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Tax avoidance always makes an interesting news story. With celebrities and big multinational companies, it’s even bigger news. It always leads to a lot of anger and questions of how it’s possible to get away with this, even after it breaks the news.

It’s because there’s a difference between tax avoidance and tax evasion. One is illegal, the other is legal, though arguably immoral when done on a larger scale.

HMRC have confirmed that they have secured billions of pounds in additional tax revenue over recent years. This comes after a push towards cracking down on tax avoidance, evasion and non-compliance.

Are tax avoidance and tax evasion the same thing?

Tax avoidance is legal right the way up to the grey area of “aggressive tax avoidance”. At its most basic form, a lot of people may engage in tax avoidance. Having an Individual Savings Account (ISA) is a legal way to avoid paying income tax because all savings in an ISA are tax-free. Businesses and sole traders can avoid tax by claiming expenses to reduce their tax bill.

If you’ve gone a step further and are deemed to be engaging in “aggressive tax avoidance” that HMRC doesn’t agree with, you could be investigated and potentially pay the tax back but it is a murky area at times.

 

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Tax evasion is when you use illegal practices to avoid paying tax. This could include not reporting all of your income, not filing a tax return, hiding taxable assets from HMRC or using fake offshore accounts.

This is a criminal offence and not only can you end up in prison, you could also be “named and shamed“ by HMRC if you’ve avoided over £25,000 in tax. This will then impact the reputation of you and your business, which can then affect sales.

Determining which one applies

It can sometimes be difficult to determine which one each case falls under- tax avoidance, or tax evasion. This has caused a lot of confusion, especially with larger companies seemingly getting off without any penalties. An accountant can give you more advice and make sure you’re doing everything above board.

Our online accountants are experienced professionals. Learn more about our services.

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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