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.

Where a disclosure is made, either following contact from HMRC or unprompted, and the taxpayer is considered to have failed to fully cooperate with HMRC, the taxpayer can be ‘named and shamed’ on HMRC’s list of serious defaulters.

Can I go to prison for tax evasion?

HMRC will often seek to prosecute cases of tax evasion where the taxpayer does not cooperate with HMRC and it can evidence a criminal offence has been committed. However, the Crown Prosecution Service should only pursue a prosecution if it is in the public interest to do so.

Ultimately, those found guilty of cheating the public revenue can be sentenced up to a maximum of life in prison and or an unlimited fine.

Should there be any suggestion that HMRC suspects a taxpayer of tax evasion it is absolutely essential that appropriate specialist advice is sought at the very earliest opportunity.

Tax evasion vs tax avoidance

The key difference between tax avoidance and tax evasion is that tax avoidance seeks to use existing tax legislation to reduce or minimise a tax liability. This can often involve convoluted schemes and arrangements to obtain a tax advantage not intended by the legislation.

Tax avoidance is not against the law, but HMRC will seek to deny any tax advantages it considers to be unfair and will challenge aggressive tax planning or avoidance schemes.

How can I correct my tax affairs?

The most appropriate route to correct your tax affairs will always depend on your specific circumstances and/or on whether HMRC has already started an investigation. Typically, when tax evasion is involved, the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) will be the most appropriate disclosure facility to bring your affairs, or those of your business, up to date. Making a full and complete disclosure voluntarily, and without any prompting by HMRC (by way of an enquiry letter or other correspondence) will help to secure a more lenient penalty position and provide you with immunity from prosecution.

Anyone considering making such a disclosure should, and as noted by HMRC, seek specialist tax investigation advice, ensuring that you are treated fairly proportionally and achieve full credit for the quality of your disclosure, avoiding having your details published by HMRC on their website (‘named and shamed’) to the wider public.

How we can help

Buzzacott’s Tax Investigations and Dispute Resolution team has extensive experience dealing with tax evasion cases, both where evasion is accepted, and a disclosure needs to be made, and where HMRC’s allegation of evasion is disputed by the taxpayer.

Get help today

Call us today on +44 (0)20 7710 3389 or fill in the form below and a member of our team will be in touch. All communications are in the strictest confidence.