Tax evasion and tax avoidance may sound similar, but they are completely different beasts. One is a clever tactic to minimize your tax liability, while the other can lead you straight into the lion’s den of legal consequences. If you’re eager to keep more of your hard-earned cash without risking a jail sentence, it’s time to grasp the true essence of these two terms.
Tax avoidance involves bending the rules of the tax system to gain a tax advantage. It is often done by creating artificial transactions that don’t serve any purpose other than to produce this advantage. Crucially, tax avoidance may be deliberate, but it’s not illegal.
Tax evasion is where businesses, their owners, staff or advisers deliberately do illegal things to avoid paying tax. In other words, they willfully commit a criminal offence to get out of paying tax.
For the avoidance of doubt, any of the following could land you in trouble with the authorities for tax evasion:
- Failing to report or under reporting your business income
- Conducting business ‘off the books’ through cash payments
- Hiding money, shares, or other assets in an offshore business bank account
- Misreporting personal expenses as tax-deductible business expenses
- Using company property for personal use without valid business reason
A reputable accountant or tax professional will be able to help you manage and plan your tax affairs to minimise your tax bills, while not breaking any tax rules.