HMRC raided the London offices of a global financial brokerage business and the home of a former employee on 28 September 2022, following requests for assistance from Germany and Denmark for criminal investigations in respect of cum-ex trades. The business and the individual applied for judicial review of the search warrants – and had their applications dismissed by the High Court. This post focusses on HMRC’s dawn raid powers and practical tips, but also includes a note on the state of play of the Danish tax authority’s cum-ex litigation in the UK High Court. 

What’s the origin of HMRC’s dawn raid powers?

HMRC’s search powers derive from the Police and Criminal Evidence Act 1984 (PACE) and, in the terminology of that Act, the business documents sought by the German and Danish authorities constitute “special procedure material”. Access to such materials is governed by PACE, section 9 and Schedule 1.  

Production orders are the primary avenue to access special procedure material under Schedule 1. This would be an order granted by a court on application by HMRC. The production order would require the person in possession of the material to either provide it to HMRC or give HMRC access to it within seven days or such longer period as specified in the order. This is quite different from what is commonly thought of as a “dawn raid” and indeed, it was not the avenue that HMRC went down in this case. 

In this case, HMRC applied for (and was granted) search warrants under paragraph 12 of Schedule 1. The application was made (and the search warrants executed) without notice to the brokerage business or the former employee – so, it was what is generally thought of as a “dawn raid”.  

What was the judicial review about? 

The business’s and former employee’s unsuccessful judicial review application advanced eight grounds to challenge the validity of the search warrants. I'll focus on three points. 

• Before applying for a search warrant, the relevant HMRC official must be satisfied that less intrusive ways to obtain the evidence are bound to fail. This test is about the individual’s state of mind. Did they hold a genuine belief to this effect based on cogent reasons? Direct evidence that material would be tampered with or destroyed is not a prerequisite; the belief may be based on inference from the wider circumstances. In this case, the business’s challenge to the search warrant based on another HMRC official’s written note (“Unlikely to get a search warrant…as Danish themselves say not likely to tamper or destroy evidence”) from an unrelated, earlier meeting with the Danish authorities failed. 
• As part of the application, HMRC is required to disclose all material facts to the court, including anything known to it that might militate against the grant of the warrant. How does this apply in a mutual assistance case? Is HMRC treated as knowing everything known to the authority that requested assistance? The court said no – HMRC’s duty is to make proper enquiries; “there is no form of “strict liability” fixing HMRC with information which was or should have been known” to the authority that requested assistance. 
• Technical flaws may not render a warrant invalid. A warrant must name of the person who applied for it, i.e. it has to include the name of the individual HMRC official who applied for the warrant. Here, one of the warrants did not. But this flaw was considered merely technical; given the context and documents accompanying the warrant, there was no confusion about who had applied for it. 

What should you do when the tax authority comes knocking?

Preparation for dawn raids starts before the tax (or any other) authority arrives. Appropriate processes and procedures must be put in place. Who will reception or security staff call when officials arrive? What is the response strategy? Who will be involved and who will take overall responsibility? And relevant staff must be trained.

It’s good to have clear instructions, highlighting important dos and don’ts. These would be my top five. 

• Request to see the warrant and the officials’ identification and take copies. 
• Call senior management and your trusted external adviser. If in doubt, consult a lawyer before answering questions. Seek legal advice before signing anything. 
• Don’t obstruct the investigation. You may ask officials to wait until a lawyer arrives, but if they are not prepared to wait, don’t obstruct them. 
• Don’t destroy, hide or tamper with any material.  
• Shadow officials and take notes on the search. Ask for a copy of the officials’ notes and a list of documents they have taken away.

And bear in mind that, after the dawn raid ends, the work continues. Immediate next steps may include debriefing with shadows, preparing a note of the raid to share with external lawyers and considering whether the warrant can be challenged. Do you need to notify insurers, auditors or regulators? Issue a press release or respond to news outlets’ requests for comment? Begin an internal investigation of the matter in preparation for further questions from the investigating authority? Your trusted external adviser should be able to help answer these questions.

But going back to the case at hand…

How does the dawn raid relate to the ongoing cum-ex litigation in the UK?

The dawn raid related to criminal investigations in Germany and Denmark. These are separate from the civil proceedings commenced by the Danish tax authority, Skatteforvaltningen, in the UK to recover (loosely speaking) tax lost because of cum-ex transactions. But the cast overlaps. 

The brokerage business subject to the dawn raid had originally also been a defendant in those civil proceedings (the main trial is ongoing in the UK High Court and expected to take until April 2025). One of the preliminary issues in those proceedings had been a challenge to the UK court’s jurisdiction which the Supreme Court decided in favour of Skatteforvaltningen (see my colleagues’ blog post). But the Supreme Court’s decision covered only claims for fraud. Skatteforvaltningen’s permission to appeal had not covered its negligence claims against the brokerage business, so these claims then fell away and are not part of the ongoing main trial.  

Skatteforvaltningen, however, renewed its claims against the brokerage business, this time alleging fraud. In February 2024, Mr Justice Bright dismissed the business’s application to have these proceedings struck out based on estopped and/or abuse of process. The judgment indicates that the new claims will probably not be determined until after the ongoing main trial.