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How much is lost to tax evasion in the UK?

  • 3 min read
  • 24 Jan 2023
How much is lost to tax evasion in the UK? - TaxScouts

Tax evasion – it’s becoming increasingly common in the UK. From celebrities to big corporations, there have been multiple high-profile cases on the news of HMRC being short-changed. 

But how much have HMRC really lost to tax evasion? Read to find out more! 

First of all, what exactly is tax evasion?

Tax evasion, tax avoidance, tax efficiency – it can all become a huge blur. But to keep it short and simple, tax evasion is purposely not paying or underpaying the tax you owe. This is illegal and most likely HMRC’s biggest “pet peeve”.

What are common examples of tax evasion in the UK?

Not paying or underpaying tax isn’t always just not bothering to report taxable income to HMRC. There are many ways in which people find themselves in HMRC’s bad books. 

This can be by:

  • Keeping business off the books (so dealing in cash)
  • Hiding money, shares, or other assets in an offshore bank account
  • Writing off personal expenses as tax-deductible business expenses
  • Using company property for personal use (yes, this is illegal)

Despite all of these examples of tax evasion, the most costly, pesky issue for HMRC is actually tax avoidance schemes.

What on earth are tax avoidance schemes in the UK?

Tax avoidance schemes are companies that are designed purely to promote paying less than a fair share of tax and NICs. 

Many of these schemes take the form of non-compliant umbrella companies, claiming they can help you keep more of your money by paying less tax. They sometimes offer your pay as a loan, salary advance, grant or a fixed lifetime amount of money.

HMRC defines tax avoidance as ‘bending the tax rules to try to gain a tax advantage that Parliament never intended.’ 

They even go on to state that ‘most tax avoidance schemes simply do not work, and those who use them may end up having to pay much more than the tax they tried to avoid, including penalties.’

The shade. 🤭

Safe to say that HMRC isn’t here for tax avoidance schemes at all, despite many promoters claiming that HMRC is actually supportive of tax avoidance schemes.

So, how much money is lost to tax evasion in the UK?

🔥 The burning question. How much is lost?

Well, HMRC estimates around £400 million in tax was lost in 2020/21 because of avoidance schemes, and a further £800 million was lost in other forms of avoidance behaviour, i.e underreporting income and writing off personal expenses.

Altogether, that’s a whopping £1.2 billion lost to tax evasion. Whew! 😮‍💨

What are the consequences of tax evasion (UK)?

Tax evasion is actually a crime. And as usual, crime = consequences. Especially when messing with HMRC.

For tax evasion, you can face anywhere between a few months to seven years in prison (depending on the severity of the situation). You can also be fined anywhere between £5,000 and an unlimited amount. 

The consequences of engaging in tax avoidance schemes can be pretty stiff, too. Even if you fall victim to what appears to be a harmless ‘want to pay less tax’ ad on the net, you’ll be required to pay the tax you owe and may face a surcharge. 

That sounds like a lot…

Yup.

That’s why HMRC have made umpteen efforts to stop taxpayers from engaging in tax avoidance schemes. For example, the don’t get caught out campaign (and endless pleas with the public to not use these schemes, regardless of what Jimmy Carr says). 

They’ve also made use of the Finance Act 2022 to publish information about tax avoidance schemes and their promoters. Under this act, they can also directly request information from promoters about their activities. 

HMRC vs UK tax avoidance schemes

The result of HMRC’s efforts?

Well, the number of taxpayers using avoidance schemes has declined since 2017/2018. Back then, it was at an all-time high.

(And then, of course, the news broke that Take That band member Gary Barlow had to pay back £20 million in taxes after taking part in a tax avoidance scheme four years prior – yikes!)

In 2020/21, HMRC estimated that around 31,000 individuals and 1,000 employers were using tax avoidance schemes – which was a huge dip from the previous years.

👉 Moral of the story: Tax evasion is on the rise but so are HMRC’s efforts to bring down avoidance schemes.

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