Tax avoidance is legitimately organising your affairs so you don’t pay more tax than is necessary. Tax evasion is doing things against the law to keep your tax bill down – like not declaring cash.
Tax avoidance is big news at the moment thanks to the London Mayoral election and from the generally negative comments it is a much misunderstood subject. I’ve read numerous comments that everyone should just be on PAYE and that would solve the problem. But that’s not how the world of small businesses work. You can’t expect a customer to set up a PAYE scheme to pay a plumber to fix the heating.
Tax avoidance is also discussed as if it’s a singular activity. In fact there’s a whole spectrum of things which are legal – some which raise more of an eyebrow than others. Putting money in an ISA to avoid paying tax on the interest is tax avoidance. As is giving money to charity or putting it in your pension scheme.
At the other end of spectrum are complex, often off shore, arrangements which are deliberately contrived to avoid tax. These schemes are dreamt up by clever lawyers and accountants to exploit loopholes. They’re also very secret in respect of how they work as it’s highly commercially sensitive information. This is the stuff that leaves a bit of a nasty whiff and this is what I’m calling Tax Scheming.
Politicians could do themselves a big favour by attacking Tax Scheming rather than getting carried away on the band wagon that all tax avoidance is morally wrong. To do otherwise will lead them in to continually backtracking as they discover giving a tax incentive for certain behaviour can actually be a good thing.
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