When running a company, you are obliged to file tax returns as well as pay tax in a timely manner. Making careless errors in attempting to fulfil these responsibilities can land you an array of tax penalties that inconveniently eat into your firm’s financial health.
However, the penalties can be especially severe if you step over the line into what is known as tax evasion. Given how easily tax evasion can be confused with tax avoidance, it is important that you know how the two differ and the tax evasion penalties for business in the UK.
What is the difference between tax evasion and tax avoidance?
The term ‘tax avoidance’ has often circulated around the media due to a string of high-profile cases, with Wayne Rooney and Jimmy Carr notable examples of celebrities who have been caught out.
However, tax avoidance mainly differs from tax evasion in its legality. With tax avoidance, you would be adhering to the law while still using clever means of lowering your tax obligation. Placing savings into an ISA (Individual Savings Account) to spare yourself paying income tax would be one example.
Were you to resort instead to tax evasion, you would be outright breaking the law in your attempt to avoid paying taxes. Good examples of tax evasion measures include not filing a tax return or, if a return is filed, not citing the full taxable income.
If you are prosecuted for and found guilty of tax evasion, a prison sentence will result. Furthermore, if the committed offence exceeds £25,000, HMRC is entitled to ‘name and shame’ you. On top of all of this, you would be requested to pay the tax that you owe but have evaded.
How long can you go to jail for tax evasion?
Figures released by the Ministry of Justice (MoJ) earlier this year revealed that, in just a year, the average sentence for offences including not only tax evasion but also VAT, excise duty and custom duty frauds had gone up by 25%.
That placed the length of the average sentence at four years and one month – a noticeable increase from the previous figure of three years and three months. This growth could reflect how HMRC has recently come under concerted political pressure to prosecute more cases of tax evasion.
The exact strength of a penalty for someone who has committed tax evasion depends on the offender’s level of culpability or the extent to which HMRC has lost out. A judge can assess either of these factors at the sentencing stage to decide how much jail time for tax evasion is warranted.
Our Chartered Accountants can help to prevent you risking punishment for tax evasion in the UK.