Can You Go to Jail for Not Paying Taxes in the UK?

Paying taxes is a legal obligation in the UK, and failure to pay or deliberately avoiding tax can lead to serious consequences. While some tax issues result in fines or civil penalties, cases of deliberate tax evasion can result in criminal prosecution and imprisonment.

This guide explains the legal consequences of not paying taxes, HMRC investigations, tax evasion penalties, and how companies can also be prosecuted.

Is Tax Evasion Illegal in the UK?

Tax evasion is a criminal offence in the UK. While accidental mistakes or late payments may lead to fines, deliberately avoiding tax can result in prosecution.

Tax evasion includes:

• Failing to declare income from self-employment or rental properties.

• Underreporting earnings to reduce tax liability.

• Hiding assets or funds offshore to avoid paying tax.

• Deliberately claiming tax reliefs or benefits you are not entitled to.

HMRC actively investigates both individuals and businesses suspected of tax fraud.

What Are the Penalties for Tax Evasion in the UK?

The penalties for not paying taxes depend on whether HMRC considers the offence accidental, careless, or deliberate.

Civil Penalties (for mistakes or late payments)

• Late tax returns – Fines start at £100 and increase over time.

• Failure to pay tax on time – Interest and penalties may be charged.

• Incorrect tax returns – Fines range from 0% to 100% of the tax owed, depending on intent.

Criminal Charges (for deliberate evasion or fraud)

• Large-scale tax fraud – Can lead to imprisonment.

• VAT fraud – Can result in significant penalties and prosecution.

• Failure to register for tax (e.g., undeclared self-employment) – May lead to financial penalties and legal action.

How Do You Know If You Are Being Investigated for Tax Evasion?

HMRC does not always notify individuals immediately if they are under investigation. However, warning signs include:

• Receiving a compliance check letter from HMRC.

• Being contacted for additional financial records.

• Unexpected audit requests.

• Notices about irregularities in tax returns.

If you receive communication from HMRC questioning your tax affairs, seek professional tax advice immediately.

How Does HMRC Investigate Tax Evasion?

HMRC has extensive powers to investigate suspected tax fraud, using:

• Connect System: Advanced software that cross-checks bank accounts, property records, and tax returns.

• Unannounced visits: HMRC officers can visit businesses and request records.

• Whistleblower reports: Anonymous tip-offs about undeclared income.

• International data sharing: Cooperation with overseas tax authorities to identify offshore tax evasion.

If HMRC finds evidence of deliberate fraud, the case may be referred for criminal prosecution.

What is the Maximum Sentence for Tax Evasion in the UK?

Tax evasion can result in fines, asset confiscation, or imprisonment. The maximum sentence for tax evasion in the UK is seven years in prison, along with unlimited financial penalties.

However, most cases do not result in the maximum sentence. The penalty depends on the amount of tax evaded, the duration of the fraud, and the individual’s cooperation with HMRC.

How Are Sentences Decided for Each Tax Evasion Case?

Courts consider several factors when sentencing tax evasion cases:

• The amount of tax evaded – Higher amounts lead to tougher penalties.

• Whether the evasion was deliberate or accidental – Intentional fraud is more serious.

• The duration of the offence – Long-term fraud results in harsher sentences.

• Level of cooperation – Those who cooperate with HMRC may receive reduced penalties.

Minor cases often result in financial penalties, while large-scale or repeated tax fraud can lead to imprisonment.

Civil Penalties vs Criminal Charges

Not all tax issues lead to criminal prosecution. HMRC can issue civil penalties, which allow individuals to settle unpaid taxes and fines without going to court.

Civil penalties apply to:

• Accidental underpayments.

• Failure to file a tax return.

• Late payments.

Criminal prosecution occurs when HMRC believes fraud was intentional, such as in cases of:

• False accounting.

• Deliberate underreporting of income.

• Hiding money offshore.

Determining Fines and/or Prison Sentences

Fines for tax evasion vary depending on the severity of the offence.

• Late tax return: £100 fine, increasing over time

• Failure to declare income: Up to 100% of unpaid tax as a fine

• VAT fraud: Up to 7 years in prison + unlimited fines

• Offshore tax evasion: Up to 200% of the unpaid tax

Those who voluntarily disclose tax issues before HMRC investigates may receive lower penalties or avoid prosecution entirely.

Can Companies Be Held Criminally Liable for Tax Evasion?

Yes, companies can be prosecuted for failing to prevent tax evasion under the Criminal Finances Act 2017. A company can be held liable if an employee or associate commits tax fraud, even if senior management was unaware.

If convicted, businesses face:

• Unlimited fines.

• Seizure of assets.

• Serious reputational damage.

To avoid liability, businesses must have strong anti-fraud policies and reporting procedures in place.

What Activities Can I Be Charged with Tax Evasion For?

Tax evasion charges can apply to:

• Not declaring self-employment income.

• Falsifying business records.

• Underreporting earnings from employment.

• Hiding money in offshore accounts.

• Fraudulently claiming tax reliefs or benefits.

HMRC uses data analytics and international cooperation to track undeclared income, making it harder to evade taxes.

Final Thoughts

Not paying taxes can result in fines, legal action, and in serious cases, imprisonment. While minor errors or late payments may only lead to financial penalties, deliberate tax evasion is a criminal offence that can lead to a maximum prison sentence of seven years.

If you are concerned about your tax situation, it is always best to cooperate with HMRC and seek professional tax advice to resolve issues before they escalate.