Tax evasion is illegal. It means deliberately not paying tax that is legally due, for example by hiding income, inventing expenses, keeping cash sales off the books or filing a return you know is false. In UK law it is a criminal offence to be "knowingly concerned in the fraudulent evasion" of a tax. For income tax and VAT the maximum sentence is 14 years' imprisonment for offences committed on or after 22 February 2024 (it was 7 years before). Civil penalties can reach 100% of the tax for deliberate, concealed errors, and up to 200% in the most serious offshore cases. HMRC can go back 20 years.
Tax evasion vs tax avoidance vs tax planning
The three are often confused, but the law treats them very differently:
- Tax evasion. Dishonestly not paying tax you know is owed. It is a crime, whatever the amount;
- Tax avoidance. HMRC describes avoidance as "bending the rules of the tax system to try to gain a tax advantage that Parliament never intended". It is usually not criminal, because the facts are disclosed. Schemes typically fail, the tax becomes payable with interest, and penalties and the anti-avoidance rules can apply;
- Tax planning. Using reliefs the way Parliament intended, such as contributing to a pension, using an ISA or claiming capital allowances. This is legitimate.
Honesty is the dividing line. A mistake, even a careless one, is not evasion. Concealment and dishonesty are.
Common forms of tax evasion
- Undeclared income. Cash jobs, side businesses, rental income or platform sales that never reach a tax return;
- Hidden offshore assets. Overseas accounts, investments or property income not reported in the UK;
- False expenses. Personal costs claimed as business costs, or invoices that were never paid;
- VAT fraud. Charging VAT without paying it over, false input tax claims or fake repayment claims;
- Payroll fraud. Paying staff cash in hand off the payroll;
- Sales suppression. Using software or tills to delete recorded sales.
Criminal offences and sentences
The main offences are:
| Offence | Source | Maximum on indictment |
|---|---|---|
| Fraudulent evasion of income tax | Taxes Management Act 1970, s106A | 14 years and/or a fine |
| Fraudulent evasion of VAT | VAT Act 1994, s72 | 14 years and/or a penalty of any amount |
| Cheating the public revenue | Common law | No statutory maximum |
| Failure to prevent facilitation of tax evasion (companies and partnerships) | Criminal Finances Act 2017, s45 | Fine |
The 14-year maximum was introduced by Finance Act 2024. It applies to offences committed on or after 22 February 2024, the day the Act was passed.
There are also strict liability offshore offences, where HMRC does not have to prove intent. They cover failing to notify chargeability, failing to file a return, or filing an inaccurate return, where offshore income, assets or activities are involved and the tax at stake exceeds £25,000 for the tax year. They are tried in the magistrates' courts, and the maximum penalty is a fine, up to 6 months' imprisonment, or both. The statute provides for 51 weeks in England and Wales, but that longer limit is not yet in force. A reasonable excuse is a defence to the failure-to-notify offence.
Businesses face a separate risk. Under the Criminal Finances Act 2017, a company or partnership commits an offence if someone acting for it facilitates tax evasion. Its defence is to show it had reasonable prevention procedures in place, or that it was not reasonable to expect it to have any. See our guide to the corporate criminal offence.
Civil penalties and how far back HMRC can go
Most evasion cases are settled civilly, not prosecuted. The civil cost is still severe. For an inaccurate return, the penalty is a percentage of the "potential lost revenue":
- Deliberate but not concealed. Up to 70% for domestic matters;
- Deliberate and concealed. Up to 100% for domestic matters;
- Offshore matters. Higher categories apply, up to 200% for deliberate and concealed errors in the highest category.
Penalties are reduced for disclosure, and much more if you come forward before HMRC opens an enquiry. HMRC's guidance limits the reduction where someone waited a significant time, normally more than 3 years, before correcting the position. Interest is charged on the tax as well.
For income tax and capital gains tax, HMRC can assess deliberate losses up to 20 years after the end of the tax year, compared with 6 years for careless errors. For VAT, the deliberate-case limit is also 20 years after the end of the VAT period. VAT has no 6-year careless window: its normal limit is 4 years.
How HMRC finds evasion
HMRC receives large amounts of third-party data:
- Overseas account data. Bank and investment account information from other countries under the Common Reporting Standard;
- Platform data. Seller information from digital platforms since 2024;
- Crypto data. From 2026, data from cryptoasset service providers.
It also receives tip-offs. Anyone can report suspected evasion through HMRC's online form or the fraud hotline on 0800 788 887, and reports can be anonymous. Under HMRC's strengthened reward scheme, an informant whose information leads to the collection of at least £1.5 million may receive 15% to 30% of the tax collected. Rewards are discretionary, and anonymous reporters are not eligible.
What to do if you have not declared income
Do not wait for HMRC to write to you. Your options depend on the facts:
- Voluntary disclosure. Use HMRC's online service to tell it about underpaid tax from previous years, or the Worldwide Disclosure Facility where offshore matters are involved. See voluntary disclosure to HMRC;
- Code of Practice 9. Where HMRC suspects fraud, it may offer the Contractual Disclosure Facility. If you accept it and make a full disclosure, HMRC agrees not to investigate you criminally, with a view to prosecution, for the deliberate behaviour you disclose. See our guide to COP9 and the CDF;
- Specialist advice before any contact. The distinction between careless and deliberate behaviour drives both the penalty and the time limit, so how the disclosure is framed matters.
Acumon's HMRC tax investigation team handles disclosures, COP9 cases and enquiries, working with specialist legal advisers where criminal exposure is possible. Where a business needs prevention procedures under the Criminal Finances Act, our tax dispute resolution specialists can review them. All initial conversations are confidential.