HMRC Penalties for Tax Evasion and Avoidance

Powers have been given to HMRC so that it can maximise revenue and clamp down on tax evasion and avoidance.

What is the difference between evasion and avoidance?

• Evasion is illegal
• Avoidance is not advisable but not illegal
• Tax planning is allowable

The blurring of lines between evasion and avoidance allows HMRC to use their powers to suggest evasion.  Whereas anything legal & not contrived would have been acceptable.  Now morality is the watch word

“if it sounds too good to be true, it usually is”

Professional advisers have sprung up offering schemes, which appear robust and legitimate but ultimately get challenged in the Courts, which result in significant tax and penalties for the taxpayer.

New powers were introduced in 2012 including

• The General Anti-Abuse Rule (GAAR);
• The ability to remove funds direct from bank accounts; and
• Double of penalties to 200% for offshore evasion

In 2018 there were extended to include the ability to contact third parties for documentation.

Whistleblowers are often in the news providing document and information to the authorities – this can include those with close personal contact, including spouses.

Self Assessment Tax Return enquiries give HMRC the power to request information, impose fines or penalties and charge interest on unpaid tax.  Taxpayers and advisers can minimise penalties by volunteering information and dealing with matters promptly.

Nudge letters are the latest weapon being utilised by HMRC.  They are not formal enquiries but encourage taxpayers to review their tax position.

Discovery assessments are the next level and are raised where a loss of tax is identified.  This can be deemed careless of deliberate by the taxpayer which will result in penalties ranging from 30% to 100% of the additional tax.

HMRC are investing money and manpower in targeting criminal behaviour and contrived schemes.  Their Connect computer system is tasked with reviewing information from many third party sources in order to target taxpayer enquiries.

At Lambert Chapman we work to help taxpayers bring their affairs up to date via disclosure and settlement offers with HMRC.   Making unprompted disclosures can have a significant impact in reducing penalties – potentially to nil.

If you think that you have undisclosed income which should be reported or have been involved in a tax scheme which is under review, then please do get in touch with our Senior Tax Manager, Lucy Orrow, to see how we can help you.