The ongoing controversy about avoidance and evasion continues to create a lot of heat but nothing constructive seems come out of the debate. Since the 1920’s the law has stated that we all have the right to order our affairs in a tax efficient way. We have the right to choose ways in which we pay less rather than more tax. Put another way – to avoid paying tax.
The difficulty is to identify when acceptable tax avoidance becomes ‘abusive and aggressive’ avoidance and then tax evasion, which is illegal. Evasion is relatively easy to spot as it always involves direct lies or omissions – not declaring income received etc. Avoidance is a much more difficult area because it is legal and there are so many views as to how “moral” it is.
There are numerous current examples of government sanctioned (or suggested) ways of reducing how much tax we pay – tax free ISA’s, tax relief on pensions, VCT investments etc. on the basis that the benefits to the country outweigh the immediate loss of tax.
Quite apart from any questions of morality, the difficulty for the government is that, given the complexity of our tax system, it is remarkably hard to frame clear and robust legislation on what is prohibited although, in recent years, they have certainly been focusing on it.
Along with the problems within our tax system caused by digitalisation and globalisation, the issue of defining the line between ‘avoidance’ and ‘evasion’ is going to continue.