Tax Avoidance
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* Part A: Tax Avoidance and evasion
Introduction
According to Hyde (2010) tax evasion cost the UK treasury over £15 billion annually. This is approximately 3% of the total tax liabilities that individuals and organisations are meant to pay to the Her Majesty Revenue and Customs (HMRC). While an estimate of £25 billion is lost through tax avoidance annually (Murphy, nd). These are huge sums of money that could go a long way to help the government reduce the national deficit or could have been used for national development projects but have eluded the government. This report seeks to compare and contrast tax avoidance and evasion. Secondly, critically evaluate the effectiveness of HMRC’s approach to the “tax avoidance industry” in recent times.
Comparison between tax evasion and avoidance
Both tax evasion and avoidance are ways and means that people and organisations use to deny the treasury of the required revenue that they ought to have collected. While in broad terms both activities are wrong and morally questionable, it can be argued that one is legal and the other is a criminal act. The following are the comparison between tax avoidance and evasion.
Legality
Evasion is the illegal manipulation of business affairs to escape taxation. This is a criminal act that when caught will lead to prosecution. An example could be the directors of family-owned business not declaring cash sales. Another example might be the payment of a low salary (below the threshold of income tax) to a family member not working in the company, thus reducing profits in an attempt to reduce corporation tax (Elliot & Elliot, 2011).
In contrast, tax avoidance is sometimes seen as legal especially if the mode of practice used is define by law such as giving gift to your children in such a way to avoid paying an inheritance tax. It can be seen as artificial ways of manipulation one’s affairs, within the law, so as to reduce liability, it is legal and it can be argued
* Part A: Tax Avoidance and evasion
Introduction
According to Hyde (2010) tax evasion cost the UK treasury over £15 billion annually. This is approximately 3% of the total tax liabilities that individuals and organisations are meant to pay to the Her Majesty Revenue and Customs (HMRC). While an estimate of £25 billion is lost through tax avoidance annually (Murphy, nd). These are huge sums of money that could go a long way to help the government reduce the national deficit or could have been used for national development projects but have eluded the government. This report seeks to compare and contrast tax avoidance and evasion. Secondly, critically evaluate the effectiveness of HMRC’s approach to the “tax avoidance industry” in recent times.
Comparison between tax evasion and avoidance
Both tax evasion and avoidance are ways and means that people and organisations use to deny the treasury of the required revenue that they ought to have collected. While in broad terms both activities are wrong and morally questionable, it can be argued that one is legal and the other is a criminal act. The following are the comparison between tax avoidance and evasion.
Legality
Evasion is the illegal manipulation of business affairs to escape taxation. This is a criminal act that when caught will lead to prosecution. An example could be the directors of family-owned business not declaring cash sales. Another example might be the payment of a low salary (below the threshold of income tax) to a family member not working in the company, thus reducing profits in an attempt to reduce corporation tax (Elliot & Elliot, 2011).
In contrast, tax avoidance is sometimes seen as legal especially if the mode of practice used is define by law such as giving gift to your children in such a way to avoid paying an inheritance tax. It can be seen as artificial ways of manipulation one’s affairs, within the law, so as to reduce liability, it is legal and it can be argued