In recent years it has become more and more difficult to differentiate between tax avoidance and tax evasion.
Tax avoidance is, in some cases, legal. However, HMRC has significantly clamped down on a number of high-profile tax avoidance schemes, including film schemes, research and development schemes and Carbon Credit scheme that have been specifically promoted and sold to High Net Worth Investors and Sophisticated Investors by a number of reputable tax advisors and accountancy firms. Tax evasion has never been legal.
Tax evasion involves deliberately evading a tax liability. This can be done in many ways, for example, by making dishonest declarations regarding profits or overstating deductions. If convicted of tax evasion, punishments are severe ranging from a fine of up to 200% of the sum avoided, to a substantial custodial sentence. The common law offence of Cheating the Revenue carries a maximum sentence of life imprisonment. Individuals accused of being involved in high value and sophisticated tax evasion schemes are at risk of severe custodial sentences.
Enforcement action by HMRC has been steadily increasing in recent years as the Government continues to take a hard line on white-collar crime and tax evasion. HMRC has received a vast increase in budget over the past five years to allow for more in-depth investigatory resources. A more recent approach has been to encourage Alternative Dispute Resolution with tax payers or businesses public hotline was launched to allow individuals to anonymously report businesses or people they suspect may be evading the full extent of their tax liabilities.
The offence of “Failing to prevent the facilitation of tax evasion” came into force under the Criminal Finances Act 2017. Where corporates, partnerships or LLPs do not have adequate regulatory and preventative procedures in place, you may find yourself facing criminal sanctions such as an unlimited fine. A company may be liable for this offence even when it was not aware of the evasion or facilitation.
A business may be liable for the actions of an individual acting on its behalf. This is irrespective of any gains or benefits from the employee’s actions.
The offence of failing to prevent includes UK businesses which fail to prevent those acting on its behalf from criminal facilitation of a tax loss in the UK or an overseas jurisdiction which has equivalent laws of tax evasion in place.
Non-UK companies who fail to prevent criminal facilitation of a UK tax loss by those who act on its behalf will also be at risk under this offence.