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ACCA Applied Skills · Taxation (UK) · Principal sources of revenue law and practice

Which one of the following statements about tax avoidance and tax evasion is correct for UK tax purposes?

Tax evasion is illegal because it involves deliberately concealing or misstating information to pay less tax. Tax avoidance arranges affairs within the wording of the law to reduce tax. The terms are not interchangeable, and only evasion is a criminal matter.

  1. ATax evasion is the legal use of tax rules to reduce a liability, while tax avoidance is illegal
  2. BTax avoidance is the illegal non-disclosure of income, while tax evasion is legal tax planning
  3. CBoth tax avoidance and tax evasion are legal provided the taxpayer files a return on time
  4. DTax evasion is illegal and involves deliberately concealing or misrepresenting information, while tax avoidance uses the law to reduce tax within the law's wordingCorrect

Explanation

Tax evasion is illegal: it involves deliberately omitting, concealing or misstating information to reduce tax. Tax avoidance is arranging affairs, within the letter of the law, to reduce tax. The first option reverses the two terms, which is the key error.

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