What is tax fraud?
Tax fraud is a crime committed when an individual or business knowingly avoids paying the amount of tax they owe to Her Majesty’s Revenue and Customs (HMRC).
Tax fraud can be committed in a number of ways, usually either by falsely declaring income or by claiming expenses, which were never in fact incurred.
What is VAT fraud?
A major category of tax fraud involves VAT or Value Added Tax. Businesses that turnover more than £77,000 must register to collect VAT.
VAT is collected on products sold, but is also paid on products bought. Businesses that are VAT registered are obliged to pay HMRC any surplus of VAT collected in this way. VAT fraud involves understating the amount of VAT collected, which the business then fraudulently keeps.
What other types of tax fraud are there?
Examples of common types of tax fraud include:
- Not declaring income correctly
- Paying staff without declaring PAYE (paying ‘cash in hand’)
- Not declaring profits from a business
- Not registering to collect VAT when company turnover is above VAT threshold
- Charging VAT illegitimately (without being registered to collect VAT)
- Importing goods without paying appropriate duty
Why is tax fraud important?
Tax fraud is a serious crime because it deprives the Exchequer of funds, which are pumped back into services such as the NHS, policing, education and state benefits.
Avoiding paying tax therefore reduces government spending and creates inequalities with other citizens and businesses that pay appropriate amounts of tax.
What are the implications of tax fraud?
It is worth noting that tax fraud is a crime and that those found guilty are subject to criminal penalties. To be found guilty of tax fraud it must be shown that the individual or business knowingly, and therefore deliberately, avoided paying proper tax.
Tax fraud is a serious crime, which can be tried either at a Magistrates’ or Crown Court. It carries a maximum sentence of up to 10 years’ imprisonment.
Other serious offences carry penalties of up to seven years’ imprisonment. In addition to potential custodial sentences, tax fraud often carries significant financial penalties in the form of fines. If you have underestimated your tax, or believe you may have committed tax fraud, you should seek urgent legal advice from a solicitor.
Is there a way to reduce the penalty?
The penalty system for tax fraud includes a mechanism for reducing potential fines in circumstance where the individual or business assists HMRC in uncovering tax fraud. Making a prompt and early admission of fault is a good way to reduce your possible end liability.
You should discuss this with your solicitor at the earliest opportunity to give yourself the best chance of avoiding a serious fine or prison term.
For more information on tax evasion, please click the link.
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