The phrase ‘Tax Avoidance’ has become associated with dirty practice. This is because certain celebrities have avoided Income Tax by being paid via things like offshore Trusts – which has led some politicians to moralise about it. These practices are not necessarily illegal – but are on the edge of legality.
But the following are also examples of ‘Tax Avoidance’ which are much more run-of-the-mill types of Tax Planning and often encouraged by the Government:
- Paying into a pension fund because it receives Tax relief
- Trading as a limited company in order to pay less National Insurance
- Joining an HMRC VAT scheme appropriate to your business, and saving on VAT.
The Government is concerned with ‘aggressive’ Tax Avoidance where high earning Taxpayers use contrived schemes that are loopholes in Tax legislation – although these are not necessarily illegal.
However, Tax Evasion, such as not declaring income, claiming fictitious expenses etc., is against the law. It always has been, and accountants are legally obliged to report clients who are guilty of such actions under the anti-money laundering regulations.