Tax avoidance or tax evasion

13 August 2014

While none of us enjoy paying tax, it is a fact of life that most of us accept.  However there are certain people who deliberately avoid paying tax by illegal means and others who cleverly structure their affairs to pay less tax.  The former is commonly referred to as tax evasion and the latter, tax avoidance.  Here is an overview of each:

Tax avoidance:  Tax avoidance is the term used by many experts to describe a legal interpretation or manipulation of the tax regime to your advantage. Whilst this is carried out with the objective of paying less tax, experts share the opinion that avoidance means staying on the right side of the law.

Tax evasion: Tax evasion is the global term used to describe people or businesses that don’t pay or under pay tax by illegal means.

HMRC’s view is that certain forms of Tax Avoidance may be closer evasion than these experts suggest.  It is therefore important to make sure that any tax avoidance scheme entered into is legitimate, legal and workable.

While the vast majority of people want to pay less tax, there is only a relatively small minority who seek to evade tax by illegal means. Knowing where the fine line between avoidance and evasion begins and ends is essential when it comes to tax saving activities.

When it comes to ascertaining what might be right and what might be wrong, the ideal solution is to have a clear and precise tax regime that works for everyone. That said, this situation is unlikely to materialise.