What is Income Tax Fraud?

If you or your business are being accused of income fraud, it can be a very daunting time. Income tax fraud is a criminal act, and it comes with serious repercussions and penalties.

Here, we set out to explain what income tax fraud is, the potential penalties for income tax fraud, how to report income tax fraud to HMRC and how a fraud barrister can assist income tax fraud cases.

What is Income Tax Fraud?

Income tax fraud is the deliberate and intentional act of not disclosing your accurate income to avoid paying the correct amount of income tax to HMRC. Each income tax fraud case is individual, which results in proceedings by HMRC being personalised to each case.

Income fraud covers a range of circumstances where individuals or businesses are dishonest. Income tax fraud can include:

• Tax evasion of individuals
• Tax evasion of businesses under the Criminal Finances Act 2017
• Smuggling goods to avoid paying VAT or customs duty
• Where VAT is charged on a product but then not paid on to HRMC
• Intentionally recording false details in a tax return to HMRC
• Where a business pays workers cash in hand to avoid income tax
• Not declaring paying yourself cash in hand if you are self-employed

For instance, you may state to HMRC that your income is below the tax-free personal allowance of £12,500, when you earn over that amount, knowing that you wouldn’t have to contribute towards any tax.

What are the Potential Income Tax Fraud Penalties?

Penalties for income tax fraud are not taken lightly. However, the extent of the penalty depends on each case of income tax fraud as some incidences may be purely accidental. The penalties for income tax fraud include:

• A fine of up to £5,000 and a six-month prison sentence
• Seven years imprisonment and an infinite fine
• You may be ordered to repay up to 200% of the amount owed if you are found guilty of tax evasion
• For knowingly submitting false documents to HMRC, the income tax fraud penalty is a £20,000 fine or six months imprisonment
• If you are found to have knowingly committed income fraud, you may be sentenced for cheating public revenue which could result in a life prison sentence and an infinite fine

The Crown Prosecution Service reported an income tax fraud case in June 2020, where a company director avoided paying £100,000 in income tax by falsely declaring the accurate turnover of his two security businesses. In this case, the penalty for income tax fraud resulted in a 28-month prison sentence and a disqualification for the following five years from becoming a company director.

How Do I Know If I’m Being Investigated for Income Tax Fraud?

If HMRC has reason to believe you or your business have committed income fraud, you will be notified about a formal investigation via letter. Depending on the accusation of income fraud, HMRC may need to look into documentation from the last 20 years for extreme cases of criminal income tax fraud. For potential tax errors and genuine mistakes, HMRC may investigate the past six years of tax information.

How to Report Income Tax Fraud to HMRC

If you suspect an individual or business of committing income tax fraud, it’s your duty to report them; across the 2019/2020 year HMRC received 73,000 reports of tax evasion.

You can anonymously report the individual or business for income fraud to HMRC via the confidential online form or fraud hotline. However, once a report has been made, HMRC will not update you on the progress of the case or discuss any further details with you.

When reporting income tax fraud, you must put your safety first. Therefore, HMRC advises you not to find out any further details about the suspected income tax fraud. Also, do not tell the individual or business in question that you are reporting them for income tax fraud.

How Can St Pauls Chambers Assist Income Tax Fraud Cases?

We hope that you now have a better understanding of what income tax fraud is and the penalties involved. If your client has been accused of income tax fraud and is being investigated, our specialist fraud barristers can help. Our team of experienced fraud barristers have expertise in a variety of income tax fraud cases.

To secure the best possible outcome for your client’s income tax fraud case, please don’t hesitate to get in touch with our expert fraud barristers. You may also find our blog on furlough fraud a useful read.