HMRC Account Freezing Orders (AFOs): Legal Guide to Challenging Account Freezing Orders

HMRC‘s crackdown on suspected criminal and money laundering activity has led to a staggering 170% increase in Account Freezing Orders (AFOs) over the last three years. If you’ve received notice that HMRC has frozen your account, it’s crucial to understand the implications and your rights to challenge an unfair AFO.

If HMRC has frozen your bank account, our expert team is here to provide you with the legal support you need to navigate this challenging situation and protect your assets.

What is an Account Freezing Order (AFO)?

An Account Freezing Order (AFO) is a legal instrument that allows law enforcement agencies, including HMRC, to freeze funds in bank accounts suspected of being involved in criminal activity. This type of order was introduced under the Criminal Finances Act 2017, enabling authorities to freeze accounts for up to two years while investigations are conducted into the source of the funds.

The Freezing Order can apply to accounts with balances exceeding £1,000 and is issued by the Magistrates’ Court. The threshold for obtaining an AFO is relatively low, requiring only reasonable grounds to suspect that the funds may be recoverable property or intended for unlawful use. This is a critical distinction from Forfeiture Orders (FO), which occur later in the process, only when the court is satisfied that the seized funds are indeed proceeds of crime.

Why the Surge in AFOs?

Data reveals that the number of AFOs has jumped from 125 in the 2021/2022 financial year to 341 in 2023/2024. The value of assets frozen has also increased from £43 million to £57 million during the same period. This significant rise indicates HMRC’s intensified efforts to tackle suspected criminal behavior.

In addition to AFOs, the number of Forfeiture Orders (FOs) has also increased, from 92 in 2021/2022 to 144 in 2023/2024, amounting to nearly £23 million in seized assets. This trend highlights a broader focus on financial crime, particularly in the wake of growing concerns over money laundering and terrorist financing.

What Happens When Your Account is Frozen?

When an AFO is issued, you are prohibited from making withdrawals or payments from the frozen account without court permission. This can have serious implications for both individuals and businesses, disrupting operations and affecting daily living expenses. Although funds can be returned if they are not subject to forfeiture, the process can be lengthy and cumbersome.

What Is a Forfeiture Order?

A Forfeiture Order (FO) is a legal decree that allows law enforcement agencies to permanently seize assets that have been determined to be proceeds of crime. This order is typically issued after a successful investigation and conviction related to criminal activity. Under the Proceeds of Crime Act 2002 (POCA), a forfeiture order can be sought by authorities if they can demonstrate that the property in question is derived from unlawful conduct.

Unlike Account Freezing Orders (AFOs), which temporarily freeze assets while investigations are ongoing, forfeiture orders represent a final decision regarding the ownership of the seized assets. Once a forfeiture order is granted, the individual or business loses any rights to the assets, which are then permanently confiscated by the state. Understanding the implications of a forfeiture order is crucial, especially if you are facing an AFO, as it may lead to irreversible loss of property if not adequately challenged.

Can You Challenge an AFO?

Yes, you can challenge an Account Freezing Order. If you are served with an AFO, it is imperative to act quickly. You have the right to apply to the Magistrates’ Court to have the order discharged or varied. Our experienced legal team can help you navigate this process effectively, focusing on the following:

• Immediate Representation: Acting quickly is crucial. The enforcement agency will likely seek a swift hearing after issuing the AFO.
• Challenging the Order: We can assist you in demonstrating to the court that the funds in question are not proceeds of crime, thereby lifting the AFO.
• Negotiation with Authorities: It is sometimes possible to negotiate directly with HMRC to vary the terms of the AFO, allowing for essential living expenses or business operations to continue.

Case Study: Mileage Reclaim Ltd v HMRC – Procedural Failures and Business Impact of an AFO

Part 5 of the Proceeds of Crime Act 2002 (“POCA”) provides law enforcement with significant civil recovery powers, including the ability to freeze or forfeit assets without a criminal conviction. Under Chapter 3B of Part 5, which was introduced in January 2018, enforcement agencies can apply for Account Freezing Orders (AFOs) to temporarily restrict access to bank accounts suspected to hold proceeds of unlawful conduct. These applications, typically heard ex parte in the Magistrates’ Court, are intended to prevent asset dissipation during investigations. However, they often create severe consequences for businesses, as illustrated by the case of R (Mileage Reclaim Ltd) v North Somerset Magistrates’ Court, HMRC [2024] EWHC 1531 (Admin).

Challenge to AFO obtained by HMRC

Mileage Reclaim Ltd, trading as Taxbuddi, challenged an AFO obtained by HMRC against two of its bank accounts with Revolut and Wise Payments Ltd. The ex parte order, which froze the company’s working capital, left Taxbuddi unable to pay its 89 employees. HMRC alleged that the funds were proceeds of fraud, specifically misrepresented tax rebates for expenses incurred by payroll employees. However, the supporting evidence provided by HMRC was minimal, comprising a nine-page statement with no exhibits. The Magistrates’ Court failed to thoroughly scrutinise the merits or assess the business impact, granting the AFO in a hearing that lasted only five minutes.

After realising the devastating impact of the order, Taxbuddi applied to set aside the AFO on 3 March 2024, disputing HMRC’s claims. Taxbuddi pointed out that PAYE employees could claim tax relief for certain expenses, contrary to HMRC’s statement. Four days later, HMRC conceded that its interpretation of the tax law was incorrect but argued that the AFO remained justified. Despite these admissions, the application to set aside was delayed for nearly four months, severely impacting the business.

When Taxbuddi sought judicial review of the delays, the High Court acknowledged that “extraordinary failings” had occurred in both HMRC’s application and the Magistrates’ Court’s handling of the matter. However, it held that the proper remedy was for the Magistrates’ Court to hear the set-aside application, not for the High Court to intervene via judicial review.

Difficulties posed by AFOs

This case demonstrates the significant challenges posed by AFOs, particularly when they are granted ex parte. Although designed as a temporary measure, AFOs can severely disrupt business operations, especially when delays in setting aside applications occur. In the Mileage Reclaim Ltd case, the failure to ensure full and frank disclosure and the Magistrates’ Court’s limited scrutiny raised questions about procedural fairness. While the High Court did not intervene directly, it criticised both the errors made by HMRC and the court’s inadequate handling, acknowledging the “serious damage” done to the business and its reputation.

This case highlights the importance of swift access to remedies for those affected by AFOs and the need for careful judicial scrutiny in the granting of such orders, especially in complex cases involving significant sums of money.

Case Study: Successful Opposition to HMRC’s AFO Application in FI Case

In a separate case, FI, an alcohol wholesaler, successfully defended against an AFO application by HMRC at Folkestone Magistrates’ Court. HMRC had alleged that FI was involved in alcohol diversion fraud, with over £8 million flowing through its accounts, raising suspicions of money laundering and “layering.” FI’s legal team assembled comprehensive documentation in a short timeframe, including due diligence records previously shared with HMRC.

During the hearing, HMRC’s financial investigator was cross-examined, revealing significant investigative deficiencies, such as failing to verify the relevant companies through official registers. FI’s operator, GB, testified about his extensive compliance efforts, further undermining HMRC’s case. The Magistrates’ Court found no reasonable grounds to suspect that the funds in FI’s account were proceeds of crime and dismissed HMRC’s application. Moreover, the court awarded costs against HMRC, citing poor investigation that should have prevented the matter from reaching court.

These case studies highlight the risks businesses face from AFOs and the importance of mounting a rigorous defence. With the right legal strategy, it is possible to challenge the grounds for such orders, mitigate business disruption, and even recover costs when the application is poorly handled. If you are facing an AFO, it is essential to act quickly, gather evidence, and seek expert legal advice to protect your interests.

Expert Account Freezing Order Solicitors

Account Freezing Orders (AFOs) are critical tools used in the investigation and prevention of financial crime. However, their implications can be profound for individuals and businesses subjected to such orders. It is essential to understand the legal processes involved, assert your rights, and seek expert legal assistance to effectively defend against AFOs and protect your assets.

If you find yourself facing the challenges of a frozen account, don’t hesitate to reach out to our skilled team of Expert Account Freezing Order Solicitors. We offer comprehensive support and representation tailored to your specific needs, helping you regain access to your frozen assets. With our expertise, you can trust that you are receiving the best possible defense against account seizures in the UK.

Facing an HMRC Account Freezing Order? Contact Us Today!

HMRC Account Freezing Orders (AFOs) are powerful tools employed by the tax authorities, but they can create significant disruptions for individuals and businesses. Our London law firm brings together expertise in both injunctions and litigation to provide the comprehensive support you need.

We understand the intricacies involved in HMRC AFOs. Whether you are under investigation or dealing with a frozen account, our team of experienced solicitors and barristers is here to assist you. We will clarify the process, outline the potential consequences, and inform you of your rights.

We are committed to advocating for you. Our skilled team will challenge the AFO, pursue its discharge or variation, negotiate with HMRC, and represent you at every turn. We will guide you through each step, ensuring that your interests are safeguarded throughout the process.

You don’t have to face this challenge alone. Contact us today to navigate this complex situation and achieve the best possible outcome for your case.