Revenue in the dock after Redknapp case

It is now the turn of Revenue & Customs to find itself in the dock after Harry Redknapp, the Tottenham Hotspur manager, walked free from court on Wednesday.

The tax authority faces criticism that it wasted large sums of public money by pursuing a weak case involving a high-profile personality. It had accused Mr Redknapp of evading income tax by having “deliberately and dishonestly” paid $295,000 into a Monaco account named after his dog Rosie.

Lord Sugar, the entrepreneur and former chairman of Tottenham Hotspur, told the BBC the authorities had “egg on their face”. He said: “I think this was an attempt by the authorities to try and make an example out of a high-profile person which has backfired.” An evasion case involving £200,000 would never normally have gone to court, he said.

Revenue & Customs insists it has no regrets in bringing the case. The cost, which had been rumoured to be £8m, amounted to less than £300,000 for the investigation and £1m for the prosecution, it said. The decision to seek a prosecution was based on the facts of the case. “We don’t go after someone because they have a high profile.”

Critics are unconvinced. The allegation that the Revenue unfairly singled out Mr Redknapp reinforces a view that it is not even-handed in its treatment of taxpayers. Jonathan Fisher QC, a senior tax and fraud barrister, said: “One of the problems with the Revenue is the perception they are not treating people equally.”

This perception was fuelled when MPs in December voiced “serious concerns” that big companies such as Goldman Sachs received favourable treatment from the revenue – claims that are now being investigated by a high court judge and could be subject to a judicial review.

It has also been sparked by an agreement struck with Switzerland that will allow evaders to pay to “regularise” their tax affairs while preserving their anonymity. How, asked MPs, could the Revenue justify the differing treatment meted out to single parents being chased for the recovery of overpaid tax credits?

The Revenue said the policy towards Switzerland was a “pragmatic solution” to Swiss secrecy. But even where evaders have a good chance of being tracked down, the cash-strapped Revenue is opting for a pragmatic, low-cost approach of encouraging tax dodgers to come forward voluntarily in return for reduced penalties. Amnesties have so far been directed at offshore tax evaders, plumbers, doctors, dentists and tutors; more were this week announced for Ebay traders and electricians.

For the strategy to be effective, the carrot of lower penalties needs to be reinforced with the stick of prosecutions. The Revenue has been cautious in recent years, bringing relatively few cases – although securing a high conviction rate on those that are prosecuted.

Last September, Danny Alexander, chief secretary to the Treasury, announced plans for a fivefold increase in prosecutions of tax evaders.

Prosecutions have already started to rise – increasing 38 per cent last year to 148, according to a Freedom of Information inquiry by McGrigors, the law firm. The Revenue’s approach to evasion, which along with fraud and criminal attacks costs an estimated £15bn a year, is paying off. MPs last year praised a 49 per cent increase in compliance yield over two years to £8.5bn in 2009-10.

The Redknapp case risks being a serious setback. Mr Fisher said it was a “calamity for the Revenue”, warning that tax evaders would wrongly take comfort from the verdicts. But the Revenue had no choice but to carry on prosecuting, said James Bullock, of McGrigors. “It should pick itself up, dust itself down and go for the next one.”