Confusion: Evasion of tax or avoidance of tax?
It is perfectly legitimate to avoid paying tax and the UK Government actively encourages us to do so – just consider pensions, ISA’s, Enterprise Investment schemes, Childcare Vouchers, Charity Gift Aid etc.
Tax avoidance is deemed desirable – it oils the wheels of commerce, drives investment into entrepreneurial businesses, supports our old age and those less fortunate.
Tax avoidance is recognized as “bending the rules of the tax system to gain a tax advantage that Parliament never intended and often involves contrived and artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit of the law” (HMRC Spokesman)
Tax avoidance can swiftly become tax evasion or fraud (escaping payment of taxes by illegal means by corporations, trusts and individuals) if the legitimate rules are not followed and the outcome could result in a fine or a custodial sentence.
There is much controversy and political commentary on the ‘correctness’ of tax avoidance. Another term is ‘tax mitigation’ which is avoiding taxes legally and for example is the wise and legitimate uses of family tax planning rules where you might transfer your assets to your spouse to minimize your tax bill and to benefit from their unused tax allowance. There is often a fine line between avoidance and evasion.
To avoid further confusion always seek the professional advice of accredited accountants, wise IFA’s and wealth managers. Continue to invest prudently to maximize the tax reliefs the Government and HMRC eagerly wish you to claim.
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