The following is based on an article first published in Accountancy on 17 May 2016.
Last year HMRC issued over 1,400 production orders. They were issued by HMRC’s Criminal Investigation Directorate, as part of investigations into tax evasion and money laundering.
Where the material sought by HMRC is "special procedure material" (in broad terms, material acquired during the course of a business, profession or other occupation and held pursuant to a duty of confidence to a third party), the production order must be obtained under Schedule 1 to the Police and Criminal Evidence Act 1984. Client material held by accountancy firms and other professional advisers is likely to constitute special procedure material.
Many advisers who received such orders have been required to produce information and documents relating to clients and/or former clients, suspected of criminal activity and thiscan place them in a difficult position as compliance with theorder will mean supplying HMRC with the information and documents notwithstanding their professional obligations regarding client confidentiality.
Additionally, HMRC often insist that information and documents are provided within a relatively short time period, which can be extremely disruptive, especially for smaller organisations.
If a firm does not provide HMRC with the information and documentation it holds, or provides too little, then it can lead to criminal sanctions for failure to comply with the production order. However, if more information is supplied than is required under the terms of the order, they may place themselves at risk of being in breach of their duty to their client and face a consequential legal action. Production orders can raise difficult and complex compliance issues. Deciding what is, and what is not covered by an order is not always easy, and the potential cost of making a mistake can be high for the adviser concerned.
HMRC need to seek judicial permission if they wish to serve a production order.An application for access to special procedure material is made to a circuit judge. Applications are made with notice of the application being served on the person with access to or custody of the material.
Certain conditions must be satisfied in order for a production order to be granted, including that there are reasonable grounds for believing that an indictable offence has been committed and the special procedure material exists on the specified premises. If the judge is satisfied that all the conditions have been satisfied, he can make an order requiring the person who appears to be in possession of the material to produce it within a specified period, not to exceed seven days from the date of the order.
Many professional advisers will not be familiar with production orders and may be unsure of their obligations and what they should do when one lands on their desk. Reviewing client files to locate the documentation and information required by HMRC can take a great deal of time and reviewing files in order to confirm that the documentation is not held by the adviser may take even longer!
As special procedure material is confidential, the recipient of an order should ensure that the order is valid and that it has been lawfully obtained. The recipient should undertake a thorough, document-by-document review to ensure that materials that fall outside the scope of the production order are not disclosed.
HMRC have issued over 8,000 production orders over the last five years. They are regularly issued during the course of HMRC criminal investigations into tax evasion, and given the pressure on HMRC to increase the number of criminal prosecutions for tax fraud, the number of production orders received by professional advisers is likely to increase.