Tax Evasion: How to evade taxes, quickly, efficiently and without getting caught (only joking)

Not one client has ever come to me and asked, how do I evade tax? I have been asked how do I reduce my taxes? How do I mitigate my taxes? Does this scheme work? Will HMRC find out? The last question may be the closest to concerning evasion. A fear that HMRC may find out gives rise to a suspicion that the enquirer is concerned whatever they have done may not be lawful. The normal examples of tax evasion include:

• Simply intently not reporting income – normally not reporting trading income for a significant period will be regarded as evading taxes because it is highly likely someone undertaking a trade would know they need to account for VAT and/or income/corporation tax.
• Cash transactions avoiding a traceable record of a trading transaction or disposal of an asset. The more technically advanced use cryptocurrency transactions to achieve a similar position although with much hard work, the transactions can be traced (subject to a few ideas I have but that is my devil side thinking).
• Missing trader fraud and carousel fraud broadly involves importing goods VAT free, selling with VAT added on and not reporting the VAT charged. Missing trader fraud may involve claiming a VAT deduction against an expense of a supplier of services who is actually not VAT registered or using someone else’s’ VAT registration – “m” denotes the fact that the they go missing with the VAT!
• False invoices and personal expense claims are common examples – the letting agent who acquires an expensive fridge for their client’s buy to let property which just happens to be claimed on expenses and delivered to the agent’s home address, the blank taxi receipt received and completed with a slightly higher figure, the extra business journey on an expense claim form. Whilst these may seem petty, they amount to evasion because they were undertaken deliberately to not suffer tax.
• Failing to declare imported goods or purposely understating the value so as to evade import duties.
• Assuming another person’s identity to carry out a taxable transaction, for example running a trading operation through a company with shareholders and directors who aren’t you but you control the bank account and ultimately disappear with the tax inflated profits.
• Intently using a network of companies, maybe including offshore companies, to falsely reduce the profits subject to tax and maybe leaving the funds hidden somewhere.

The last on my list and the topic of this article: When does the use of a tax avoidance scheme amount to tax evasion?

Tax avoidance schemes are normally packaged with tax advice from a suitably qualified professional. A reasonable person is likely to consider a suitably qualified professional to be a Chartered Tax Adviser, an accountant (ACA, ACCA, CIMA etc.), a financial adviser (DipFA), practicing solicitor (CPE). Despite holding a qualification indicating the professional has reached both technical and practising standards, it doesn’t mean that they are necessarily qualified or experienced enough to tell you about the tax risks associated with the avoidance scheme.

Why do users of avoidance schemes appear to accept that the person presenting the idea to them is suitably qualified? Is it because they carry an impressive title or CV:

• Wealth Adviser
• Asset Protection Specialists
• Wealth Preserver
• ‘A leading provider’
• ‘Providing asset protection services for over two decades’

Maybe it is simply because the user wants the planning idea being discussed to work. It is more beneficial to accept the planning as ‘advised’ is legitimate. There is no need to scrutinise the arrangements because the user is not a tax adviser and is reliant on the person ‘advising’ them and that person is in a position of experience and authority.

But what happens if the person who advised you, was not and could never have been regarded by any reasonable person as an expert in the field of tax, asset protection, wealth planning, or wealth structuring. What happens if they are just a good salesperson and sound really knowledgeable about tax and related topics?

Did you read the small print? Some arrangements purported to have tax benefits , which were conveniently incidental to the main purpose, for example asset protection. The small print may have also stated the provider was not responsible for tax advice and any person utilising the arrangements should seek independent tax advice. It might be detrimental to the promotion of arrangements to clearly set out that tax advice ought to be sought. Rather conveniently, the statement to seek independent tax advice were normally are somewhere unobvious.

Arrangements with conveniently incidental tax benefits refers to planning that is structured to be one thing and purports to do something else. The widespread promotion of the ‘remuneration trust’ best illustrates the point – it was a trust for suppliers and incidentally a director became a supplier and therefore could benefit.

What happens if, whilst using the arrangement not intended to provide tax benefits, it becomes affected by the introduction of new tax legislation? This could be detrimental for the longevity of the planning arrangements and would clearly need to be addressed. Maybe a document with retroactive effect or just entered today but dated several yesterdays ago.

Maybe the arrangement will be the subject of future challenge by HMRC who may attempt to deny the tax advantages (not that it was established for the purpose of tax advantages). If the arrangement could morph itself to protect against HMRC challenge that would be ingenious.

HMRC publishes spotlights on arrangements they consider are ‘tax avoidance’ or don’t achieve their purported tax outcomes. The majority of the sixty two spotlights (at the time of writing) relate to disguised remuneration. 

Let us assume: A specialist with no particular qualification suggests to a person they enter into arrangements not structured for the purposes of tax avoidance. There just happens to be some incidental tax advantages. The paperwork is overtly cumbersome although some signatures are needed and the paperwork is reworked after the person has participated for a while. Let us also assume HMRC has issued several spotlights that could be relevant. The provider or an associated entity (or what appears to be associated) issue their own opinion on the spotlight and most probably how it is not relevant. Can the person carry on relying on the stance they did not know better? Can they take the stance that they did not undertake a deliberate act resulting in the loss of tax?

HMRC is becoming more assertive both in terms of the behaviour giving rise to a penalty and representations where a taxpayer relies on a trusted adviser. Some arrangements have been considered to be so contrived that the user must have known what they were entering was purely to not pay tax and to achieve that position with disregard to the truth. The time and costs involved with challenging a person acted fraudulently when utilising an avoidance scheme may not be warranted.

However, many avoidance schemes use an offshore structure and all that may be needed to prosecute is for HMRC to prove there was an omission from a return under the offshore criminal offence. That offence doesn’t need HMRC to prove an intent to defraud, it just needs the omission from a tax return and no reasonable excuse. Reliance on advice from someone connected to the structure (being paid from it for enticing people into it) won’t be considered reasonable.

As HMRC continues to battle to get taxpayers to disclose their use of avoidance schemes and regularise their affairs, they will inevitably seek a few cases to encourage those not coming forward. It will be better to proactively clean up an involvement in an avoidance scheme rather than wait and see what happens next. 

What is Tax Evasion?

Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties.

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