Penalties For Tax Evasion UK

Penalties For Tax Evasion UK. Written by John  A Waller. Consultant. June 5th, 2024.

Tax Avoidance Schemes And Penalties

Difference between Tax Evasion and Tax Avoidance

Tax evasion in the United Kingdom is the illegal act of intentionally concealing income from the HMRC (His Majesty’s Revenue and Customs). It is a serious offence and can result in legal consequences. On the other hand, tax avoidance involves exploiting legal loopholes and finding ways to reduce the amount of tax paid by businesses and individuals. While tax avoidance is technically legal, it is often viewed as ethically questionable, presenting a moral dilemma, and can lead to public and governmental scrutiny.

UK Tax Avoidance Schemes and Penalties.

So, if you have been referred to an offshore intermediary (tax avoidance scheme), the HMRC may hold your accountants and any other party accountable for their actions if the schemes remain, therefore, not valid. Penalties, however, remain. See (The “Criminal Finances Act, 2017″ ).

However, any form of tax avoidance in the UK should be disclosed under the disclosure rules. Individuals must inform  HM Revenue and Customs (HMRC) about such schemes, allowing them to:

  • Be alerted earlier to schemes;
  • Judge who operates such schemes.

However, failing to advise the HMRC risks you, therefore, receiving an HMRC penalty and tax liability.

Three disclosure regimes exist:

  • VAT disclosure regime (VADR);
  • Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT);
  • Direct taxes (including Apprenticeship Levy) and National Insurance contributions (DOTAS).

If you have concerns, please arrange a free meeting with HBG Advisory.

UK Tax Avoidance Schemes and how to identify them.

  • Promising 90 per cent take-home pay;
  • Rivalling their scheme as better than “PAYE.”

Penalties for Tax Evasion UK – Legality:

If a scheme says it is “LEGAL“! How is it?

However, tax evasion is “ILLEGAL“.

Penalties for Tax Evasion UK – Can HMRC backdate:

Yes! If tax evasion is evident. This may also apply to tax avoidance schemes.

Compliant with IR35:

IR35 affects limited company contractors who work in the private sector. Contractors are, therefore, either inside or outside IR35 company closure. You must still pay tax and National Insurance Contributions (NIC), whether in or out.

Tax Avoidance Schemes And Penalties – Experts:

Tread carefully, however, when engaging so-called “EXPERTS“. Are they members of an accredited body? If not, stay clear. If so, dig further. How credible are they? Are any of their clients under HMRC compliance checks? Is what then they promise too good to be true? Therefore, avoid a promoter of tax avoidance. Tax fraud will, however, prompt a criminal investigation.

UK Tax Avoidance Schemes And Penalties – Is Tax Avoidance Illegal in the UK?

Tax avoidance works within tax laws that governments have conceded are legal; they do not consider it moral. Large corporations and businesses adopting tax avoidance remain under scrutiny, as they pay insufficiently if they operate in the country.

However, companies employ tax experts offering tax planning, as HMRC wants matters to operate, as many billions of potential taxes remain unpaid to HMRC.

What are some examples of Tax Avoidance?

An example of legal tax avoidance is investing in an Individual Savings Account (ISA). You legally, therefore, avoid income tax on interest earned. Another option is to invest your money in a pension scheme therefore then.

How do you, therefore, avoid tax?

Tax avoidance schemes are legal, and examples are quoted. You can claim deductions and credits as allowable on expenses and your tax return to carry out legal tax avoidance. You may also make the best use of investments that offer tax advantages.

Penalties for Tax Evasion UK – HMRC Spotlight Schemes.

These spotlights exist to warn you away from tax avoidance schemes.

Spotlights 11 to 19

Stamp Duty Land Tax avoidance; update (Spotlight 19);
Stripped bond tax avoidance schemes (Spotlight 18);
Employment Benefit Schemes using fettered payments (Spotlight 17);
Plan Green – car benefit scheme (Spotlight 16);
Share Loss Relief schemes (Spotlight 15);
Stamp Duty Land Tax avoidance (Spotlight 14);
Property business loss relief schemes (Spotlight 13);
Taxing the rewards for work done (Spotlight 12);
Avoiding Income Tax on pay (Spotlight 11).

Spotlight 10 to 1

Stamp Duty Land Tax avoidance (Spotlight 10);
Gift Aid with no real gift (Spotlight 9);
Investments to obtain trade loss reliefs -‘ sideways loss relief’ (Spotlight 8);
Avoidance using Gift Aid (Spotlight 7);
Employer-Financed Retirement Benefits Scheme, (Spotlight 6);
PAYE and National Insurance contributions, Corporation Tax and Inheritance Tax: using trusts and similar entities to reward employees (Spotlight 5);
Contrived employment liabilities and losses (Spotlight 4);
Pension schemes: artificial surplus (Spotlight 3);
VAT: artificial leasing (Spotlight 2);
Goodwill: companies acquiring other businesses, carried on before 1 April 2002 by a related party (Spotlight 1).

Tax Avoidance Schemes And Penalties – Penalties

  • Individuals

    • Liable to a penalty when failing to disclose a scheme to HMRC within five days of being made available or implemented. The first penalty £600 a day. However, you may have to pay a penalty of up to £1 million.

Further, you remain liable for a further penalty of up to £600 a day, failing to disclose the scheme to HMRC after the initial penalty was forced.

  • As an employer

    • Therefore, for those who remain involved in a tax avoidance scheme, a penalty of up to £5,000 for each employee you fail to include in your end-of-year report may be imposed. Again, however, additional penalties of up to £600 a day may be imposed on each employee if you fail to disclose once the initial penalty is imposed.

If you’re a promoter, you are liable to a penalty of up to £5,000 for each client to whom you fail to give the SRN. Further penalties of up to £600 a day per client may be imposed if the failure continues after the initial penalty has been charged.

If you use a tax avoidance scheme and fail to report the SRN to HMRC, you remain liable to a penalty. The penalty remains up to £5,000 the first time you fail to do this. Failure to report SRN risks a fine of £7,500. However, if it is the third occasion, you risk paying £10,000 for each failure.

Penalties may also apply for non-compliance with other features of the DOTAS legislation.

Penalties For Tax Avoidance

HMRC is upping its game by imposing penalties on those involved in defeated British tax avoidance schemes. Further, HMRC remains steadfast in applying additional penalties for intentional tax avoidance compared to those issued for careless behaviour.

Currently, basic tax avoidance penalties are:

  • No penalty: if you exercised reasonable care dealing with errors and advising HMRC accordingly. Up to 30%: should you have not exercised reasonable care, like failing to submit a tax return,
  • Up to 70% of you exercised intent,
  • Up to 100%, you intentionally defrauded HMRC.

Tax Evasion

So tax evasion occurs when people or organisations try to avoid paying taxes illegally. Tax evasion is most commonly achieved by deliberately providing HMRC with false information to reduce the amount of tax for which the taxpayer is liable. 

If you have been party to a tax evasion investigation and are found guilty of tax evasion for serious deliberate tax cases, you face prison sentences and unlimited fines.

Companies who require support during the pandemic. Please read the suggestions for companies during the pandemic.

To arrange a free meeting with HBG Advisory, please get in touch with us by:

FREEPHONE 0330 056 3120

Arrange a FREE, confidential virtual meeting safe and private online or

Please arrange a website found at the bottom right of the web pages.

Support Is Just A Call Away
Business recovery for distressed directors and limited companies. Free advice from approachable team of advisors.Tel: 0800 612 5448
Book a Virtual Meeting - Free Confidential Advice
If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448..
Employees and redundancy when in liquidation
IPA Logo
TMA Logo
R3 Logo