What is tax evasion and is there a defence?

Tax evasion is basically lying to His Majesty’s Revenue & Customs (HMRC) about your income to avoid paying the full amount of tax that you owe.

It includes:

·       Reporting your tax dishonestly

·       Declaring less income than you actually earned

·       Declaring fewer profits or gains than you made

·       Overstating your deductions

·       Hiding money in secret locations

·       Creating false invoices to support claims for non-existent expenditure

·       Paying employees in cash

All forms of tax evasion are illegal.

What is the penalty?

HMRC is intent on tackling tax evasion and if you’re found guilty of tax evasion you could face an unlimited fine and / or up to seven years in prison. You’ll also have a criminal conviction and a criminal record.

To crack down on tax evasion, the Government announced in the Spring Budget 2023 that it intends to increase the maximum sentence for the most serious forms of tax evasion from seven years to 14 years.

What is the enforcement process?

HMRC can use both civil and criminal procedures to bring a case in tax evasion.

The investigation usually starts in one of two ways:

1.         HMRC Fraud Team flags an inconsistency with your tax return or notice suspicious activity surrounding your accounts. They are successful at spotting unusual activity because they use a database called ‘Connect’.

2.         HMRC is ‘tipped off’ by an informant who is aware of your activities.

Once the alarm is raised, then HMRC may look at social media to find out about the lifestyle of someone under investigation. They can look at all your public information to find clues about your lifestyle, and whether it matches the income you have declared.

The first you’ll know about it is when you receive a letter from the HMRC which informs you that they have started an official investigation. In that letter, they will likely ask you for more information, which you’ll need to provide by a certain date.

In some circumstances, you may be invited to attend an interview under caution.

HMRC will continue their investigation, which may end in court proceedings.

If you receive a letter from HMRC, which informs you that you are being investigated for tax evasion, it’s important that you contact a solicitor as soon as possible. A solicitor can explain the process that HMRC will take and help to protect your position.

Tax evasion and tax avoidance

There’s a fine line between tax evasion and tax avoidance.

Tax avoidance is ‘bending the rules’ to get a tax advantage. It’s arguably legal, but certainly frowned upon morally and considered to be a form of tax non-compliance.

The main difference is that tax evasion involves dishonesty on the part of the perpetrator, but tax avoidance could be considered to be an ‘honest mistake’. Tax avoidance could be a product of things like poor record keeping, or failing to file a tax return on time.

The consequences of tax avoidance are less serious. You’ll still have to repay the tax you owe, but you may avoid a criminal conviction.

Is there a defence to tax evasion?

There’s no defence to being dishonest and avoiding paying your taxes. But if it was an honest mistake, then you may be facing a less harsh punishment.

So the best way to defend a claim in tax evasion is to gather evidence to show that you made a mistake and were unaware of the discrepancy. You’ll still face some consequences, like repaying outstanding tax and possibly a fine. But it won’t be as large a fine as a charge of tax evasion and you should avoid time in prison.

How our lawyers can help

Our lawyers have helped other clients defend themselves against an HMRC investigation into their tax affairs. We’ll help you deal with requests for disclosure and gather the forensic accounting material that you’ll need to prove your case.

We can attend any interview under caution with you and advise you on how to respond to the questions.

We can also help you negotiate with HMRC to find a settlement before the case goes to trial.

But if you do end up in a court procedure, we will draft your defence and other court documents, to give you the best chance of a reduced penalty.

If you’d like to speak to an expert in this area, please get in touch with us at Harewood Law - we cover Leeds, Bradford, Halifax, Wakefield, Huddersfield, across West Yorkshire and the UK.

0333 3448377 | info@harewoodlaw.com