Tax evasion penalties range from substantial fines to imprisonment in more severe cases. If a business or individual fails to report money-making activities to the government, they’ll likely face issues with HMRC. This is because the act of tax avoidance is considered a criminal offence, which is why such serious penalties may be imposed.
To learn more about potential tax evasion penalties in the UK, continue reading.
What is Tax Evasion?
Tax evasion is when an individual avoids paying their tax liability.
Many tax evasion cases involve corporate businesses in a range of industries that sit at the top of the wealth list. However, no matter the sector you’re in, paying your taxes is key. Tax evasion is illegal, and if suspected, HMRC will likely carry out an investigation.
Paying taxes is important for the economy, and without taxpayers, the government is deprived of funding for essential public services such as schools and community-based projects. We all must pay taxes, especially if we want to see improvements across the UK, including better road conditions, hospitals, and the levels of poverty in certain areas.
Is Tax Evasion Illegal?
Yes, tax evasion is illegal in the UK and considered a criminal offence.
Chances of being investigatedare quite high, and penalties are issued to those who go against the law by avoiding taxes. Whether it’s an individual or a corporation, tax evasion can lead to a wide range of consequences from fines and, in more severe cases, imprisonment.
Examples of Tax Evasion
Some common examples of tax evasion include:
- Hiding money, assets, or shares in offshore bank accounts
- Keeping business off the books by regularly dealing in cash
- Failing to report income to the tax authorities
- Misreporting personal expenses
- Filing non-existent expenditure
- Using cryptocurrency
- Avoiding a traceable record of transactions
- Tax avoidance schemes (such as the stamp duty avoidance scheme)
How Are Tax Evasion Penalties Determined?
Typically, HMRC describes underpaid tax in four different categories:
Mistake or Misinterpretation – Making a genuine mistake that results in underpaying tax to HMRC.
Failure to Take Reasonable Care – Failing to take care when filing a tax return and missing out key information.
Deliberate Understatement – Knowingly submitting a tax return on purpose with incorrect information.
Deliberate and Concealed (Punishment for not Declaring Income) – Acting deliberately and taking measures to hide your wrongdoing, such as moving money.
Once your case is placed into the relevant category, HMRC will issue the correct penalty.
What Are the Penalties for Tax Evasion in the UK?
Tax evasion penalties in the UK vary from substantial fines to the possibility of imprisonment. However, the exact penalty depends on the type of criminal offence committed, how much tax is owed, and whether you, the taxpayer, are willing to cooperate with HMRC.
Let’s take a look at some examples of tax evasion penalties that may be incurred:
Income Tax Evasion Penalties
Income tax evasion results in six months’ imprisonment or a fine of up to £5,000. In serious cases, penalties may be seven years’ imprisonment (which can be increased) and unlimited fines.
VAT Evasion Penalties
In the Magistrates’ Court, VAT evasion results in six months’ imprisonment or a fine of up to £20,000. Serious cases are managed by the Crown Court, which carries penalties of seven years’ imprisonment and unlimited fines.
False Documentation to HMRC Penalties
If you provide HMRC with false documentation, it may result in six months’ imprisonment or a fine of up to £20,000 – similar to VAT evasion penalties.
Cheating the Public Revenue Penalties
Cheating the public revenue often results in the harshest penalties, with the maximum sentence for this offence being life imprisonment and unlimited fines.
In summary, if you’ve evaded tax in the UK, you or your company will be held liable. The tax evasion penalty is up to 200% of the tax that is due.
In worst-case scenarios, jail time could be on the cards for those who have been found to repeatedly go against the law with tax evasion. Tax evasion is illegal, and although many disputes occur in court, tax evasion sentencing is common.
Does HMRC Investigate Tax Evasion?
Yes, HMRC does investigate tax evasion.
If HMRC believe that tax evasion is occurring, they may contact you via letter, phone, or email to inform you that you’re under investigation. HMRC typically investigates 12 months after the due date of your tax return, or the date it was filed.It’s important to cooperate with HMRC and respond quickly to avoid further issues.
Preventing Tax Evasion Investigations at LJS Accounting Services
Setting up accurate record-keeping and accounting systems to ensure income, expenses, and VAT are reported correctly is essential to prevent tax evasion investigations. At LJS Accounting Services, our highly experienced team advises on tax rules, helping you avoid issues with HMRC. Our top-quality services have helped a wide range of clients with their tax payments, including those who have just started in business.
Contact our supportive team of accountants today to learn more about how we can help!
Tax Evasion Penalties FAQs:
What are the main triggers for tax evasion investigations?
The main triggers for tax evasion are frequent errors, late filings and payments, unusual data, income fluctuations, and general inconsistencies. However, it’s important to note that tax evasion investigations can take place at random, even if payments are up-to-date and accurate.
What are reasonable excuses for tax evasion?
Common examples of reasonable excuses for tax evasion include suffering from illness, death, serious mental health or disability issues, HMRC system troubles, and unavoidable delays. Ultimately, it’s down to HMRC to decide whether your excuse is a valid reason.
What happens when you report someone for tax evasion in the UK?
When you report someone for tax evasion to HMRC, they will log your report and potentially open an investigation while keeping your identity confidential. Unfortunately, HMRC will not inform you of the action they decide to take from your report, but will use the information you provide to recover unpaid tax and charge penalties if necessary.
Can you go to jail for not paying HMRC?
Yes, you can go to jail in the UK for tax evasion, but it’s rare unless it’s a case of serious dishonesty. HMRC’s overall goal is to recover unpaid money, not send individuals to jail.
What is the harshest penalty for tax evasion?
The harshest penalty for tax evasion is imprisonment and unlimited fines. As mentioned, unless the case is incredibly serious, such as the common‑law offence of cheating the public revenue, imprisonment is generally not the normal route of punishment.
