Tax is a necessary cost for citizens of developed nations. In order to provide fair access to economic opportunities for all, education, healthcare and other vital public services are delivered free at the point of use in most members of the G20 group of developed economies.
These expensive services of course must be paid for.
Most service-based economies choose to raise that revenue via consumption and income taxes for the most part.
Less-developed countries that are rich in natural resources may instead use the revenues from lucrative exports from nationalised industries to generate money instead.
In the UK, the tax authority collected over £42 billion in income taxes (including national insurance) in the year to March 2022. VAT receipts brought in a further £60 billion to the treasury. The next largest contributor to the public purse is corporation tax, which raises just over £10 billion.
Once we understand how key income taxes are to the revenues of government, we can understand why Her Majesty’s Revenue & Customs (HMRC) have a series of powers to enforce the payment of taxes, through inspections, laws and the power to enforce penalties.
What Is Tax Evasion? Examples Of Tax Evasion
Tax evasion is a concept often confused with tax avoidance, for the simple reason that evasion and avoidance have the same literal meaning. However, when pre-fixed with ‘tax’, these terms have very different legal definitions.
Tax avoidance is the taking of strategic steps to reduce the amount of tax you are legally obliged to pay. Tax avoidance involves the use of tax rules to organise your affairs in a more tax-efficient manner. This includes the use of tax-efficient investment products and exercising control over the nature and timing of your income to try to minimise the tax rate you pay.
Tax evasion is a crime. It involves the deliberate or reckless submission of incorrect information to the tax authority in an effort to fraudulently pay less tax than required.
Examples of tax evasion could include failing to declare capital gains from the disposal of assets or disguising taxable income as a non-taxable source to avoid tax being levied on the sum.
What are the penalties for tax evasion?
The penalties for tax evasion are calculated with reference to the amount of tax evaded, in an effort to ensure that the penalties are severe in proportion to the wealth or income of the individual found guilty of the offence. Here are details of several tax penalties:
Income Tax evasion: Up to 7 years in prison and an unlimited fine
VAT evasion: Up to 7 years in prison and an unlimited fine
What’s more, the Government have chosen to publicly name and shame tax avoiders to provide a further non-financial penalty and deter others from doing the same.
You can view the current list of ‘deliberate tax defaulters’ here, together with the financial penalties they paid.
How to secure your tax as a wealthy person?
If this talk of penalties and convictions has caused you concern, you can take comfort in the knowledge that using experts will dramatically reduce the chances of you failing to declare and pay all legally required tax.
Moreover, wealth managers can also design a financial plan that helps you legally avoid tax within the letter and spirit of the law.
Tax legislation is famously complex, and while the HMRC website offers tax information in an easy-to-read format, actually applying tax rules to complex personal or corporate scenarios is difficult. That’s why many don’t attempt to file a tax return without the help of an experienced professional who understands industry norms and is aware of the impact of any recent changes to legislation.