Taxes cannot be avoided by anyone, but it’s something which everyone would like to reduce. Often we hear news across the world where we see a lot of the global companies avoiding tax. However, it is a tricky concept, and there is a difference between tax evasion vs tax avoidance. In simple words, tax evasion is considered illegal, whereas tax avoidance is considered to be legal. Even though tax avoidance is considered legal, it needs to be done with care and ensure nothing is crossing the line. Both actions have brought significant losses to the HMRC in taxes. However, the HMRC are taking the necessary action to reduce such losses.
What is Tax evasion?
It is an illegal process through which taxes are avoided. Tax evasion could be misrepresenting income or not disclosing income, or hiding tax from the HMRC. Tax evasion is a criminal offence, and you could end up in prison for a period of 6 months. The penalty will rise to an amount of £20,000.
What are some of the Tax evasion ways that would get you into trouble?
- Failure to report or underreporting business income
- Using cash payments to conduct business “off the books”
- Keeping money, stocks, or other assets hidden in an offshore business bank account
- Personal expenses are incorrectly reported as tax-deductible business expenses.
- Taking company property for personal gain without a legitimate business reason
What is Tax avoidance?
Tax avoidance is done by many and is not a criminal offence. Instead, it is the legal ways and bending of rules to reduce the taxable income. An Individual Savings Account (ISA) is one of the most common techniques because the money in the account is tax-free. In addition, keeping assets in the spouse’s name to utilise their lower tax band and taking legitimate tax credits and tax deductions are common among many.
What are the penalties?
As mentioned, tax evasion is an illegal activity that can lead to significant penalties. There are different ways, and all these could end up differently. Suppose you are found guilty of evading income tax, vat, or providing false representation to the HMRC. In that case, you could end up in jail for 6 months and pay the penalty. For income tax, the fine could be up to £5,000, whereas it could rise up to £20,000 for VAT and providing false information.
Feel free to contact our team for more clarifications and queries.