What are the penalties for tax evasion in the UK?

Currently facing tax evasion charges or fearful you may in the near future? Being the centre of an HMRC tax investigation is an incredibly stressful experience and fear of the investigation’s outcome looms over you throughout.

In this article, we’ll discuss what the penalties are for tax evasion. We’ll discuss how the penalties are determined, whether companies can be prosecuted, and what activities can land you with criminal charges.

 

What is the penalty for tax evasion?

The charges for tax evasion vary depending on the activity you engaged in. You could receive fines and/or a prison sentence.

Fines vary from £5,000 to an unlimited fine.

Prison sentences vary from 6 months to a life sentence. For most serious tax offences, sentences are given up to 7 years, but the Government is currently trying to increase this to 14 years.

Additional penalties include the seizing/freezing of your assets, and indirectly, legal fees, damage to your personal and professional reputation, and a great deal of stress.

 

What is the maximum sentence for tax evasion in the UK?

For most tax evasion cases, the maximum prison sentence is 7 years. The actual maximum prison sentence for tax evasion is a life sentence. This is reserved for the most serious tax evasion activities, prosecuted as “cheating the public revenue”.

“Cheating the public revenue” is considered to be so severe because it is a very deliberate, large-scale, calculated effort to defraud HMRC. You would have gone out your way to engage in activities like:

• Carefully creating false financial documents in an effort to mislead HMRC.
• Diverting funds to offshore accounts and/or in fraudulent schemes/trusts to avoid paying tax.
• Engaging in VAT carousel fraud or falsely claiming VAT refunds.

Nothing about these activities would be considered accidental or the result of carelessness, so HMRC cracks down more harshly to set an example for others.

How are sentences decided for each tax evasion case?

HMRC considers a number of factors to determine the appropriate penalty for a tax evasion case.

Their first step is to decide whether to bring criminal charges or settle with civil penalties. They then decide the value of the fine and/or prison sentence length.

 

Civil penalties vs Criminal charges

HMRC carries out an “evidential test” and a “public interest” test to help them decide whether to settle the case with civil penalties or criminal charges. This table outlines their test criteria (though not every case follows this exactly):

Criteria	Civil Penalties	Criminal Charges
Amount of tax evaded	Usually minimal	Substantial
Intentions	Mistake and/or carelessness	Deliberate evasion
Cooperation with HMRC	Highly cooperative	Not cooperative
Previous offences	No	Yes

 

The “evidential test” considers how large-scale the evasion was, whether it was deliberate, and your conduct with HMRC. If the evidence shows your crime is more serious, criminal charges will be brought.

The “public interest test” considers whether criminal charges would help or give justice to the general public. If you’re seen to be a repeat offender who has defrauded a significant amount of money and did so deliberately, it would be in the public interest to bring harsher charges as retribution.

It’s important to note that even conspiracy to defraud is a criminal offence – even if HMRC has not actually lost any money, if you took steps to try to defraud them, criminal charges may be brought against you.

 

Determining fines and/or prison sentence

For cases ending with civil penalties, a fine is given which can be up to 200% of the tax owed (on top of paying back the tax). If you engaged in tax evasion by mistake or through carelessness, the fine is often around 20-30% of the tax owed.

Tax evasion is categorised by severity which helps guide prosecutors to an appropriate fine and/or prison sentence (again, each case doesn’t follow this exactly):

Category	Description	Penalty
Minor	First time offence or accidental evasion	Up to £5,000 fine or 6 months in prison
Moderate	More serious or repeat offence	Up to £20,000 fine or 12 months in prison
Severe	Deliberate and large-scale effort	Unlimited fine or up to 7 years in prison
Cheating the public revenue	The most serious, calculated effort to defraud HMRC	Unlimited fine and/or life imprisonment

 

Can companies be held criminally liable for tax evasion?

Yes – under the Criminal Finance Act (2017), Sections 45 and 46 outline that companies can be held criminally liable for tax evasion carried out by an employee or other associated person.

Companies can be charged if it’s thought they did not have reasonable procedures in place to prevent the fraud taking place, or if they knowingly allowed it to happen.

The consequences for companies include unlimited fines, regulatory consequences, reputational damage, and loss of business.

Senior management/directors themselves can face criminal charges for “conspiracy to defraud” if they knowingly allowed the evasion to take place (a charge that carries up to 7 years imprisonment).

 

What activities can I be charged with tax evasion for?

Tax evasion is an umbrella term covering a wide range of tax fraud activities including, but not limited to:

• Underreporting income
• Hiding assets
• Falsifying financial records
• Omitting financial records
• Claiming reliefs/allowances/tax credits you’re not entitled to
• VAT carousel fraud
• Underreporting VAT liability
• Failing to pay PAYE for employee wages
• Smuggling

 

I am worried I may face tax evasion charges – what do I do?

At Holborn Adams, our tax fraud solicitors completely understand the incredible stress you must be under. Our team confidently tackles tax evasion charges for our clients, and we’re proud of our fantastic track record of case wins and significantly reduced penalties.

If you’re facing, or worried you may face tax evasion charges, it’s critical you act quickly. When you instruct a solicitor, everything you discuss is legally confidential. We can instruct tax experts on your behalf who then become bound by confidentiality too. If you went to a tax expert independently, you aren’t afforded this security.

The team at Holborn Adams and our tax expert partners will create an airtight defence to win you the best possible outcome. We examine the validity of existing evidence, uncover new evidence that works in your favour, ensure you understand your rights, counsel you to avoid giving self-incriminating evidence, whilst still cooperating with HMRC.

Don’t waste any precious time – call Holborn Adams today.

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