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Tax avoidance and tax evasion difference

There’s a major difference between tax avoidance and tax evasion: one is legally fine by frowned upon. The other is illegal and will see you sent to jail. It’s obviously important to know the tax avoidance and tax evasion difference in order to lower your tax charges without running the risk of incarceration.
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Tax planning

Tax planning is the term that a tax accountant would use to describe ways that his clients lower their tax bills without getting into trouble for doing so. Legitimate planning basically means being active about paying tax rather than passively filing your returns at the end of the year and facing a massive tax bill.

Government backed tax-saving

The same people who will put you in jail for not paying your taxes are the ones who will also encourage you to save some tax by investing your cash in an ISA. When you consider the amount of government backed tax reduction schemes, you’ll see that there is a great argument for all of us to be more aware of our taxes. If you get childcare vouchers through your firm, you save the income tax you would have paid on the money as these vouchers are taken from your wage before tax. This can save families something like £70 a month. Not a lot of money, but over a year you’re looking at a £800 plus saving which could cover an average month’s childcare costs. ISA are another legitimate method of tax avoidance.

In summary

Tax avoidance is fine as there are lots of means out there for you to lower your tax bill and put more cash into your pocket. Think of this as bending the rules. Tax evasion however is illegal. This is normally something that clever and very rich people do to either show how clever they are or just how greedy they’ve become. An example of tax evasion is the Gary BarlowIcebreaker” scheme which was meant to be a fund that bought up intellectual property rights in order to generate income. As very few rights were bought and the cash invested sat in an account generating paper losses which were offset against profits from other schemes, the HMRC believed that the “investors” were putting their cash in simply to lower their tax bill and promptly slapped Barlow and his chums with a hefty tax bill.

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