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What are the penalties for tax fraud or evasion in the UK?

In the most grievous cases of tax fraud and evasion penalties can go beyond punitive fines.  HMRC reserve the right to launch a criminal investigation in certain circumstances. Criminal prosecutions remain relatively rare in the UK; but HMRC is investing more and more resources at the sharp end of compliance. This includes specially trained criminal investigators and more elite tax inspectors tasked with the investigation of suspected tax fraud.

We have written detailed guidance on HMRC’s criminal prosecution policy and the possible penalties for tax evasion in the UK. You can visit these pages by visiting the following links.

Financial penalties for tax evasion

Financial penalties for tax evasion have become far more punitive in recent years; particularly if HMRC establish that conduct has been deliberate. In more serious cases; where there is a lack of cooperation or disclosure you could face penalties of up to 200% of the tax loss.

Penalties for tax fraud or evasion are driven by various factors.

  • The nature and scale of the irregularities identified
  • The period over which the irregularities have occurred
  • Has a previous opportunity to disclose been missed? For example, via a tax amnesty or disclosure opportunity

The primary determining factor affecting an HMRC penalty decision will always be behaviour.

Behaviours fall broadly into four categories:

  1. Erroneous mistake or misunderstanding
  2. Carelessness
  3. Deliberate attempt to deceive
  4. Failure to notify chargeability

Erroneous mistake or misunderstanding

This would normally be defined as a genuine mistake or erroneous error which resulted in an underpayment of tax. HMRC will generally not charge a penalty in such circumstances.

Carelessness

If you fail to take reasonable care when filing your tax return for example missing off UK tax interest or erroneously recording a wring figure from a P60; HMRC will generally take a sympathetic view. Your adviser should seek a penalty suspension in circumstances where careless behaviour applies. There are certain conditions that you need to meet; including being able to demonstrate to HMRC that you will take greater care in future. You will have to make good the tax loss and any late payment interest.

This would not include basic arithmetic errors.

Deliberate behaviour

HMRC takes a very dim view of any deliberate behaviour that gives rise to a tax loss. You have in effect committed deliberate fraud or evasion. Examples include:

  • deliberate understating income
  • deliberately overstating expenses
  • deliberately omitting a source of income

Deliberate penalties can be up to 100% of the tax underpaid.

The most severe tax evasion penalties that can be charged are for deliberately misleading HMRC when completing a tax return and then taking steps to hide or attempt to hide the fraud.

Destruction of documents and deliberate concealment

Have you destroyed relevant documents and moved money to secret bank accounts, created or amended false contracts or invoices?

This type of fraud is taken very seriously and can result in a penalty of up to 200% of the tax due.