied for over thirty search warrants, the officers referred the court to what they perceived to be evidence of criminal activity with an estimated loss to the Revenue of £16 million.

The legality of the search warrants was challenged in an application for judicial review but HMRC quickly accepted that the warrants were unlawfully obtained and applied to the Crown Court to retain the unlawfully seized material pursuant to section 59 Criminal Justice and Police Act 2001. HMRC’s application was unsuccessful in an important respect leading them to judicially review the judge’s ruling. That application succeeded, but resulted in a second application under section 59 to examine the seized material. Seven independent counsel were appointed by HMRC to look at the documents. That exercise, together with the court hearings, took place over a period of eighteen months.

Over six years after the original arrests, HMRC closed the case. The passage of the investigation indicates the effectiveness of early challenges to search and seizure process from which errant authorities may never ultimately recover.