Spring Budget 2023 Series: Increased Jail Sentences for Tax Fraud

The Chancellor recently unveiled his ‘back to work’ tax measures in the Spring Budget, focused on restoring market confidence, easing some of the strain on businesses and the public, growing the economy and rejecting the “narrative of decline”.
“In the autumn we took difficult decisions to deliver stability and sound money. Today, we deliver the next part of our plan: a Budget for growth. Not just growth from emerging out of a downturn. But long-term, sustainable, healthy growth,” said Hunt.
Changes included lifting the cap on tax-free pension contributions, the 100% ‘full expensing’ tax relief and freezing fuel duty, however the corporation tax hike was held firm.
Read more from the budget announcements here.
Increased measures to tackle tax fraud
The government stated it will be increasing measures to tackle tax fraud, namely by setting aside additional funding and increasing the maximum sentences for the worst cases of tax fraud, from seven to 14 years.
A consultation will also be held on tackling tax avoidance schemes by introducing a new criminal offence for promoters who fail to comply with a legal notice from HMRC to stop promoting them. This offence will likely end in those found guilty in a court of law serving time in prison.
The Treasury said: “fewer non-compliant tax avoidance schemes operating in the market cuts the likelihood of people getting involved with them and facing thousands of pounds in unexpected future tax bills and penalties as a result”.
What is a tax avoidance scheme?
Marketed tax avoidance schemes tempt people into avoiding paying their taxes. The schemes claim to avoid the need to pay the correct amount of tax and National Insurance Contributions. They often involve converting income into a loan or other payment from a third-party, which is unlikely to ever be repaid. This then lands people with large and unexpected tax bills.
Over the past 18 years, promoters of tax avoidance schemes have shifted their focus from wealthy clients towards those on middle incomes. The market is dominated by umbrella companies and it is the users of these schemes, such as agency workers, contractors and freelancers, who usually end up with the big tax bills – not the promoters who sold them.
Chancellor Jeremy Hunt said: “It is everyday people who lose out from tax avoidance, whether it’s individuals facing big bills after getting involved with harmful schemes or funding being taken away from public services.
‘That is why I am determined for promoters to face the music for the damage they cause and the lives they harm by stopping them in their tracks.”
According to HMRC, hospital workers are the highest users of tax avoidance schemes in the UK out of any sector, who often get involved in tax avoidance through schemes promoted by employment agencies.
The UK loses about £400 million a year to these marketed tax avoidance schemes.
There has already been 31 avoidance schemes and 27 of their promoters named by HMRC to warn taxpayers not to get involved, but many promoters are still avoiding serious sanctions and luring taxpayers into signing up to dubious these schemes.
Moving forwards, £47.2 million will be invested in improving HMRC’s capabilities to collect tax debts, which includes supporting those who are temporarily unable to pay.
Dawn Register, head of tax dispute resolution at BDO said: “It’s pleasing to see more resources earmarked for HMRC in the Budget. This is specifically targeted to debt management and collecting taxes that are due.
HMRC is currently seeking to recover some of the £48bn in tax that remains unpaid. Tax debt is currently running at around twice pre-pandemic levels and HMRC needs to have sufficient resources to focus on the ‘won’t pays’ who push up taxes for the rest of us.”
For more announcements from the Spring Budget 2023, Read our breakdown:
• The pension lifetime allowance being abolished
• The super deduction scheme being replaced by full expensing
• Up to 30 hours of free childcare for children over nine months
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