UK Accounting Glossary
Tax evasion is the deliberate underpayment or non-payment of taxes through deceptive and illegal means. Overstating deductions and exemptions, claiming deductions to which one isn’t entitled, and underreporting income are common tax evasion tactics. Illegal tax shelters such as a limited partnership that overstates the market value of acquired property is another common tax evasion tactic. Payroll fraud is a typical form of business tax evasion. This method of tax evasion typically entails retaining employee withholdings, filing a false payroll return, or paying employees in cash. Another tax evasion scheme is the abusive trust which uses a series of vertically integrated trusts to disguise transactions or conceal the true owners of income. This tax evasion tactic is often targeted at small business owners and wealthy individuals. Tax evasion is distinct from tax avoidance, which entails using all available legitimate deductions, deferrals, and credits to reduce tax liability. Entities caught engaging in tax evasion have to pay back taxes and significant penalties, and may be subject to criminal prosecution.
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This glossary post was last updated: 5th February 2020.