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Self Assessment Tax Return UK - 3 Steps to Avoid a HMRC Tax Investigation - YouTube
Channel: Accounting and Tax Academy by Tony D
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self-assessment season is upon us and if
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you are required to do so you have until
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the 31st of january to complete and
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submit your tax return here in the uk
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for the previous tax year
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one of the aspects of the
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self-assessment system that you should
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be aware of and maybe have faced in the
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past are hmrc inquiries and
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investigations into your tax returns
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now in this video we will cover
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what is a hmrc tax inquiry what normally
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prompts an inquiry and three steps you
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should take to reduce the risk of an
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inquiry before i get into today's video
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be sure to hit that subscribe button as
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well as a notification bell to make sure
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latest content this really helps us to
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[Music]
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when you complete and submit your
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self-assessment tax return by the 31st
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of january every year hmrc immediately
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processes your tax return and makes
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basic checks to ensure the accuracy of
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the calculations hmrc now have a
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powerful and advanced computer system
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and software that does this for them and
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with the push to digitization and hmrc
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hmrc's making tax digital initiative
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they are becoming more efficient and can
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get access to information about you and
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your financial affairs from many
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different sources so unless you hear
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otherwise from hmrc you will pay any
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outstanding liability based on the
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figures shown in your self-assessment
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tax return and this is what is known as
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a process now check later system to
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encourage compliance and honesty hmrc's
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extensive inquiry powers are an
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essential element of the self-assessment
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tax system for them the taxes management
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act of 1970 gives hmrc the right to
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inquire into personal and trustee tax
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returns this right applies to the
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original tax return and to any
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subsequent amendments to the return made
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by the taxpayer and it applies in all
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cases the term inquiry does not have a
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statutory definition and therefore
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carries its normal dictionary definition
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in their inquiry manual paragraph
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emo091 hmrc put forward the definition
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as seeking information asking and
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questioning consequently anything beyond
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a correction of an obvious error or a
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mission is treated as an inquiry and
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must be dealt with by way of a formal
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notice of inquiry which you would
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receive in the post
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before we continue with today's video
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we're thrilled to be launching the
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accounting and tax academy membership
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site early next year we'll be posting
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downloadable resources tax tutorials and
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in-depth courses that you can't access
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absolutely free to join head to the link
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in the description box below and
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register your interest today
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[Music]
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the vast majority of inquiries begin
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because hmrc suspect that there is
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something wrong with your
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self-assessment tax return as detected
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by their advanced computer system and
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network in other words there is either
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something on the face of the return that
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gives cause for concern or hmrc have
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information from other sources that
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conflicts with what is shown on the
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return
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nudge letters are often used by hmrc to
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prompt taxpayers to recheck an entry or
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the lack of an entry on a
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self-assessment return in a particular
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area nudge letters are not an inquiry in
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itself but if you don't deal with the
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request or information on a nudge letter
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the chances are hmrc will open a formal
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inquiry into your tax return
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there is what's known as an inquiry
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window which is basically a time limit
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so you have to open a formal inquiry
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let's suppose you complete your 2019-20
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self-assessment tax return and submit it
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on the 31st of january 2021 the deadline
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date assuming hmrc received the return
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on the same date then under the taxes
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management act of 1970 they will have up
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to 12 months from this date to open an
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inquiry
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there are circumstances where hmrc can
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open what is called a discovery
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assessment beyond this 12-month inquiry
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window but we'll cover that in a later
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video be sure to click on the bell
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notification icon to get notified when
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we release this
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there are generally three types of
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inquiries hmrc can open namely a aspect
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inquiry a random inquiry and a full
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enquiry an aspect inquiry relates to one
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or selective specific entries in your
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return as long as it's handled well and
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honestly an aspect inquiry is often
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swift and to the point random inquiries
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still happen hmrc will select a number
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of random returns not based on any risk
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factors but are primarily designed to
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ensure that the inquiry system is
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working well and to send out a little
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bit of a message that they do actually
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check people's self-assessment returns
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a full inquiry goes a bit deeper and it
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is where hmrc seek to inquire into every
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aspect of your self-assessment return
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and to also test your overall financial
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affairs ordinarily a hmrc inquiry should
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be nothing to worry about so long as you
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follow the steps in the next section
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[Music]
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there are a number of steps and checks
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you can make to significantly reduce the
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event of any type of hmrc inquiry but
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these are the three we recommend you
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focus on
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number one is get your self-assessment
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tax return drafted as early as possible
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as so you or your accountant gets time
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to actually review the return
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objectively don't forget from the 6th of
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april to the 31st of january you have
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almost 9 months to prepare complete and
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submit your return so there is plenty of
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time if something looks odd when you
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take a step back then it gives you a
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chance to iron out any accidental and
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non-deliberate errors or admissions
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before submission as so you are
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exercising reasonable care
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honest mistakes do happen and hmrc do
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understand this but you want to reduce
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the chances of an inquiry in the first
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place so therefore take a little extra
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time and thus care
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number two is to use supplementary notes
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where appropriate in your
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self-assessment tax return hmrc provide
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blank boxes to add supplementary notes
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optionally you can add text to provide
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additional useful information and
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explanations that can provide hmrc with
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some clarity and reduce any
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misinterpretation or misjudgment of your
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numbers that their computers could throw
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up this is particularly useful if your
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affairs are somewhat more complex for
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example you have capital gains
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properties overseas income or other
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types of complexities
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and last but not least be honest and
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don't deliberately misstate fabricate or
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conceal material numbers just to save a
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bit of tax yes there is a moral argument
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as to why some rich individuals and
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large organizations perhaps don't pay
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their fair share of taxes but for most
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of us ordinary folk this is something we
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cannot directly control so therefore
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it's wise not to let this skew your
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judgment and legal obligation with your
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own tax affairs
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if hmrc do launch an inquiry and dig
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deeper their tax investigators are
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trained to unearth such intent through
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their questioning and this could lead to
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a full-on inquiry your time and energy
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is then diverted away from your job
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business and family and quite frankly
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you could be facing a heap of issues not
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to mention potential heavy penalties
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interest on underpaid tax and in the
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absolute worst case scenario a criminal
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investigation and proceedings against
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you you'd rather sleep well at night
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with a clear conscience so you have the
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right mental energy and effort to do
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what you do the best
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and on a final note the law does allow
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taxpayers to organize their financial
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affairs in such a way as to minimize
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their liability to tax this is what's
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known as tax avoidance which whilst
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acting within the strict letter of the
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law is completely legal
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tax evasion however is strictly illegal
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and hmrc have great powers to ensure
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that people acting outside the law face
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the consequences for their actions
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we'll be going into more detail about
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tax avoidance versus tax evasion in a
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future video so don't forget to click on
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