Tax Evasion Definition
Quite simply, tax evasion is defined as the illegal non-payment or underpayment of tax. This is a criminal act under UK law and prosecutable with financial and custodial penalties for anyone involved at the top end of the consequences for tax evasion, including for anyone who has knowledge of tax evasion but does not report it. Typically, tax evasion is dealt with on a case-by-case basis, with the most extreme punishments only applicable to serious criminal offences and in the best interests of the public. Tax evasion is a form of enabling tax evasion by aiding, assisting, or purposefully ignoring tax evasion as well as providing mechanisms for evading entities to achieve their goals. In the UK, the main types of tax that can be subject to this type of evasion are:
- Income Tax
- National insurance contributions
- VAT
- Excise duties
- Corporation Tax
- Stamp duty
Examples of Tax Fraud or Avoidance are:
- Running a business without telling HMRC
- Not paying enough Income Tax or National Insurance
- Making false claims for the Coronavirus Job Retention Scheme
- A company not being registered for VAT when they should be
- A company not charging VAT or other taxes on goods or services they sell
- A company not paying VAT or other taxes on goods or services they buy
- Hiding money, shares or other assets in an offshore bank account
- Using tax avoidance schemes
Who Regulates Tax Evasion in the UK?
HM Revenue and Customs (HMRC) is a major government department that has extensive fraud teams involved in criminal investigations, intelligence gathering and digital, forensic, and cyber analysis. The HMRC has an integrated Fraud Investigation Service (FIS) and embedded staff in the National Economic Crime Centre (NECC). They had unparalleled access to government and police databases. Internationally, the HMRC are part of the Organisation for Economic Co-operation and Development (OECD) and Joint Chiefs of Global Tax Enforcement (J5) to share data on businesses and individuals. HMRC has had many changes over the last decade, improving its image from less of a threatening organisation to one that supports and assists honest people and businesses to get their tax affairs in order and prosecutes those that willingly avoid taxes. They have also invested heavily in automation and digital transformation, enabling people and businesses to submit their returns and get information very quickly and efficiently. One of their strategic objectives is “Make it easy to get tax right and hard to bend or break the rules”. Key areas of focus for business tax avoidance for the HMRC are the construction sector and tackling “profit shifting” by multinational companies. Another part of the grey economy, tax avoidance schemes are now being openly named by the HMRC. In the 2021 to 2022 HMRC Annual Report and Accounts, HMRC declares that they generated an additional £30.8bn just through tacking avoidance, evasion, and other non-compliance.
Scales of Tax Evasion
HMRC determines varying scales of tax evasion. For example, mistakes and failure to take care when completing tax documents are treated differently than deliberately withholding or providing incorrect information. Not declaring income is the top end of the classification scale and will be dealt with commensurate with the offence committed and the amount not declared. There are specific methods of concealment, money laundering and so forth that need to be considered here when HMRC are making their assessments.
Tax Evasion Policies for Business
We recommend all companies have a Prevention of the Facilitation of Tax Evasion Policy written for your specific business. This document gives you and your staff an overview of Tax Evasion and the procedural measures to spot tax avoidance through Risk Assessments and Due Diligence as well as the process to report any tax evasion. If you would like us to prepare Tax Evasion or any other compliance documents for your company, please get in contact using the form below.
