Tax Evasion is a serious offence which is punishable by law. Through this article, we aim to explore the consequences one may face if they have evaded taxes for a number of years in the UK. We will also review situations in which unintentional tav evasion may be forgiven by authorities and the actions individuals can take in this regard. For a detailed overview of the topic, we will also review how much tax is due on various income brackets, how to file for a tax return and what are the important documents needed for these purposes.

What Happens If You Haven’t Paid Taxes In Years In The UK?

If you have intentionally not paid taxes in years in the UK, you are at risk of being convicted of tax evasion; which is a criminal offence. As a result of this, you can be sentenced to a jail term of up to 7 years or be penalised with an unlimited fine by HMRC.

If the HMRC suspect someone of tax evasion, they can conduct tax enquiries as far back as 20 years to gather the evidence before any legal action is taken against the individual.

If you have not paid your taxes unintentionally, you can report your situation to HMRC as soon as you realise that you have unpaid taxes. In this case, chances are high that you will not be prosecuted. Additionally, if you cooperate during the investigation, you can also avoid being penalised with hefty fines.

In such cases, you can avail of the following two options:

  • Work out a “time to pay agreement” with the HMRC. In this way, you can work out monthly instalments of your tax payments.
  • Pay a lump sum amount of your tax arrears and avail a time limit to pay the rest of the tax arrears.

When taxes remain unpaid, the HMRC charges a penalty first at a 30-day delay of payment, then again at 6 months and finally at 12 months. The penalty is 5 per cent of the original amount owed by an individual.

If an individual deliberately avoids paying taxes or is unable to honour the terms agreed to in the “time to pay agreement”, HMRC can take the following action against them:

  • Confiscate possessions; which include vehicles that will later be sold at auction(called ‘distraint’)
  • Transfer funds directly from your bank account, if your debt is £1,000 or more
  • take court action
  • make you run bankrupt, or close down your business

Examples of deliberate tax evasion include the following:

  • Hiding/misquoting trading revenues or intentionally failing to file tax returns.
  • Importing goods VAT-free while selling them to customers with added VAT. Then deliberately avoiding to report VAT charges to HMRC.
  • Diverting funds from tax breaks to other uses instead of the claimed purpose.
  • False invoices or personal expenditure claims.
  • Non-declaration of imported goods.
  • Assuming the identity of someone else.
  • Undertaking tax evasion schemes.

Penalities charged by the HMRC for tax evasion include the following:

  • If someone is found guilty of income tax evasion, their summary conviction is 6 months in jail or a fine of up to £5,000. The maximum penalty for income tax evasion in the UK is seven years in prison or an unlimited fine.
  • If someone is found to be guilty of VAT Evasion of VAT, the maximum sentence is 6 months in jail or a fine of up to £20,000. In the case of a Crown Court, the penalty can be a maximum of seven years in prison or an unlimited fine.
  • If the case is about cheating the public revenue, the penalty is life in prison or an unlimited fine.
  • If someone is caught providing false documentation to HMRC, they may have to pay a fine of up to £20,000 or face up to 6 months in prison.

How Do I Know That I Have To File A Tax Return?

You don’t have to file a tax return if you are a salaried employee as your tax is deducted by your employer before your salary is paid; using the tax code assigned by HMRC. However, you must file a tax return if you fall into any of the below categories:

  • You are self-employed and your income was more than £1,000 
  • You earn through renting out property and your income was more than £2,500 
  • You earned through commission or tips in excess of £2,500 
  • You earn through savings or investments and your income was £10,000 or more 
  • You have sold a property or shares and have earned profits on them (Capital Gains Tax will apply in this case)
  • You are registered as a director of a profit-making organisation 
  • The joint income that you or your partner have earned was in excess of £50,000 and you claim Child Benefit
  • You have earnings from outside the UK 
  • You live abroad but you have earnings in the UK
  • The total amount of your taxable income was over £100,000
  • You are a trustee of a trust or a registered pension scheme
  • The State Pension you received during the tax term was your only source of income and was in excess of your personal allowance
  • HMRC issued you a P800 stating that you didn’t pay enough tax in the previous tax term

How Can I File A Tax Return?

If you are filing a tax return for the first time, you need to register with the HMRC Government Gateway user ID. You will register differently depending on which of the following classifications:

  • you are a self-employed or a sole trader
  • you are not self-employed
  • you are registering a partner or partnership

Once you have registered, you can choose to file your tax returns by making an online payment or using a printed form SA100. This is your main form. Depending on the classification of your source of income you will also need to fill out either of the following supplementary forms:

  • SA102 for employees or company directors 
  • SA103S or SA103F for self-employed 
  • SA104S or SA104F for business partnerships 
  • SA105 for UK property income 
  • SA106 for foreign income or gains
  • SA108 for capital gains 
  • SA109 for non-UK residents or dual residents

Which Documents Do I Need To File A Tax Return?

Before you start with your self-assessment tax returns, you must make sure that you have the following documents available:

  • your National Insurance number
  • your ten-digit Unique Taxpayer Reference (UTR)
  • your Government Gateway ID
  • details of your untaxed income from the previous tax year (this includes income from rental income, dividends from shares, interest on savings, capital gains)
  • expense details related to self-employment or partnership status (receipts/invoices/bank statements)
  • tax-free/relieved charity contributions
  • P60 or other records with details of your income and paid taxes (if any)
  • pension income and pension contributions
  • redundancy payments or employee benefits

How Much Tax Do I Have To Pay?

While salaried individuals get their income tax deducted from their wages under the PAYE system, self-employed individuals will have to pay taxes on their trading profits through self-assessment. Below are details of tax rates based on income brackets that will be applied to your salaried income: 

  • If your income is between £0 and £12,570, you will pay zero income tax
  • If your income is between £12,571 and £50,270, you will pay a 20% tax
  • If your income is between £50,271 and £150,000, you will pay a 40% tax
  • If your income is over £150,000, you will pay a 45% tax

However, in the case of trading profits being assessed through self-assessment, your income tax rate will apply as follows:

Trading ProfitIncome Tax BandTax To Be Paid
Up to £12,5000%No Income Tax on first £12,500
Between £12,501 and £50,00020%20% Income Tax on your next £37,500 
Between £50,001 and £150,00040%40% on the final £2,000
Over £150,00045%No Income Tax paid at this rate

How Are Tax Identification Numbers Used In The UK?

Tax identification numbers are used to track and monitor the tax accounts of individuals. Although the term TIN Number is not specifically used in the UK in its strictest sense, the HMRC issues two TIN-like numbers to members of the public. The purpose and use of these are described below:

  • The Unique Tax Payer Reference (UTR): This is a ten-digit set of numbers issued by the HMRC to individuals and businesses who qualify for paying tax returns in the UK. You will find this number on the front page of the tax return (form SA100 or CT600). In addition to this, you will find it on a “Notice to complete Tax Return” (form SA316 or CT603) or a Statement of Account. It is also printed next to the headings of “Tax Reference”, “UTR” or “Official Use”; but the appearance and terms that are used will depend on the type of document issued. 
  • The National Insurance Number (NINO): This includes two letters which are followed by six numbers and then only one of the letters between A, B, C and D. Individuals residing in the UK will be issued a NINO once they are 16 years of age. They will be informed by the Department for Work and Pensions (DWP) or the HMRC. If you are an employee, you will find this number on your payslip as well as on a Statement of Account issued by HMRC. It links individuals to their records of national insurance contributions, tax payments, student loans as well as social security benefits.

Conclusion:

The detailed discussion in this blog post makes it clear that deliberate tax evasion is a criminal offence that leads to being penalised with hefty fines as well as sentenced to a jail term that can reach up to 7 years. However, f the tax evasion has been unintentional and the individual who has unpaid taxes cooperates with the authorities during the tax enquiry, the penalty that why face may be reduced by the authorities or even completely removed.

FAQs: What Happens If You Haven’t Paid Taxes In Years In The UK?

How long can you get away with not paying taxes in the UK?

You cannot get away with not paying taxes in the UK for a long period of time. Sooner or later, the HMRC tracks down tax evaders and not only do they have to pay their tax arrears but are also faced with penalties and a jail term.

What happens if you don’t file taxes for 5 years in the UK?

If you don’t file taxes for 5 years in the UK, you will be issued a document titled a “determination”; based on which your tax arrears are to be collected along with the applicable fine. If the tax evasion has been unintentional, you may be asked to pay your arrears partially in a lump sum and partially at a later date.

What do I do if I haven’t paid my taxes in years?

If you have just realised that you have not paid your taxes in years, you should inform the HMRC to work out a “time to pay agreement” with the HMRC. In this way, you can work out monthly instalments of your tax payments.

What is considered tax evasion in the UK?

A deliberate attempt to not pay the tax that is due on one’s earnings is considered tax evasion in the UK. It is illegal to avoid taxes and that is punishable by law. 

How long can HMRC chase a debt?

If HMRC launches an enquiry against your unpaid taxes, they can chase tax debt as far back as 20 years.

References:

If you have not told HMRC about income – GOV.UK.

Haven T Paid Taxes In Years Uk? – ictsd.org

What to do if you’ve never declared your income

I haven’t filed a tax return with HMRC (Inland Revenue) in years, what do I do?

Dealing with income tax arrears – Citizens Advice

What are the penalties for tax evasion (UK)?.

What Happens If You Don T Pay Tax Uk? – ictsd.org

Dealing with income tax arrears – Citizens Advice

What will happen if you do not pay your tax bill – GOV.UK

Do I have to complete a tax return?.

I don’t know if I need to complete a Tax Return.

Self Assessment tax returns: Who must send a tax return – GOV.UK

How to fill in a Self Assessment tax return

P60 tax refund examples – what do you need to know?

Estimate your Income Tax for the current year – GOV.UK

What was missing from this post which could have made it better?

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.