Tax Avoidance vs Tax Evasion: What’s the Difference?
Updated: Nov 6
Tax avoidance has always created interesting news. It even makes big news for celebrities and large multinationals. It always creates a lot of anger and questions about how to get away with it even when the news is known.
Because there is a difference between tax evasion and tax evasion. One is illegal, the other legal, though arguably immoral on a larger scale.
HMRC has confirmed that it has generated billions in additional tax revenue in recent years. This comes after a push to tackle tax avoidance, tax evasion, and non-compliance.
What is Tax Evasion?
Tax evasion occurs when a company, its owner, employee, or consultant intentionally does illegal things to avoid taxes. In other words, they are intentionally committing a crime to avoid taxes.
What is Tax Avoidance?
Tax Avoidance is a legal form of tax deduction owned by a company or an individual. This is usually achieved by claiming as many deductions and credits as are allowed.
Are Tax Avoidance and Tax Evasion the Same Thing?
Tax avoidance is legal up to the grey area of "aggressive tax avoidance". In its simplest form, many people can practice tax evasion. An Individual Savings Account (ISA) is a legal way to avoid paying income taxes since all savings in an ISA are tax-free. Businesses and sole proprietorships can avoid taxes by claiming expenses to lower their tax bill.
If you've gone one step further and are believed to be engaging in "aggressive tax evasion" that HMRC disagrees with, you could be investigated and possibly refund the tax, but it's a dark area at times.
Tax evasion is when you use illegal practices to avoid paying taxes. This may include not reporting all of your income, filing a tax return, hiding taxable assets from HMRC, or using fake accounts abroad.
This is a criminal offense and not only can you end up in jail, but you could also be 'named and shamed by HMRC for avoiding over £ 25,000 in taxes. This then affects your reputation and that of your business, which can affect sales.
What is "Tax Fraud"?
Tax fraud is a general term used to describe a wide range of illegal activities, including:
● does not charge sales tax if necessary
● Collect VAT or deduct PAYE tax from employee income, but do not pay it to HMRC
● Falsify tax return information to reduce tax liability
● if you do not report all amounts paid to you or your employees to HMRC.
Tax fraud also occurs when goods subject to excise duties, taxes or VAT are smuggled into the UK. On-demand registration without VAT is another example of tax fraud.
Determining Which One Applies
It can sometimes be difficult to determine which case is included in each case of tax avoidance or tax evasion. This has created a lot of confusion, especially with larger companies that seem to get away with no penalties. An accountant can give you further advice and make sure you are doing everything right.
Where Can You Get Tax Advice?
A reputable specialist tax advisor or auditor can tell you how to manage and plan your tax affairs in order to minimize your tax burdens without breaking any tax laws.
Chartered accountants who are members of professional bodies such as the Institute of Chartered Accountants in England and Wales and the Association of Technical Accountants are bound by codes of ethics and conduct based on international standards, not only ensuring the highest standards of accountability.
Pro Tax Accountant can give you all the advice you need in this regard.