ACCA Applied Skills · Taxation (UK) · Principal sources of revenue law and practice
Which one of the following is an example of tax evasion rather than tax avoidance?
Deliberately not declaring cash takings so that profits are understated is tax evasion, because it is a dishonest concealment of income. Using ISAs, Gift Aid or transfers between spouses is lawful planning that reduces tax within the rules.
- ATransferring assets to a spouse so that income is taxed at a lower rate
- BInvesting in an ISA to receive tax-free returns
- CDeliberately not declaring cash takings from a business so that profits are understatedCorrect
- DMaking a gift to a charity so that Gift Aid relief is obtained
Explanation
Deliberately omitting cash takings misstates the income reported, which is illegal evasion. Transfers between spouses, ISA investment and Gift Aid donations all use reliefs or rules as Parliament intended, and so are legitimate planning, not evasion.
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