When stories about celebrities or giant companies not paying their taxes hit the news, they're usually followed by public outrage. It's led to HMRC taking a firm stance against tax avoidance, evasion and non-compliance. But what's the difference?

Tax avoidance

At a basic level tax avoidance is actually legal, and pretty common. If you have an ISA, this is a tax-free way to save money - essentially avoiding tax.

If you run a business then you can avoid tax by offsetting your expenses against your income.

Tax avoidance becomes a problem if you engage in “aggressive tax avoidance”. At this point HMRC are likely to open an investigation into your financial affairs.

Tax evasion

Tax evasion is the process of actively using illegal practices to avoid paying tax. Knowingly failing to report income or complete a tax return, or hiding assets and income which should be taxed are all a criminal offence. There's a risk of going to prison, as well as being exposed by HMRC if your tax avoidance comes to more than £25,000.

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