Assignment one Essay Example | Topics and Well Written Essays - 1750 words

Assignment one - Essay Example It has been observed that currently, tax laws are drafted in such a manner that they can reduce possibilities of tax avoidance. However, tax planning also paves way for lessening tax liability. The difference between tax avoidance and evasion is highlighted in the report along with appropriate examples. The report also elaborates on failure of the UK tax system, which attempted to equalise tax policies for all income group. The reason why taxation policies of UK are influenced by international and EU policies are depicted in the report. The methods are practised for reducing amount of tax paid by people. The main difference between the methods is that one employs legal means; whereas, the other is illegal and can be referred as tax fraud. The professionals, who are engaged in the documentation, help individuals in employing such illegal means for cutting down tax liability, which is highly penalized. Tax avoidance is referred as the â€Å"legal exploitation of tax regime to ones own advantage† (Azimuddin Law Associates, 2013). The attempt is undertaken in order to reduce tax amount, which are payable as per the tax laws and are fully disclosed in documents to tax authorities. The examples of tax avoidance can be cited as tax deductions and modifying business structure by incorporating or establishing an offshore for a company in tax haven (Simplified Finance, 2014; Azimuddin Law Associates, 2013). Tax evasion is referred as illegal practice for escaping tax. In this process, taxable income, profit that is liable for tax or other activities for taxation is hidden. The amount of income is misrepresented or the tax reducing factors like, exemptions or credits and deductions, are purposely overstated. The method can be regarded as an isolated incident within legal activities. Tax evasion occurs in informal economy, where illegal activities are extensively prevalent. This indicates the fact that the