ACCA Strategic Professional · Advanced Taxation (UK) · Ethical and professional issues arising from the giving of tax planning advice
Which statement best describes the difference between tax evasion and tax avoidance under UK law and ACCA's ethical guidance for tax advisers?
Tax evasion is illegal because it involves deliberately hiding income or misstating facts to HMRC. Tax avoidance uses the legislation to reduce tax and is not itself criminal, although artificial schemes can be counteracted by HMRC under anti-avoidance rules such as the GAAR.
- AEvasion is illegal because it involves deliberate non-disclosure or misrepresentation to HMRC, whereas avoidance uses the law to reduce tax, though it may be challengedCorrect
- BEvasion is the legal arrangement of affairs to reduce tax, whereas avoidance is the deliberate omission of income from a return
- CBoth are lawful provided the taxpayer pays any penalty when HMRC challenges the arrangement
- DBoth are criminal offences if the tax saved exceeds the amount of the taxpayer's annual income
Explanation
Tax evasion involves deliberately concealing or misstating information to HMRC and is illegal. Avoidance operates within the law, though it may be counteracted, for example by the GAAR. The option reversing the definitions is wrong, and evasion is never lawful.
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