Tax Avoidance vs Tax Evasion | The Accountancy Solutions
Are you unsure of the difference between tax avoidance and tax evasion? It is unsurprising if you are because these terms have been used interchangeably when in fact, they encompass very different meanings.
What is Tax Avoidance?
Tax avoidance is a method employed by businesses to reduce the amount of tax they have to pay. There are multiple ways this can be achieved and is usually done by financial professionals such as accountants and other advisories, so their client gets the best deal and makes as much money as possible. The most important thing to remember throughout this is everything that is done to minimize a company’s tax bill is done legally. One example may be opting to utilize a tax deferral plan so taxes can be paid later. The most common phrase associated with such actions is a “tax loophole” which means a method of legally avoiding tax through legitimate means.
What is Tax Evasion?
Tax evasion is an illegal method of avoiding tax payments and is usually carried out in several ways, including but not limited to: not reporting income, giving false information to HMRC, avoiding using the system in place to pay employees, and manipulating prices or being paid under the radar (in cash) and not claiming the payment. One of the most common examples of tax evasion is paying employees with cash so the business and the employee both avoid having to pay tax. As tax evasion is illegal, the consequences when you are caught can be huge and range from large fines to even prison sentences.
So, What is the Difference?
The main difference between the two is that tax avoidance is a legal practice albeit sometimes (wrongly) stigmatized as unethical or immoral, and tax evasion is an illegal practice defying the tax code that receives serious legal punishments.
If you need help with tax disclosure for tax evasion or tax avoidance please contact The Accountancy Solutions on 01216297768 or 02070784001 for further advice.