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What is the difference between tax evasion and tax fraud please?

What is the difference between tax evasion and tax fraud please?

Someone wrote a short article offering their services and wrote that they would help with both.
Please can anyone give examples?

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one is...

evading tax fraudulently, the other fraudulent evasion of tax.

Tax AVOIDANCE on the other hand is neither fraudulent nor evasive.

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Is one not declaring earnings

Sorry that didn't help me. Please can someone tell me what they are and illustrate/explain the difference between the two?

Examples would be helpful.

Saying something like, one is tax fraud and one is tax evasion, wont help my brain. I kind of need to understand what the words mean or what the concepts are or what the offences are and why one is not the same as the other.

 

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I got this from a google search on fraudulent activity ....

 

Although not all inclusive, listed below are some of the criminal activities in violations of the tax law:

Deliberately underreporting or omitting income,Overstating the amount of deductionsKeeping two sets of booksMaking false entries in books and recordsClaiming personal expenses as business expensesClaiming false deductionsHiding or transferring assets or income

So it seems that tax evasion is the result of fraudulent activity.

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Thank you Shirley M.

So I guess you can evade taxes without putting pen to paper, but when you declare your returns and do not represent your affairs correctly you commit fraud?

You could never ever do a tax return or just disappear for a few years and that would be evasion, but if you claimed benefits that is definite fraud if you had been earning.

Claiming expenses you had not incurred and supplying someone elses reciepts -  fraud.

Creating invoices for expenses for a company you didn't do business with or that does not exist - definite fraud. Result of that - evasion of taxes.
Do you think my brain is getting there?
Your list is very helpful.

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Glad I could help :)

I am no expert on these matters, but what you have said makes sense to me.

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one is the cause (evasion)

The other the result.- Fraud.

 

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Isn't that back to front.

Tax evasion is illegally not paying tax, which may or may not result from fraudulent activity.

 

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Which is?

alattax wrote:

Isn't that back to front.

Tax evasion is illegally not paying tax, which may or may not result from fraudulent activity.

 

Which statement/ponderence in the thread is likely back to front please?

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None of this to be confused with tax avoidance, which is reasonable and legal

I believe it was Justice Goddard (1948) who said in a tax case that it is up to every man to arrange his affairs to pay the minimum of tax

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I was responding to the immediately preceding comment from memyself-eye.

But looking at Shirley's list tax evasion itself becomes fraud when committed. So I'm really not so sure now.

 

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It can probably go either way

Fraud may result in tax evasion, and tax evasion may result in a fraud being committed.

Problem solved :)

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I feel more sure when I don't

I got confused at MeMyselfI's posts as half of it was in the title, but the title wasn't on the body of the post.

Your post doesn't contradict Shirley's. It could be that evasion is deliberately not paying tax, which may or may not arise from fraudulent activity. Aaaand that a false declaration or statement to the HMRC about activity in an attempt to evade tax, becomes fraud when submitted?

 

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My post above crossed with your last one Shirley.

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The borderline

Fraud involves telling lies.

Avoidance is exploiting tax laws (knowing the rules and legitimately playing within the boundaries of those laws).

Avoidance becomes fraud when a tax payer (&/or tax advisor) not content with playing within the boundaries think that it is "OK" to overstep the boundaries and start presenting untrue facts to justify a tax strategy to themselves/their clients.   A firm of accountants many years ago was advising dentists to join the toothbrush scheme to make VAT claims even in cases where said dentists never had sold anything standard or zero-rated - this was fraud to me but maybe avoidance to the advisors).

Put simply tax fraud is dishonest conduct.

Tax avoidance is lawful (although when extreme can be viewed as immoral - the law sets down rules to abide by, and if they be abided by then the no law is broken, but adverse public opinion can arise when things seem extreme / unfair).

 

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In a strict sense, a TA scheme is legal only when court confirms

IMHO, in a strict sense to use the words of DW, a TA (Tax Avoidance) scheme is legal only when an english court confirms same, i.e. that it does not transgress english law.   Up until that point, it seems to me, that any allegedly legal tax avoidance (ALTA) scheme - e.g. those being sold to punters on the basis of a "distinguished" counsel's opinion - may be legal & should be regarded as a potential tax fraud, by a risk averse investor who is not just concerned with reputational risk, as indicated by DMGbus:

DMGbus wrote:

Fraud involves telling lies.

Avoidance is exploiting tax laws (knowing the rules and legitimately playing within the boundaries of those laws).

Avoidance becomes fraud when a tax payer (&/or tax advisor) not content with playing within the boundaries think that it is "OK" to overstep the boundaries and start presenting untrue facts to justify a tax strategy to themselves/their clients.   A firm of accountants many years ago was advising dentists to join the toothbrush scheme to make VAT claims even in cases where said dentists never had sold anything standard or zero-rated - this was fraud to me but maybe avoidance to the advisors).

Put simply tax fraud is dishonest conduct.

Tax avoidance is lawful (although when extreme can be viewed as immoral - the law sets down rules to abide by, and if they be abided by then the no law is broken, but adverse public opinion can arise when things seem extreme / unfair).

    As HMRC seem to me to be the only likely trigger of an english court case, my Response to the current Consultation on tax avoidance is that an "HMG Wealth Warning - this is an allegedly legal tax avoidance (ALTA) scheme" notice, much like a "Health Warning" notice on a pack of addictive etc fags, must be on the header and footer of every piece of paper, including all the signature sheet(s), of any "tax saving" etc scheme being promoted - in order to distinguish between a potential tax fraud, and a scheme that has been passed by HMRC as "HMRC legal".   IMHO: ALTA is thus an example of potential tax fraud, as opposed to tax evasion, as requested by OP. Here's a link to a case that IMHO has some hilarities that illustrate my rationale:- 

http://www.bailii.org/ew/cases/EWHC/Admin/2008/2721.html 

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I think this is getting me confused by posts on avoidance.
I am trying to nail the difference betweeen tax fraud and tax evasion.

 

 

 

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I guess that ....

Tax fraud could be something like getting VAT refunds that you are not entitled to, ie. VAT carousel fraud. I think that would normally be described as tax fraud, rather than evasion,.

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Not declaring your income is tax evasion. An example is where a business has cash receipts that are not recorded and taxed. An example of tax fraud is where you create fraudulent documents to claim wrong refunds. 

In the first case you're evading tax liability by being dishonest, whereas in case of a fraud you're going one step further to claim tax paid by someone else!

 

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What difference?

The difference between tax fraud and tax evasion is subtle if it exists at all. Not sure why you're hung up about this. Both are terms that describe illegal steps taken to pay less tax than is properly due.

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Enquiring minds are hung up minds?

neileg wrote:

Not sure why you're hung up about this.

Hung up?

Now thats funny. 

 

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There is no difference between fraud and evasion

The reason being that tax evasion is simply one type of tax fraud.

If you illegally avoid (evade) tax - by concealing income or otherwise misrepresenting your circumstances - you are guilty of tax fraud.

If you illegally claim a tax refund that it is not due to you -  by creating false documents or otherwise - you are guilty of tax fraud.

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Can't help, but....

.... reading the answers quickly, I am imaging a clip from monty python or something similar. All standing around in pin stripe suits trying to answer this question.

It has just made me laugh, thats all!

 

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Liking the mental image...

Chesterfield accountancy wrote:

.... reading the answers quickly, I am imaging a clip from monty python or something similar. All standing around in pin stripe suits trying to answer this question.

It has just made me laugh, thats all!

 

Ha ha ha. I just joined you.

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Tax fraud and tax evasion

In my view tax evasion is the illegal and dishonest side-stepping of a tax liability which has (on the true facts) arisen.

Tax evasion is one form of tax fraud.

Other forms of tax fraud include creating a tax repayment where none exists on the true facts (for example by entering false figures on a VAT return to generate a refund).  MTIC or carousel VAT fraud is another form of tax fraud.  In these cases there is - even on the true facts - no liability to tax (and therefore in the strict sense no evasion of tax).

David

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I like the strict sense angle.

davidwinch wrote:

In my view tax evasion is the illegal and dishonest side-stepping of a tax liability which has (on the true facts) arisen.

Tax evasion is one form of tax fraud.

Other forms of tax fraud include creating a tax repayment where none exists on the true facts (for example by entering false figures on a VAT return to generate a refund).  MTIC or carousel VAT fraud is another form of tax fraud.  In these cases there is - even on the true facts - no liability to tax (and therefore in the strict sense no evasion of tax).

David

 

Thank you muchly Mr Winch.

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Is it me being grumpy....

..or haven't you all just fallen into answering someone's summer project?

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Lol Adam - In a way, yes...

I read something on AccountantWeb from an accountant/tax-specialist offering to "help with tax evasion and tax fraud" which spurred the question. It is summer. I am not a student, just curious.

No one is forced to reply to questions in a question forum though are they? No bunny rabbits were killed in the making of this thread. I hope no one joining in the discussion got emotionally or physically scarred. If they did, please don't sue me!

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Perhaps I'm being too literal but I am a lawyer after all...

 

I don’t know if this helps understand the difference but I have set out below the various criminal offences which can apply to ‘tax cheats’:

The indictable common law offence of cheating the public revenue.

The statutory offence under section 144 FA 2000 where a person fraudulently evades income tax (but not other taxes).

Fraud under the Fraud Act 2006 (false representation, failure to disclose info or abuse of position).

HMRC can also institute criminal prosecutions for perjury or conspiracy.

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tax fraud or evasion

No difference.

In the English language "Fraud" is usually actively planning villainy.

"Evasion" is passive.

But work the easy way round-

Any action as regards mitigating tax liabilties which may be show to be within the letter of the regulations- remember in Tax Law there is not concept of equity- is OK., notwithstanding the whinging of the "Politically correct" brigade.

 

Anything else is "Naughty" -Simples

 

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Proper TA schemes are always legal

This is in response to dsticki's posting.

Tax avoidance is LEGAL but it may not have the desired tax effect that you hope.  For example, those that hoped to generate capital losses using the second hand endowment scheme did nothing that was illegal.  However the courts said that they had not made the capital losses that they thought they had. 

So your health warning should say something like: "HMG Wealth Warning - this is an allegedly effective tax avoidance (AETA) scheme". 

Obviously if you try to hide what you have done, then you may stray into illegal tax evasion/ fraud.

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@Tamazaan:TA punter needs "Proper TA" advice BEFORE not AFTER ..

Tomazaan wrote:

This [dstickl edit: posting entitled "Proper TA schemes are always legal"] is in response to dsticki's posting [Thu, 09/08/2012 - 08:35 etc].

Tax avoidance is LEGAL but it may not have the desired tax effect that you hope.  For example, those that hoped to generate capital losses using the second hand endowment scheme did nothing that was illegal.  However the courts said that they had not made the capital losses that they thought they had. 

So your health warning should say something like: "HMG Wealth Warning - this is an allegedly effective tax avoidance (AETA) scheme". 

Obviously if you try to hide what you have done, then you may stray into illegal tax evasion/ fraud.

Hi Tamazaan!  Thank you for your apparent support for my suggestion that there should be a "HMG Wealth Warning" on all the headers and footers of all paperwork involved in the promotion of the sale and initial customer implementation of any marketing of any possible tax avoidance (TA) scheme, in order to ensure that any punter may be fully informed before entering into same - IMHO unlike for example Jimmy Carr who allegedly tweeted [here's a link:- http://twitter.com/jimmycarr ] QUOTE I met with a financial advisor and he said to me "Do you want to pay less tax? It's totally legal." I said "Yes." I now realise I've made a terrible error of judgement. Although I've been advised the K2 Tax scheme is entirely legal, and has been fully disclosed to HMRC (Her Majesty's Revenue and Customs), I'm no longer involved in it and will in future conduct my financial affairs much more responsibly. Apologies to everyone. Jimmy Carr. ENDQUOTE that raises the following questions:

Q1) Was the initial financial adviser sufficiently legally qualified to correctly assert that K2 etc was "... totally legal "?

Q2) Was the other - if any - financial adviser sufficiently legally qualified to correctly assert that K2 etc was "... entirely legal "?

Q3) Was Jimmy Carr (JC) correctly advised that K2 etc was "...  fully disclosed to HMRC"? Did JC check with HMRC? What was the HMRC answer to JC? 

Q4) Has HMRC made any public ruling on K2 etc regarding it being "... totally legal " and / or "... entirely legal ", because such a ruling could be useful "ex ante" or before advice for punters such as JC? 

Turning now to your specific example of a TA scheme found by the courts to be ineffective after it had been pedalled to the punter(s), it seems to me that your suggestion [of a Warning marked "(AETA)"] unfortunately requires some subjective forecasting, in order to help a punter to be fully informed before purchase of same, and thus has to be ruled out as being impractical to implement.  

Here's a fuller set of proposed HMG Wealth Warning markings before punters make a "buy decision", starting with lowest zero value TA schemes:

(0)  NOTATA, following an adverse judgement by the courts: "HMG Wealth Warning - this NOT an approved tax avoidance (NOTATA) scheme".

(1)  PITA, prior to any opinion from counsel: "HMG Wealth Warning - this is a possibly illegal tax avoidance (PITA) scheme".

(2)  ALTA, after a "greenlight" opinion from PROMOTER'S counsel: "HMG Wealth Warning - this is an allegedly legal tax avoidance (ALTA) scheme".

(3)  HMRCOPTA, after an issued "pass" opinion from HMRC: "HMG Wealth Warning - this is an HMRC opinion passed tax avoidance (HMRCOPTA) scheme".

(4)  ELCATA, following a public "legality pass" judgement by the courts: "HMG Wealth Warning - this is an english law court approved tax avoidance (ELCATA) scheme". 

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Is failed tax avoidance tax fraud? @dstickl

In my view taking part in a tax 'avoidance' scheme which, in the event, fails to avoid any tax does NOT amount to tax evasion or tax fraud.

The reason is that tax fraud and tax evasion necessarily involve dishonesty (in the Ghosh sense).  This means that the (alleged) criminal must have both (i) behaved in a way which is dishonest by the ordinary standards of reasonable and honest people, and (ii) realised that he was behaving dishonestly by that (objective) standard.

A person who takes part in a tax avoidance scheme would not be dishonest in a Ghosh sense even if, ultimately, the scheme is held to have been ineffective.

David

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@DW RE:Is failed tax avoidance tax fraud?Maybe it's dishonest...

davidwinch wrote:

...   A person who takes part in a tax avoidance scheme would not be dishonest in a Ghosh sense even if, ultimately, the scheme is held to have been ineffective.  David

Hi davidwinch!   IMHO: Sorry, but NO, because there's more than just the punter who buys the TA scheme involved here.    In particular, there's the promoter/seller too, etc, who maybe was dishonest if an assertion were to be made that a scheme is "totally ..." or "entirely legal", if the opinion of counsel were to be slightly less enthusiastic, thus indicating that such an asserter/ promoter/ seller - to a deceived punter - could be an ... (alleged) criminal ... (in the Ghosh sense) ... to use your words:

davidwinch wrote:

...    (in the Ghosh sense).  This means that the (alleged) criminal must have both (i) behaved in a way which is dishonest by the ordinary standards of reasonable and honest people, and (ii) realised that he was behaving dishonestly by that (objective) standard.   ...

And this leads me to think that there "maybe" IMHO a part truth in the following words:

davidwinch wrote:

In my view taking part in a tax 'avoidance' scheme which, in the event, fails to avoid any tax does NOT amount to tax evasion or tax fraud.   ...  

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@annlhumphrey

There is also an offence under s72 VAT Act 1994, added to which there might be offences under s17 Theft Act 1968 (false accounting) or forgery contrary to Part 1 of the Forgery & Counterfeiting Act 1981 or associated money laundering offences under ss 327 - 9 PoCA 2002.  Actually it would be difficult to make an exhaustive list.

As far as I am aware there is no equivalent statutory offence in corporation tax to the income tax offence under s144 FA 2000 (but of course corporation tax fraud can still be prosecuted - as 'cheat' for example).

With regard to the common law offence you might be interested in this article of mine.

David

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not easy to quantify

However, if I were to hazard a guess, I would say about 6 months.

 

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Since you mention it . . .

Since you mention it, the difference could be rather more than that.

A person convicted of one of the statutory offences, such as s144 FA 2000 income tax fraud, s72 VATA 1994 VAT fraud or s1 Fraud Act 2006 fraud is at risk of a maximum jail term of 7 or 10 years.  The maximum for money laundering is 14 years.

But there is no maximum prison term for the common law offence of 'cheating the public purse' (sometimes referred to simply as 'cheat').

Recently a gentleman involved in a MTIC (or carousel) VAT fraud was sentenced to 17 years for 'cheating the public purse'.  Had he been prosecuted instead for VAT fraud under s72 VATA 1994 the maximum sentence he could have faced would have been 7 years.

I have written an article on this topic HERE.

David

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Taking part

I was meaning taking part as a 'customer' who accepts the advice of the vendor of the scheme - but I should have made that clear in my earlier post.

Obviously if I were to sell as genuine and effective a tax avoidance scheme which I did not believe to actually be effective, and charged the customer a fee for it, then I may be dishonestly defrauding my customer.  But that was not the scenario I had in mind.

In that sense I would be no different to someone selling snake oil tablets to make adults grow taller!

David

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@DW: Taking a-part ... non-events, surely?

Hi DW!    I marked "thanks" on your above post, but I'm not sure that "customer" failed TA has any material difference from failed fraud or failed evasion, as non-events from an effective perspective.

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From a criminal law perspective . . .

From a criminal law perspective a 'failed' fraud can be a criminal offence.

For example if I submit a fraudulent VAT return showing I am due a refund and this is spotted by HMRC so that no refund is paid to me, then I am guilty of fraud by false representation (see s2 Fraud Act 2006).

If my action was part of an organised attempted fraud (involving other people - and not just my spouse) then I am guilty of conspiracy.  (In this case a conspiracy to defraud.)

This is because the crime in the first case is the 'false representation' (i.e. the submission of the false VAT return) with the intention of making a gain and in the second case the crime is the making of an agreement with others to do something which, if successful, would amount to a crime (see s1 Criminal Law Act 1977).

So in criminal law these failed attempts are far from being non-events.  (In practical terms it is less likely that the authorities will go to the trouble of actually prosecuting an unsuccessful attempted fraudster - and if they do, and he is convicted, he may well get a considerably lighter sentence than a 'successful' fraudster.)

What may be confusing you is that such 'non-events' are NOT reportable to SOCA under Money Laundering Regulations 2007 / s330 Proceeds of Crime Act 2002.  This is because the crimes have yielded no benefit, so there can be no 'laundering' of the (non-existent) proceeds of the crimes.  It is only suspected 'money laundering' (and terrorist property offences) which is reportable to SOCA (in England & Wales).

David

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