Tax Avoidance and Tax Evasion

(3 minutes to read)

Tax can be complicated and so you might find yourself in a situation where you’re not entirely sure whether you’re acting illegally or not. Here we take a look at the difference between tax avoidance and tax evasion.

What is tax avoidance?

First of all, the wording of avoidance and evasion can vary in definition – for example, there are tax avoidance schemes out there (this will be discussed later on) which are completely illegal, however, on this page when talking about avoidance, what we mean is avoiding paying tax using legal methods.

The main way in which you can reduce your taxable income, legally, is by ensuring that you’re claiming back on all allowable expenses available to you.

Not all self-employed workers are able to claim back on the same expenses, as there are some that will only apply to certain contractors.

For example, a limited company contractor will have certain running costs that other contractors won’t have to consider, plus they will have additional expenses due to employing their own staff.

You can’t just claim back on anything and everything you fancy, you will need to ensure that each purchase you wish to claim for has been made ‘wholly and exclusively’ for business purposes.

Typical allowable expenses include:

  • Travel costs – such as fuel, parking, hire charges, train/bus/taxi/air fares, accommodation while away for business reasons.
  • Subsistence costs – this includes travel, as well as hotel rooms, meals, tax/bus/air/taxi fares and vehicle insurance.
  • Office costs – such as stationary, printer ink/cartridges, postage, phone/mobile/internet bills.
  • Clothing expenses – should you require specific protective wear, a uniform or costume.
  • Financial costs – such as hiring an accountant.
  • Training courses – they must be related to your current line of work to help improve your skills and knowledge.
  • If you work from home, you may be able to claim a proportion of costs for your heating, electricity, Council tax, mortgage interest/rent and internet/telephone use.

All expenses will need to be added to your self-assessment tax return.

For further information, read our Sole Trader Expenses page.

What is tax evasion?

Tax evasion is very different compared to avoidance, as it involves deliberately hiding certain information from HMRC in order to evade paying tax on an individual’s income, which is very much illegal.

Tax avoidance schemes will try to lure people in by promising to reduce their tax bill by simply paying the promoter their fees and signing some papers.

Many people can even find themselves using one without realising that it is an illegal scheme, so it’s important to be aware that most often if something seems too good to be true, then unfortunately it probably is.

Recently, HMRC were given the power to name tax avoidance schemes for the first time as part of its ‘Tax Avoidance – Don’t Get Caught Out’ campaign, used to warn the public not to get involved with such organisations.

The list, which you can view here, will be regularly updated by HMRC and includes both the scheme and any promoters.

It’s not worth the risk using one of these companies – if you are caught using a tax avoidance scheme you’ll have to pay the tax that you owe, plus interest and even a penalty.

If you suspect that there may be non-compliance happening then you should contact HMRC as soon as possible by reporting it via an online form on the GOV.UK website.

We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.

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Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, Contractor Umbrella, it means we can offer one low cost, fixed fee package at £105 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of Contractor Umbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, Contractor Umbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use Tide free of charge for the first year.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.
  • Same day payments- We offer same day payments as standard providing funds are received into our account by 9am, for no additional fee.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

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