In contrast to Tax avoidance, Tax evasion is an unlawful practice in which an individual, business or company deliberately avoids giving the rightful tax due. In case an individual, business, or company is caught for not paying the correct amount of tax due they might be subject to considerable penalties and criminal charges. To deliberately avoid paying taxes is an offense under the UK Government code of law. The concept of tax evasion is applicable for both unlawful non-payment and underpayment of payable tax. Largely, an individual is not considered guilty under tax evasion code unless the failure of not paying the applicable tax is considered deliberate. If an individual fails to pay the exact amount of tax due to HM Revenue and Customs (HMRC) he / she can has to undergo an investigation. For charges to be levied on an individual, it must be made sure that the evasion of tax was a determined act on the part of the individual taxpayer. In case it is established that an individual is guilty of official charges, he / she may have to serve jail time.
For individuals, businesses, and companies in the UK, it is imperative to understand the difference between Tax avoidance and Tax evasion. Where tax avoidance uses legal means to reduce the tax obligation, on the other hands, tax evasion is the use of unlawful methods to evade applicable taxes. According to a recent study, the UK tax department is incurring a loss of £11.4bn in revenue each year due to tax evasion regardless of introducing numerous measures intended at tackling tax evasion. Despite HMRC pronouncing plans of increase in penalties on any individual who has not deposited the outstanding tax amount, HMRC has not precisely been accurate in trying to lock down tax evasion. Because of these issues, tax evasion is anticipated to remain a road-block in the UK economy and might make up a huge percentage of the UK’s tax gap. According to industry analysts, HMRC is keener to curb tax avoidance rather than tax evasion as the former focuses on a minor group of tax payers, which eventually won’t make much alteration to election results.
Report tax evasion online
UK citizens can make use of the ‘HMRC Fraud Hotline – Information report form’ and provide information of the person or business who is involved in Tax evasion activities. This form comprises of five different sections mentioned below:
- Section 1 – Information about the person/business
- Section 2 – Information relating to their business details
- Section 3 – Using this information
- Section 4 – Details of the person who is reporting (These details are necessary as it will enable HMRC to contact the person, reporting the breach, to clarify the information further. These details will be treated securely within HMRC)
- Section 5 – Submitting the form
This form can be used to inform HMRC about alleged tax evasion. It is important to make sure that no one known about the research involved in preparing this report. UK citizens can also inform about a suspect by calling HMRC at 0800-788-887 and report suspected tax evasion (timings to call the helpline are 8am to 8pm, each day). Additionally, UK citizens can even write to HMRC to report suspected tax evasion (please note that HMRC won’t reply to authorise the receiving of the letter). Address is as follows:
HMRC Fraud Hotline
This service by HMRC will permit the UK public to report any tax evasion or tax fraud case. The service will empower the UK citizens to report any kind of tax evasion or fraud, comprising of pay-as-you-earn (PAYE) and National Insurance (NI), non-payments of National Minimum Wage, tax credit fraud, undisclosed offshore investments, and value added tax (VAT) fraud. HMRC states that although tax evasion is when an affirmed net source is intentionally understated, on the other hand, a hidden economy implies that a complete source of income is not declared.
Investigation penalties can be hefty! HMRC will look for reasons because of which a taxpayer has underpaid and analyse the real amount due, which will decide the penalty an individual is liable to pay. This will fall into one of four categories:
- Deliberate Understatement and Concealment: The most austere penalties which HMRC can impose on a taxpayer are for intentionally confusing HMRC when preparing a tax return and then taking the necessary measures to hide the fraud. Steps such as destroying the original documents, creating or modifying invoices or contracts, transferring money to a different bank account – all form part of deliberate understatement and concealment. The HMRC treats such kind of fraud as a serious offence and can result in a fine of up to 200% of the tax due. Defaulters must note that HMRC investigations can cost a lot of pounds because of the penalties that is imposed by HMRC
- Deliberate Understatement: According to HMRC, deliberate understatement of tax as a thoughtful offence. It is when a taxpayer knowledgeably and intentionally ignores information from their tax return for their monetary benefit. This would also apply if a taxpayer were to knowledgeably over-exaggerate expenditures or allowances to benefit them. The above stated both incidence are treated as tax frauds and are liable for a penalty of up to 70%
- Failure to take reasonable care: If an individual makes an inconsiderate mistake, for example, failing to complete the entire tax return, overlooking or missing out on filling a supplementary page or not declaring part of their income. This would be perceived as failure to take reasonable care and would not include basic arithmetic errors. A HMRC investigation penalty for failure to take reasonable care is seen as a moderate offence and the penalty could be up to 30% of the tax due
- Mistake or Misinterpretation: If an individual has made a sincere error because of which there has been an underpayment of tax, HMRC will treat this as an innocent errors. There may not be a HMRC fine for innocent errors (here the tax adviser will play a significant role as they will have to prove that the mistake was innocent and was unintentional – there is a possibility that there might be no penalty imposed)
According to a recently study in Newham Council, it was found that HMRC possibly will lose £200 million a year in London alone after concluding that half of its 27,000 landholders have defaulted and failed to register for self-assessment. It is estimated that Newham council has ~30,000 private properties which are leased out by 5,000 landlords. After the licensing process, 50,000 properties were owned by 27,000 separate landlords. The Council has sent a letter to the Chancellor, Philip Hammond, stating that landlords in Newham Council are of interest to HMRC, as there are numerous inconsistencies between the income declared by the landlords and the income as per the Council’s records, with possibly noteworthy financial repercussion for the royal or national treasury