What is tax evasion? –
Tax evasion is where a a person or company avoids paying tax money that they owe to the government.
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It is against the law in most countries. If someone gets caught avoiding paying their taxes, they could be punished as a criminal and have to pay fines.
Why does tax evasion happen? 🤷♀️
Although tax evasion is not legal, it still happens.
There are several reasons why tax evasion might happen –
For example, if tax rates are high, people may evade taxes so that they can keep more of their money.
In other cases, people may evade tax by accident, where they may not report all of the income they have made because the tax forms aren’t clear.
Some tax evaders could have entered into a scheme thinking that it was legal to reduce their tax bill – but then get caught out.
Tax evasion vs tax avoidance – what’s the difference? 🥸🏃♀️💨
The biggest difference between tax evasion and tax avoidance is:
Tax evasion = usually illegal, hiding money from the government
Tax avoidance = usually legal, paying less tax but still following the government rules
How do people pay their taxes? 🤓
How you pay tax depends on the type of tax it is, and how you earn your money.
There are two main ways to pay your tax:
- Directly to the government
- Through your employer – using your payslips!
Directly to the government 🏛️
With some types of tax, the government will send you a bill and you have to pay them directly. 💳
On top of this, every year people who are self-employed have to pay their tax directly to the government. 👷♀️
If you work for yourself, or own your own business, you’re considered “self-employed”.
- Get paid by their customers 💸
- Don’t get payslips
- Have to be SUPER organised and pay their income tax and national insurance tax themselves 🗃️
- Have to complete a form/questionnaire called a “tax return” every year, to pay their taxes 📃
- Need to be very careful with their money, and set money aside to pay their tax bills
- Can hire an accountant to help handle their taxes if they want to make life easier 🦥 What is an accountant? 👩💼
Through your employer 💼
Are you a lazy person? 🦥
In the UK, lots of employers pay tax on your behalf! 💸
This means that your employer:
- does all the maths for you
- calculates your tax for you
- sends your tax payments to the government for you
Once your employer has done this, they’ll send you a “payslip”.
Payslips are documents that tell you how much you’re getting paid.
If you have a job with an employer, every time they pay you, you’ll be given a payslip.
Payslips are usually sent on a piece of paper or a digital document. 📃
Your payslip can tell you how much money you’re:
- Getting paid from your employer 💰
- Paying to the government in tax (What is tax? 💸) 🏛️
- Putting towards your pension (money to look after you when you’re older) 🧓
- Paying off your student loan (if you’ve borrowed money for education)🎓
- Being given as sick pay (if you’ve been sick) 🤒
- Being given as maternity/paternity/adoption pay (if you’ve become a parent) 🍼
- Paying towards court payments/child maintenance (if you’ve received court fines or you have to pay towards your children) 👩⚖️
Where do people get tax advice? 👩💼💬
People often find specialist tax advisors or accountants to help them to pay less tax, but in a legal way.
You can also look at your government website to learn more about tax for your country!
If you’re in the UK, you can check out the tax section of the government website here.
So that’s it!
Here are our 4 main things to know about tax evasion:
- Tax evasion is where a person/company avoids paying tax money owed to the government.
- It is usually illegal.
- Tax evasion is different to tax avoidance – tax avoidance is usually legal.
- Specialist tax advisors/accountants can help give people advice around paying tax in a legal way.
Hopefully you’re feeling more confident about understanding tax evasion.
If you know any friends or family members who might benefit from learning about tax evasion, share this post with them!
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