The difference between tax avoidance and tax evasion
As the famous saying goes, there are only 2 things that are certain in life, and one of those is taxes.
Tax is something everyone who earns enough is expected to pay. However, tax fraud in the UK cost the Government over £15 billion in lost taxes in 2019-2020.
This article is going to examine the difference between tax avoidance and tax evasion and the associated penalties.
Tax avoidance means finding ways to exploit the system to reduce the tax you owe.
It involves operating within the letter, but not the spirit of the law.
Tax avoidance schemes often involve artificial transactions that serve no purpose other than to produce a tax advantage.
If you are aware that you are part of a scheme created to reduce the amount of tax you pay, you must inform HMRC.
If you don’t tell HMRC about the scheme, you could be liable to a full enquiry into your tax affairs, payment of the tax you owe and penalties.
Tax evasion means concealing income or information from HMRC to reduce the amount of tax you pay. Common evasion methods include underestimating turnover or falsifying records.
This practice is illegal and, if convicted, can lead to up to seven years in prison and unlimited fines.
To put it simply, the difference between tax avoidance and tax evasion comes down to legality.
Evasion is actively breaking the law to pay less tax, whereas avoidance is about exploiting the system and finding loopholes.
Avoidance is technically legal, but certainly frowned upon. Unless you’re able to afford the quality of lawyers available to Amazon, it certainly isn’t a good idea to partake in tax avoidance as the penalties often outweigh any savings.
As accountants who pride ourselves on our standards of compliance, we’ll ensure the financial records we submit on your behalf are compliant with the law and HMRC guidelines.
For more information, speak to a team member today. Call: 01625 300 300