Tax evasion carries serious penalties – those found guilty of tax evasion could face fines and prison sentences – from £5,000 and six months in jail to seven years in prison and unlimited fines. Of course, the penalties themselves are not the only suffering brought by tax evasion cases. Legal fees, stress, asset-freezing or confiscation and reputational damage can all be crippling to an individual or a business facing tax evasion investigations and litigation.
If you are under investigation by HMRC for any non-payment or underpayment of tax, it is of paramount importance to consult an experienced tax lawyer. The way in which the initial stages of an investigation are handled can have a major impact on the outcome and can prevent lengthy and reputation-damaging cases in the tribunals or courts.
Patrick Cannon is a tax lawyer with over 35 years of experience, both as a solicitor and a barrister. His wide-ranging expertise covers all tax concerns – from advising individual clients on legitimate tax savings to representing corporations in the courts. If you are looking to instruct a specialist tax evasion barrister or seeking any other legal tax services, contact Patrick Cannon here.
What is Tax Evasion?
Tax evasion is the deliberate, dishonest non-payment of tax owed to HMRC.
Anyone who doesn’t declare exactly how much taxable income or gains they receive can be accused of tax evasion. In order for the HMRC to find an individual guilty of tax evasion, they must demonstrate that the taxpayer knowingly suppressed information in order to avoid or reduce tax payments.
Examples of Tax Evasion
Non-reporting of taxable trading income: deliberately hiding trading revenues or failing to file tax returns.
Missing trader fraud/carousel fraud: importing goods VAT-free, selling them to customers with added VAT, then failing to report VAT charged to HMRC.
Tax-allowable expenditure claim: some expenditure carries tax breaks – such as spending on film production or an eco-forest. If the taxpayer diverts the funds to other uses instead of the claimed purpose, this is tax evasion.
False invoices / personal expenditure claims: especially common in the building trade, this involves filing non-existent expenditure or personal expenditure on home renovations to evade paying tax.
Imported goods: failing to declare imported goods or dishonestly understating the value of imported goods in order to evade import duties.
Cash or cryptocurrency transactions: avoiding a traceable record of a trading transaction in order to avoid paying tax on income or gains.
False identity: assuming the identity of someone else to carry out taxable transactions in their name, retaining the proceeds and then disappearing. If the identity has been stolen, the victim may be exposed to tax liability.
Tax avoidance schemes: structured purchasing systems (e.g stamp duty avoidance scheme) that involve a complex set of transactions to save money on tax. These are normally ‘too good to be true” and often end up costing the tax-avoider more in the long run, as well as potentially being found guilty of tax evasion by HM Revenue & Customs.
What Are The Penalties For Tax Evasion (UK)?
Tax evasion can result in heavy fines, and the maximum penalty for tax evasion in the UK can even result in jail time. Punishment and the average tax evasion sentence can vary – these are a few examples of penalties that can be incurred:
- Income tax evasion penalties – summary conviction is 6 months in jail or a fine up to £5,000. The maximum penalty for income tax evasion in the UK is seven years in prison or an unlimited fine.
- Evasion of VAT – in the magistrate’s court, the maximum sentence is 6 months in jail or a fine of up to £20,000. Crown Court cases can be a maximum of seven years in prison or an unlimited fine.
- Cheating public revenue – due to the serious nature of the crime, the maximum sentence for cheating public revenue in the UK is life in prison or an unlimited fine.
Providing false documentation to HMRC – either magistrates’ court or as a summary conviction, HMRC tax evasion penalties can range from a fine of up to £20,000 or up to 6 months in prison.
- Evasion of duty (smuggling) – for a summary conviction the maximum UK sentence is a fine of up to £20,000. Crown Court cases can be a maximum of seven years in prison or an unlimited fine.
Is Tax Evasion Illegal?
Yes. Tax evasion is a type of tax fraud – a criminal offence in the UK.
What Is The Difference Between Tax Evasion And Tax Avoidance?
Tax avoidance is usually the result of human error. Poor record-keeping, failing to file a tax return on time and failing to register a new business are all examples of tax avoidance arising from mistakes. You can still be prosecuted if HMRC suspects that it was deliberate and not an honest mistake.
Tax evasion usually carries with it a heavy maximum penalty of seven years in prison or an unlimited fine – and it is rarely taken lightly.
How Do You Know If You Are Being Investigated for Tax Evasion?
You will be notified by letter if HMRC is investigating you for tax evasion. You cannot appeal against an investigation, but it is wise to instruct a tax barrister at the earliest opportunity.
The way you handle a tax evasion investigation can have a substantial impact on the outcome of your case – giving you a better chance of appeal once a penalty has been issued, or finding an amenable settlement. Having a barrister on board from the start of the case can also save you time and money if the case goes to the courts, as your barrister will be familiar with all aspects of the case.
How Does HMRC Investigate Tax Evasion?
If there is an inconsistency with your tax return or some suspicious activity surrounding your accounts, the HMRC fraud team uses a huge database known as ‘Connect’ to investigate tax evasion. Its data gathering powers also enable it to gather information from apps such as Apple, Amazon and Airbnb to help identify tax-evading businesses.
HMRC works with a number of other investigating and criminal enforcement agencies including the Serious Fraud Office to catch tax evaders.
In cases of offshore tax evasion, HMRC works with international law enforcement agencies to discover if British citizens are illegally moving money offshore in an attempt to avoid UK tax laws.
Contact Patrick Cannon
For advice and representation in all matters concerning tax evasion, contact Patrick Cannon here.
Frequently Asked Questions About Tax Evasion
Typically, triggers include:
- Inconsistency with your tax return
- Suspicious activity surrounding your accounts
- Being reported for tax evasion to HMRC by someone aware of your activities or even an anonymous informant.
Yes, an experienced tax evasion barrister can formulate and deliver your appeal against HMRC’s decision. You have 30 days after the penalty notice is served to make your appeal. Appeals are best handled by experienced tax lawyers.
Something out of your control that prevents you from submitting in good time. This could include:
- Death of partner or close relative
- Fire / flood / theft
- Unexpected hospital stay
- Software or hardware failure
- Postal delay
- Serious or life-threatening illness
An appeal form will be sent out with your penalty letter. Fill this out or follow the instructions in the letter. For Self Assessment, PAYE, VAT and Corporation Tax, there are extra documents you can use or alternative ways to appeal. In tax evasion cases, is advisable to discuss your appeal with a tax lawyer before proceeding with an appeal.
HMRC are using their extensive bulk information-gathering powers in Schedule 23 Finance Act 2011 to require crypto exchanges to supply them with personal account information of persons registered with the exchanges. For example, Coinbase has confirmed that it has supplied HMRC with details of all UK residents who entered into crypto transactions for more than £5,000.