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ACCA Applied Knowledge · Business and Technology · Regulation and financial crime

An accountant's client invests in a tax-free savings scheme offered by government to encourage saving, and so reduces the tax payable. How should this be classified?

This is lawful tax avoidance, or tax planning. The client uses a relief that government created to encourage saving, in the way intended, and discloses everything. Nothing is hidden or falsified, so it is not evasion, and there are no criminal proceeds, so it is not money laundering.

  1. ATax evasion, because the tax bill is lower
  2. BTax avoidance in the legitimate sense of using reliefs as Parliament intendedCorrect
  3. CMoney laundering, because tax-free income is involved

Explanation

Using reliefs and exemptions in the way the legislature intended is lawful tax planning, a form of acceptable avoidance. No information is concealed or falsified, so it is not evasion. Money laundering concerns handling proceeds of crime, which is not present here.

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