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Do you know the difference between tax avoidance and tax evasion?

The recent publicity regarding the “Paradise Papers” and last year the “Panama Papers” could lead one to think that it is only the rich and famous that need to be careful when it comes to keeping tax affairs in line.

However, we cannot stress enough that small businesses must also be vigilant. HMRC have been given significant extra resources to be able to check that businesses and their owners are paying the correct amount of tax. These resources will be increased further as Making Tax Digital is introduced.

Penalties for tax avoiders are primarily a percentage of the additional tax due ranging from 30% to 100%. Tax evasion can lead to a criminal prosecution and thus the possibility of a custodial sentence.

Do you know the difference between tax avoidance and tax evasion?

• Tax avoidance involves bending the rules of the tax system to gain a tax advantage.  

• Tax evasion is the illegal evasion of taxes by for example deliberately not declaring a source of income.

Tax avoidance can quite often simply be a difference in interpretation between the taxpayer and HMRC of the tax rules. HMRC are becoming more aggressive in this area as they seek to bring in more taxes for the Government.

Keeping accurate records is vitally important, especially if you are chosen for a ‘Business Record Check’. This document will ask initial questions about your accounting records before HMRC decide if they will need to pay you a visit to carry out further checks. 

It is impossible to say when or if you will ever be chosen for the Business Record Check.  Therefore, it is vital that you keep your accounting records up to date and in a clear and satisfactory format.

This then takes us to the question, how often do you keep your accounting records up to date?  Once a week?  Once a month? Once a year?

FBTC recommends that you should try and set some time aside each week to update your accounting records and get into the habit of doing it every week, whilst the week is still fresh in your memory. 

You will find it much easier to recollect what has happened in the last seven days, than trying to think back over fifty-two weeks, if you are only completing your records after the tax year has ended.  

If you are unsure as to how to keep your records or are concerned about the standard of your record keeping, then please do not hesitate to contact us. FBTC does have an online cash book which you may find useful.