Avoidance or evasion?

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
Sorry for posting on this forum but I think I'm more likely to get the answer I'm looking for here!

A short while ago, the question of tax avoidance/evasion came up. Steve (peugeot) was one of the posters and said one was punishable by imprisonment while the other wasn't. Can anyone please explain in simple terms, what the difference between avoidance and evasion is?

I just wish the term to be clarified because I may need to take a debtor to court and want to know if they are avoiding me or evading me! Obviously, I know there is no prison threat for this "injustice", but would still like to know which is which, whether one is more clear and better defined in accountancy/legal terminology than the other.

Many thanks,

Robert

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    Hi Robert.

    Tax avoidance is legally reducing your tax liability, by use of allowances, deductions, etc.

    Tax evasion is illegally avoiding paying your tax, by non-disclosure, etc.

    Scott.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    Thank you Scott, so I can assume that for my reluctant debtor problem, both terms could apply equally and there is no overriding accounting "definition".

    Regards,

    Robert
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    This is a grey area and it isn't as crystal clear as saying one is punishable by imprisonment where the other isn't. Generally one could go hand in hand with another. Avoidance, as Scotty says avoidance is attempting to minimise tax whilst evasion evades tax. You could commit tax avoidance and also tax evasion at the same time depending on the circumstances.

    Ultimately, HMRC use their discretion as to whether they wish to pursue matters through the courts (usually initiating these through their Special Compliance Offices). The magnitude of tax involved together with the circumstances surrounding the misdeclarations will utlimately determine the severity of the case and the appropriate punishment.

    I know one client who underpaid thousands and thousands of pounds in tax - purely by evasion - an offer to pay back the tax was accepted by HMRC and he didn't get sent to prison.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    I would just add that evasion involves knowingly paying insufficient tax which is why it is a criminal offence.

    Going back to your original post, I am not sure what this has to do with taking your debtor to court?

    Surely they either owe you the money or not.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    It was just something that Steve mentioned regarding tax on an unfinished post a while ago and I was curious as to the answer...

    As regards my debtor situation, I was just trying to extend the tax definition to a non-tax problem and find if there was a clear legal term that could be applied in court. It would appear that as far as tax is concerned, evasion could imply more criminal malice/deviancy than just mere avoidance.

    Regards,

    Robert
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    If my memory serves me correctly I think it may have been a thread on the MIP general forum but it was so long ago now I can't remember.

    Robert, in your circumstances, I can't see how your debtor can commit tax evasion by not paying their debt. If anything, they would be doing themselves out of corporation tax relief (assuming Ltd co) if they DIDN'T post the invoice from your company at their year end. The fact that a credit note may or may not be sent (depending on the circumstances of course), then it may be provided for in your customer's accounts (if appropriate) would reduce the tax relief they would get, though I wouldn't think this would be huge in the grand scheme of things. In these circumstances it would be hard to assert tax avoidance/evasion unless both parties were involved in the offence and it could be proved (the latter being very hard to prove and I speak from experience).

    I think your debtor is simply "trying it on" and using delaying tactics to avoid paying the money. I think you may find they will cough up just before the summons is issued.

    Keep us posted as to how you get on.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    So has the debtor in question 'coughed up' yet?

    When I did the ATT exams I had to do the law module, and this is what I can remember from that:

    Firstly there's 2 types of case which can be brought to court - Criminal cases and Civil Cases.
    Criminal cases are 'crimes against society' and punishable by fines / prison etc. I would think that if your debtor obtained credit from you by lying about his circumstances or had no intention of ever paying the debt then this could be a criminal offence.
    Civil cases are brought before the courts to 'right a wrong'. If you win then the guilty party is ordered to make good the problem, or compensate you for your loss.
    Therefore, if you're after getting your money back you would want a civil case - I don't think that your company would get any money out of criminal proceedings.

    As far as tax offences go - would it not be a similar situation? HMRC would make a civil case to recover evaded tax but as tax evasion is a criminal offence you could end up in prison for it as well.
    I'm not sure about tax aviodance though - it's not criminal but can HMRC make a civil case to recover taxes which they believe they are due? I don't think that they can but I could be wrong.

    As I say, I'm no lawyer so please correct me if you think I've got anything wrong

    jodie
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Avoidance or evasion?

    Jodie raises some interesting and valid points.

    In terms of tax evasion and avoidance, there is now the money laundering legislation to consider. What may be avoidance in the eyes of HMRC may be viewed as evasion AND avoidance in the eyes of the money laundering legislation.

    Undoubtedly, firms of accountants/members in practice who are regulated by a professional institute such as AAT will have received detailed guidance on their responsibilities concerning such avoidance/evasion.

    However, it is important to understand that the legislation doesn't just affect those who work in practice - it affects all accountants and responsibility doesn't just lie within the remits of work undertaken on behalf of the client - social occurrences, e.g. a client citing "I do the odd cash job" whilst in a pub may give rise to an accountant having a responsibility to report a client. Conversely, a secretary of the firm saying her decorator has provided two quotes one "for cash" the other "for the books" would also require a report.

    Best regards
    Steve

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