It seems that not a week goes by without some tax furore hitting the headlines. Most recently, the spotlight has been thrust on the much-loved celebrity and general do-gooder, Gary Barlow of Take That fame, but for all the wrong reasons.

With the enduring controversy over multinational corporations like Amazon, Starbucks and Google dodging taxes, HMRC’s proposals to sell data to third parties and dip into taxpayer bank accounts, it seems that tax is at the forefront of the British public’s consciousness whether they are business owners or benefit claimants.
So as the debate goes on, terms such as ‘tax avoidance’ and ‘tax evasion’ are thrown about and often used interchangeably yet not accurately. What exactly is the difference between tax avoidance and tax evasion? We’ll take a quick look….

 

Tax Evasion
Tax evasion is defined by the UK government as ‘when people or businesses deliberately do not pay the taxes that they owe.’ Tax evasion is always illegal. It is estimated that tax evasion costs the UK £5.1 billion per year.

 

Tax Avoidance
Tax avoidance is not illegal by law but it is considered unethical. HMRC states tax avoidance involves ‘operating within the letter – but not the spirit – of the law.’ Tax avoidance is defined as attempting to gain financial advantage through ‘bending the rules of the tax system’. There are various tax avoidance schemes in the UK which HMRC says involve ‘contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage.’ The cost of tax avoidance is estimated at £4 billion per year.

 

Combatting Tax Avoidance
The government has implemented a number of initiatives and conducted investigations into tax avoidance in recent years with the aim of reducing the ability of individuals and organisations to access tax avoidance schemes.
In the contractor and self-employment sectors for example, the House of Lords conducted an inquiry into the widespread use of Personal Service Companies (PSCs) and published their findings this April. There has also been an in-depth assessment of offshore tax avoidance schemes and the practice of false self-employment which is prevalent in the recruitment industry.

 

Staying Compliant
As a contractor, freelancer or sole trader, it is crucial that you adhere to all taxation legislation. When it comes to your business or contract, you need to ensure that you are paying the correct amount of personal and company taxes.
The contractor market has unfortunately been a hub for tax avoidance schemes in the past with countless companies using unethical methods and offering services which are not compliant with HMRC regulations. Participating in such schemes will lead to HMRC investigation and could result in heavy fines and severe penalties.
With this is mind, compliance should be at the top of the list when you are looking for a contractor accountant to manage your finances and taxes. Make sure that your accountant complies with all tax and IR35 legislation and has a good track-record with HMRC, or else you could end up suffering the consequences.

 

We can help
Here at K&B Accountancy Group, we ensure that our contractor accountancy and umbrella company services are 100% compliant with all HMRC legislation. We do not condone or utilise tax avoidance schemes of any nature, and we take the time to advise contractors, freelancers and sole traders on how they can operate in a safe and compliant manner.
For more information about how we can help you, call us today on 0207 078 0211 and one of our expert accountants will be pleased to assist you.