What is tax evasion and what is tax avoidance and what is unacceptable tax avoidance – no I am not kidding although you may think I am playing with words. But think again. The government and HMRC in their infinite wisdom have their own definition with stark consequences.
Let’s start with basics. Wouldn’t it be great if we could avoid paying all tax. We all know this is not going to happen.
So we all aim to pay as little tax as we are allowed to. That’s what is called Tax Avoidance. I am not sure that this is the right terminology, but here we are. There are various way’s we are allowed to pay less or no tax such as ploughing savings into a tax-free ISA or donating money to a charity via the gift aid scheme, or claiming capital allowances on things used for business purposes and even putting money into a pension scheme. The common factor of all these incentives is that the Government actually encourages you as there are wider benefits for the economy and society!
And now we enter the dark side of the tax system! The next step is “Unacceptable Tax Avoidance”. Technically these schemes may be just about legal, but they are unacceptable because the participants have only one motive: to reduce their tax and there are no wider benefits to society or the economy. You have guessed right, this is the grey zone!
And then comes the darker side. Known as Tax Evasion this is seen as ‘criminal’ where taxpayers deliberately don’t disclose the true state of their affairs to the tax authorities in order to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned.
Paying tax is part of our social contract; it is our contribution to society, so we all should be happy to do so. But it has to make sense, and I am afraid the real problem lies with an ever so complex system with a kind of supermarket marketing: everywhere are special offers for special groups and hence it is all so complex. And don’t kid yourself, Tax Evasion thrives the more complex the rules are!
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