Contractors’ Questions: Is HMRC really going to jail tax avoiders?

Contractor’s Question: Following this article on ContractorUK, should it not be pointed out with you publishing a correction, that longer jail sentences proposed at Spring Budget 2023 only relate to fraud and evasion, not avoidance? And -- that nothing in the Spring Budget avoidance package proposed for HMRC is retrospective?

Expert’s Answer: For at least the last few years now, HMRC has tended to avoid the use of tax ‘fraud’ or ‘evasion,’ as terms. And because it is the Revenue which makes the rules (or technically its bedfellow department HM Treasury), taxpayers simply have to abide by the rules. Or at least be aware of those rules and tailor their approach.

 A dropped distinction

If you look back at HMRC’s more high-profile announcements of late, you will see that the tax authority quite long ago dropped the distinction between avoidance and evasion.

In the eyes of the Revenue, it’s various shades of avoidance which operate now -- the organised genre could, according to Spring Budget 2023, lead to a jail sentence in the event ‘stop’ notices are ignored. Generally speaking, I recommend not labelling organised avoidance as ‘evasion’ -- it’s misleading, or rather it leads people to believe there is a safe zone i.e. ‘I can engage in avoidance because it’s only evasion that’s unlawful.’

Are you paying your fair share?

That said, it’s true that most forms of avoiding tax won’t land someone in jail.

Currently though, HMRC is focused on deliberate and organised tax avoidance, more so than just about anything else in terms of enforcement. That’s because the Revenue has killed off the ‘old chestnut’ that it’s ‘every individual's right to avoid paying more tax than necessary.’ The HMRC mantra now is ‘everyone should pay the right amount of tax’. Or the ‘fair’ amount of tax. And if you evade, or avoid, you’re not paying the fair amount.

Remember, HMRC has moved the goalposts, altered the terminology and times have changed. It now looks at tax avoidance on a scale of one to ten, not avoidance or fraud/evasion.

The expert was former inspector of taxes Carolyn Walsh, a tax and PAYE adviser.