The difference between tax avoidance and evasion is simple enough in theory: avoidance is about the use of legal means to minimise your tax bill; evasion is illegally cheating the system.
In practice however things aren’t quite as clear-cut. The likes of Google, Starbucks and other corporate giants not paying their ‘fair share’ of taxes is a hot topic at the moment. These firms are operating within the law, but many people question the ethics of ‘offshoring’ profits and not paying the corresponding tax in the UK. Even if it is technically legal, it feels like tax evasion and certainly isn’t within the spirit of the rules.
Elaborate tax avoidance schemes are also continually being devised to help wealthy individuals take advantage of loopholes in the legislation. Some of them occasionally cross my desk, but I would never recommend anyone to use them, or indeed choose to work with new clients whose primary motive is the avoidance of tax.
Paying Your Fair Share
Those of us who can pay tax on our income, profits and capital gains and, in return, the government provides a safety net for those who are less fortunate, together with other services like healthcare, security and roads that are for everyone’s benefit. There is a valid debate over the appropriate overall levels of taxation and government spending (which is settled democratically every five years), but we should proudly shoulder our share of the tax burden, both because we benefit directly in many ways and also to ensure that our civilised society continues to function.
That is not to say that we should voluntarily pay more tax than necessary however. The government offers a range of legitimate allowances and reliefs, many of which are designed to support policies that ultimately benefit society, such as providing capital to small businesses and encouraging long-term saving and investment that reduces dependence on welfare.
Improving Our Clients’ Financial Welfare
I therefore see no contradiction in helping our clients use all reasonable means to improve their financial welfare and help them achieve their goals and, at the same time, being in favour of clamping down on aggressive tax avoidance and tax evasion. I welcome the General Anti-Abuse Rule (GAAR), introduced by the current government, which enables HMRC to tackle abusive tax avoidance more effectively and The Finance Bill 2016, which will introduce a new criminal offence for tax evasion in the most egregious cases.
In the run up to the end of the financial year there is a range of tax planning options open to law-abiding citizens, who would not dream of using contrived and morally dubious avoidance schemes. Many of the allowances and reliefs available are lost if they are not used before 5th April and so now is perhaps a good time to seek professional advice, if you haven’t already done so, and use this annual deadline as a good reason to instigate a more general financial review.
Common Sense Rules
In my mind, the rights and wrongs of tax planning are not determined by the legal difference between avoidance and evasion. Instead, the key test should be based on intent and, to a certain extent, common sense.