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    The Serious Consequences of Tax Evasion

    Published on 12 Mar 2019 by Vivek Dodd

    Avoiding taxes is one thing, but tax evasion is quite another. In many developed countries, tax evasion is a crime, punishable by both financial penalty and prison time - with the latter showing just how seriously it is taken.

    Tax evasion is when a person or company escapes paying taxes by concealing the true state of their affairs to tax authorities. It covers evasion of income tax or VAT, excise duty and custom duty frauds. Tax avoidance, on the other hand, is where a person or company legally exploits the tax system to reduce tax liabilities, such as establishing an offshore company.

    We take a look at some famous cases of tax evasion, recent cases and convictions in the UK, and examine the risks for businesses.

    Tax evasion in the UK

    HM Revenue & Customs (HMRC) revealed that a total of 3,809 tax evasion cases were recorded during the 2017/2018 financial year in the UK. That's 593 more cases than the previous financial year (2016/2017) and 837 more than were recorded in 2015/2016.

    A total of 671 people were convicted and handed jail sentences for their part in tax crimes during 2018. These included:

    • Hussain Asad Chohan, a tax fugitive who spent more than 11 years on the run and owes more than £53 million.
    • David Michael Hughes, a tax consultant who masterminded a conspiracy to steal £6.9 million from construction workers.
    • Teslim Johnson, a church leader from Luton who fraudulently claimed £150,000 in Gift Aid repayments.
    • Jason Butler, a businessman who evaded £9.8 million in VAT payments to fund his lavish lifestyle.
    • Simon Atkinson, a company director who funded his racing car hobby through a £450,000 tax scam.

    Clearly, there are some individuals out there who will go to great lengths to abuse the system and not pay their taxes. But the convictions show just how serious the HMRC is taking tax evasion. Prison sentences are getting longer too, and are likely to continue to do so.

    Towards the end of last year, HMRC also reportedly opened 27 new investigations into suspected serious tax evasion by some of the UK’s top businesses. The cases allegedly involve the UK’s top 2,100 businesses - mostly in the financial services and professional services sectors - and either involve more than £50,000 in tax or could result in possible prosecution. Whether tax evasion has actually taken place, however, remains to be seen. 

    What's the maximum penalty for tax evasion in the UK?

    The penalty for tax evasion can be anything up to 200% of the tax due and can even result in jail time. For example, evasion of income tax can result in 6 months in prison or a fine up to £5,000, with a maximum sentence of seven years or an unlimited fine. Evasion of VAT carries similar punishment, though could result in a £20,000 fine. 

    The risk for businesses is greater than ever

    Under the Criminal Finances Act 2017, which came into force on 30 September 2017, businesses are now criminally liable if an employee or an associated person (an agent or another other third-party) facilitate tax evasion whilst providing services on their behalf.

    The Act built on the existing Bribery Act 2010, which already deemed it a criminal offence for individuals or businesses to evade tax. Yet, the Act made it hard for the authorities to prove a business had been complicit in the evasion of tax, and the new legislation gets over this problem.

    Failure to comply with this new law can result in significant financial penalties and even jail time, not to mention serious reputational damage. This means businesses need to take responsibility and have procedures in place to protect themselves. If one of your employees or a third-party individual (e.g. a consultant) evades tax, you need to be able to prove that you had reasonable prevention procedures in place.

    Violating the Criminal Finances Act 2017 can have crippling consequences for an organisation. The penalty for tax evasion can be anything up to 200% of the tax due and can even result in jail time. For example, evasion of income tax can result in 6 months in prison or a fine up to £5,000, with a maximum sentence of seven years or an unlimited fine. Evasion of VAT carries similar punishment, though could result in a £20,000 fine.

    Famous tax evasion cases in the US

    Walter Anderson

    Walter Anderson's case is the biggest tax evasion case in U.S history. The telecommunications entrepreneur was convicted for hiding his earnings through the use of aliases, offshore bank accounts, and shell companies. While on trial in 2006, Anderson admitted to hiding approximately $365 million worth of income. He was sentenced to nine years in prison and issued a fine of almost $400 million in back taxes, fees and penalties.

    Al Capone

    Prosecutors worked for years to build a case against notorious crime boss Alfonse “Scarface” Capone. Eventually, the only thing they could get him on was tax evasion, and in 1931 Capone was sentenced to eleven years in prison and fined $80,000. Capone only served seven years in prison, but it worked to scare other people off not paying their taxes. More than $1 million in unpaid taxes were submitted the year after his conviction.

    Leona Helmsley

    Hotel operator Leona Helmsley and her husband were accused of billing millions of dollars in personal expenses to their business in order to escape taxes. Helmsley, dubbed the "Queen of Mean", was famously quoted as saying, "We don't pay taxes. Only the little people pay taxes." She was convicted on three counts of tax evasion and served 18 months in prison.

    Want to know more about Financial Crime?

    As well as 30+ free compliance training aids, we regularly publish informative Financial Crime blogs. And, if you're looking for a risk management training solution, why not visit our Risk Management course library.

    If you've any further questions or concerns about Financial Crime, just leave us a comment below this blog. We are happy to help!

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