Tax law is complicated, and if you have the potential to be (or are currently being) investigated for tax evasion, the question you will most likely be wondering is ‘what are the penalties for tax evasion?’.
This post will explore the difference between tax evasion and tax avoidance, featuring some examples of tax evasion, and what UK tax evasion penalties look like.
What Is Tax Evasion?
Tax evasion is not to be confused with tax avoidance, although they do share some similarities. The main thing to remember is that avoidance is technically legal, while tax evasion has heavy penalties in the UK.
Tax evasion – deliberately misrepresenting or hiding information in order to reduce the amount of tax payable or avoid paying at all.
Tax avoidance – using legal loopholes and bending tax rules to stay within the law for financial benefit. It’s not a criminal offence but does exist in a legal grey area. This can include anything from certain ISA accounts to offshore bank accounts to avoid paying tax.
Examples of Tax Evasion
Tax evasion can take many forms, including:
- An honest mistake or lack of understanding.
- Failing to do an adequate risk assessment for tax evasion or facilitating tax evasion.
- Reporting a lower income than you’ve actually received in order to pay less tax.
- Not declaring all of your income – for example, if you were to work for cash and avoided creating receipts so you wouldn’t be taxed on that income.
- Marking personal expenses as business write-offs.
- The use of business assets or property for reasons unrelated to the business.
- Hiding income in an offshore account so as not to be taxed on it.
- Avoiding paying VAT on sales or business (VAT fraud).
When to Seek Help
If you are under investigation for tax evasion, HMRC will send you a letter to inform you of that fact. You must hire professional representation straight away because how the case is handled will impact what the penalties are for tax evasion in your case.
While you cannot appeal HMRC’s decision to put you under investigation, you can appeal the penalty when it is laid out. If you have legal representation from the start, they will be familiar with the case when it comes to the appeal and if the case ends up in court.
Tax Evasion Penalties UK
Tax fraud penalties depend on the specifics of the case. However, the maximum tax evasion penalties in the UK for income tax evasion and smuggling is up to seven years in prison, along with potentially unlimited fines being handed down and an order to repay the taxes that have been evaded.
For reported VAT fraud and providing HMRC with false documentation, the maximum sentence in a magistrate’s court is six months in prison or being fined up to £20,000. In the Crown Court, this is extended to the same maximum sentencing as income tax evasion and smuggling.
Cheating public revenue is considered a more serious offence and is always tried in the Crown Court. The maximum penalty for cheating public revenue is an unlimited fine or life in prison.
We hope you now have a better understanding of what tax evasion entails and what the penalties are for tax evasion in the UK. If you would like to discuss tax evasion sentencing or enlist our expert representation, please contact St Pauls Chambers today.