Pay the Tax Man: The Tax Evasion Penalties All UK Businesses Should Know

Over the last three financial years, UK tax evasion cases have been increasing with 2017/2018 recording 3,809 cases. The last fiscal year saw 40,695 people reporting tax evasion cases via the tax evasion hotline.

Consequently, the government has put in place strict tax evasion penalties to deal with these tax irregularities. To help you avoid becoming a perpetrator, we give you a brief guide on tax evasion, involved penalties, and how to comply.

Understanding Tax Evasion

Tax evasion is when you deliberately fail to pay your legally due taxes by using non-existence ambiguities in tax law.

The HMRC places you under investigation if suspected of committing any tax irregularities. If placed under HMRC investigation, seek professional help immediately to ensure you don’t pay huge tax penalties.

HMRC determines your penalty liabilities by investigating your reasons for not paying taxes. These reasons are categorised as follows;

  • Deliberate understatement
  • Mistakes/ Misinterpretation
  • Unreasonable carelessness
  • Failing to declare income

Deliberate Understatement

Deliberate understatement is when you knowingly omit some income information when filing your returns for your financial gains. It’s also considered tax fraud if you exaggerate your expenses and allowances intending to benefit when filing your returns. Tax fraud penalty can be liable to a penalty of up to 70% of your tax due.

Mistakes/Misinterpretations

You might make genuine mistakes when filing your returns, which result in paying lesser tax than you should. If your adviser proves that the errors were genuine, then HMRC will treat them as such and won’t penalise you.

Unreasonable Carelessness

This happens if you make careless mistakes when filing your returns. Such errors include;

  • Omitting some parts of your tax returns
  • Failing to declare some of your income
  • Leaving out some additional pages of your returns.

These are viewed as moderate and can result in a tax penalty of up 30% of your tax due.

Failing to Declare Income

Failing to declare income is when filing your returns and then going ahead to hide the fraud is considered misleading HMRC and deliberately committing fraud. This offense faces the most severe tax evasion sentence, and you can pay tax liability of up to 200% of your tax due. This offense can cost you thousands of pounds and, therefore, advisable to seek professional and reliable advisers if implicated.

Tax Evasion Penalties

Many businesses and even celebrities commit tax fraud to avoid paying the tax man. Here are the tax evasion penalties they face and how to stay compliant.

VAT Evasion Penalties

If charged with this offense in a magistrate’s court, you risk facing a jail sentence of six months or a fine of £20,000. If your case is determined in a Crown court, you can get a prison sentence of seven years or pay an unlimited fine.

Penalties for Income Tax Evasion

When charged with this tax fraud, you either get six months in jail or pay a fine of £5,000. In some cases, you might get a maximum penalty of seven years in prison or pay an unlimited fine.

Cheating Public Revenue

HMRC considers this a severe tax crime. If charged, you risk facing a sentence of life in prison or an unlimited fine.

Penalties for Smuggling

You’re charged with smuggling if you fail to pay duty on imported goods. This crime can see you get a maximum sentence of paying a fine amounting up to £20,000. If convicted in a Crown court, then you risk getting seven years in prison or pay unlimited fine.

Provision of False Documents to HMRC

The case on this crime can be heard as a summary conviction or in a magistrate’s court. Either way, tax evasion through the provision of false documents can see you get six months in prison or pay a fine of up to £20,000.

Penalties for Errors

HMRC penalises you if you make errors when filing such as misinterpreting or understating your tax liability. You also risk getting penalised if you’re assessed by HMRC and your tax liabilities are understated, and you fail to report the error.
The penalty, in this case, is referred to as inaccuracy penalty.

It’s tax-based and hence calculated using the amount of tax missed due to the error. However, you are not charged if HMRC feels that you have a reasonable excuse or you took reasonable caution to prevent the error.

How much inaccuracy penalty you pay depends on;

  • What HMRC thinks caused the inaccuracy
  • Percentage of the lost revenue
  • Whether HMRC feels that you notified them of the error

Penalties for Late Payment and Late Returns

Filing returns past deadlines attract penalties while overdue tax payments attract interest. Once the deadline is due, both fixed penalties and interest charges increase at intervals of 3, 6, and 12 months.

How much you pay for missing deadlines depends on the type of tax. The penalties for various taxes are as follows;

Income Tax Self-assessment

Missing the filing deadline attracts a penalty of £100, which increases after three months. If your payment is 30 days due, the penalties increase at a rate of 5%.

Corporation Tax

The initial penalty starts at £100 and a charge of £100 if you extend the deadline for three more months. If you have failed to pay corporation tax in time three times in a row, you are charged £500 instead of £100.

If you extend your filing by six months, HMRC estimates your tax bill and charges you a penalty of 10%. You get charged another 10% if you extend to 12 months.

Late VAT Payments

Late filing of VAT returns is viewed as default. Increment charges are calculated as a percentage of the outstanding VAT and increases depending on how many times you default within 12 months.

Seek Help to Get Reduced Penalties

If faced with tax evasion penalties, consider seeking professional help to avoid paying maximum HMRC penalties.

Maple accountants have an understanding of the UK tax evasion charges and will help you appeal if you feel that the penalties are wrong.  We can also request for an independent HMRC officer to help review your case and determine the right penalties.

If you would like help on any tax issue or are seeking accounting services, don’t hesitate to contact us.