Understanding tax evasion and avoidance is an essential piece of knowledge! Even if just to avoid prison food. Do you Understand tax evasion and tax avoidance? Moreover, do you know the difference between tax evasion and avoidance?
- Firstly In this podcast, I outline the difference between tax evasion and avoidance
- Secondly, I’ll also discuss which one is naughty and should be definitely avoided.
- Thirdly, which one should be encouraged
- Finally, we will look at some examples of each in action.
So let’s get started!
What is tax evasion?
Tax evasion occurs when a taxpayer deliberately fails to declare income or gains on their return. Moreover, it could be where false information is submitted in order to reduce their liability for taxation.
What is tax avoidance?
Tax avoidance is legal. It means individuals or businesses pay less taxes than they would have paid if they had not taken those steps.
The lines between tax avoidance (perfectly legal) and tax evasion (not legal) seem to have become blurred.
In the words of Denis Healey, “The difference between tax avoidance and tax evasion is the thickness of a prison wall”
There are many ways of avoiding taxes. However, most methods fall into two main categories
Firstly, legal methods such as deductions and exemptions from taxable income
Secondly, illegal methods such as hiding money offshore so no one knows how much you actually earn through your business activities.
For many years tax evasion and tax avoidance have been the subject of considerable public concern. Furthermore, there is no statutory definition of what tax avoidance consists of.
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