Taxman's secret deal allowed fraudsters to go free

The decision by HM Revenue and Customs (HMRC) was revealed at Leeds Crown Court yesterday when a case collapsed against nine defendants facing a conspiracy charge.

They were alleged to have plotted to acquire cars VAT-free through the disability scheme, including expensive vehicles such as a Rolls-Royce, which could then be sold on at a profit.

The court heard a costly investigation and prosecution was begun against them because police and the Crown Prosecution Service were unaware of the HMRC policy.

Issues in the case are now to be raised by the Tories with the Director of Public Prosecutions.

Mark McKone, prosecuting, offering no evidence on the conspiracy charge, told Leeds Crown Court it had now been discovered that two of those before the court had effectively already been given immunity from prosecution:

"It became clear through disclosure that at the time these alleged offences had taken place HM Revenue and Customs had a policy in place not to prosecute people for these offences."

One of the reasons for that was "this offending was so widespread the Department concluded it was impossible to prosecute all those involved".

The wasted legal costs of the case in Leeds were estimated at 500,000.

Discharging the defendants, the Recorder of Leeds, Judge Peter Collier QC said his first concern was "that such extensive and apparent criminal activity should be the subject of a secret policy not to prosecute".

He said HMRC policy "effectively decriminalised conduct which on any view, if proved, amounts to a serious fraud on the revenue".

He added: "Second I am concerned that such a policy was not known to other investigating and prosecuting agencies – particularly the police and the CPS, who in my judgment are beyond any criticism in this case. It was effectively a secret policy."

The judge said the effect "was that vast resources were invested in this investigation and prosecution".

He said: "I don't know how many hours of police time or what other costs were expended by them in this fruitless exercise," at a time when courts were being told every day how stretched police resources were.

A further effect, he added, had been the waste of legal aid funds, lawyers who had prepared the case for trial having to be paid from "a greatly overstretched resource".

Judge Collier said he estimated the total cost of paying lawyers in the case "which by reason of this policy should not have been commenced will be well over 500,000".

He said he hoped the fact that from January 1 this year the Crown Prosecution Service and the Revenue and Customs Prosecution offices were merged into a single prosecuting authority would mean that in future all investigators of crime would know what the prosecution policies were before they embarked upon extensive inquiries.

Tory Shadow Attorney General Edward Garnier said the case revealed "a terrible state of affairs" within HMRC.

He said: "Tax evasion is not a victimless crime: it affects all

law-abiding taxpayers and the integrity and effectiveness of our public services. Financial crime hurts people and destroys lives.

"We need to deter, detect and prosecute financial crime with as much vigour as we employ in other criminal cases."

He said he would raise the case with the Director of Public Prosecutions, Keir Starmer, "so that I can be assured that this sort of mess will not happen again".

Mr McKone told the court a lengthy trial involving the defendants from Leeds, Sheffield, Newcastle and other areas of the North, should have started yesterday but a decision had been taken it was no longer appropriate to continue with the case.

The police launched the investigation after a referral from the Driver and Vehicle Licensing Authority: "The Crown's case is that the defendants had been involved buying vehicles to sell on at a profit without paying VAT."

The more expensive the car, the more VAT was not paid by the disabled purchaser. For a Rolls Royce the difference was 48,000.

Mr McKone said since the last hearing in court permission had been sought from Revenue and Customs to amend the charge to one of evading VAT. The position involving two of the defendants was then disclosed, immunity given because they had entered into a "civil recovery agreement".

He said it was not felt in law they could then be prosecuted for the same offence again.

The reasons for such a policy were complicated but one was because "the nature of this offending was so widespread the department concluded it was impossible to prosecute all those involved".

After the case Matthew Elliott, Chief Executive of the TaxPayers' Alliance said: "It is staggering that major Government agencies could be so bad at communicating with each other.

"This odd decision and the policy of keeping secret, have cost taxpayers a fortune that we cannot afford. It should be straightforward and stand practice for the CPS and the tax authorities to talk to each other about these important issues.

"If they had bothered to do so earlier on, we could have saved all of this waste."

HMRC declined to comment.