Discover the intricacies of tax evasion, its penalties, and the differences between evasion and avoidance. Explore examples and learn how to rectify tax affairs effectively. Trust Buzzacott's Tax Investigations & Dispute Resolution team for expert guidance through every step.

What is tax evasion?

Put simply, tax evasion is the act of deliberately attempting not to pay tax which is due. Crucially this requires a conscious decision by a taxpayer to do so. In legal terms this is known as the “mens rea” or guilty mind. It is, therefore, not possible to accidentally or carelessly evade tax.

Tax evasion is also known as tax fraud. It is a criminal offence which is often investigated by HMRC Fraud Investigations Services (HMRC FIS), a specialist unit with HMRC. HMRC FIS will decide whether to investigate any tax evasion on a criminal or civil basis, depending on the nature and seriousness of the crime.

Tax evasion examples

Tax evasion includes knowingly filing incorrect tax returns that omit taxable sources or seek to exaggerate/fabricate deductions. Deliberately failing to register for and submit tax returns can also be considered a form of tax evasion or fraud.

Those operating as ghost traders, or through the black market, would also be considered to have engaged in tax evasion.

Perhaps the most common form of evasion occurs in relation to VAT, with businesses deliberately not registering when they reach the VAT threshold (or when they know they are going to reach it) or claiming input VAT, which has not actually been incurred so as to generate a VAT repayment claim. HMRC regularly carry out VAT checks on businesses, in particular those that regularly make claims for repayment of input VAT, or where a claim is made which is out of the ordinary for that business.

If you are concerned HMRC suspects you have filed such a claim, or have otherwise deliberately underpaid, or overclaimed VAT, you should seek specialist advice immediately. Buzzacott’s tax investigations team can help you correct any errors and keep any penalties to a minimum.

What are the penalties for tax evasion?

Tax evasion penalties will vary depending on the fraud or evasion that has taken place and whether HMRC pursues a civil settlement or criminal prosecution. In a worst-case scenario, following prosecution, all untaxed profits could be considered proceeds of crime and subject to a confiscation order. In serious civil cases, HMRC could seek to impose a civil penalty of up to 100% of the unpaid tax involving UK matters and 300% for involving overseas matters, where assets have been transferred to/or from abroad.