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What is the difference between tax evasion and tax avoidance?

Tax evasion and tax avoidance can be easily be confused. Amy Blumsom looks at the difference between the two.

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Essentially, the difference between avoidance and evasion is legality. Tax avoidance is legally exploiting the tax system to reduce current or future tax liabilities by means not intended by parliament. It often involves artificial transactions that are contrived to produce a tax advantage.

Examples of tax avoidance are: tax deductions, changing one's business structure through incorporation, or establishing an offshore company in a tax haven. In a recent report, HMRC denounced tax avoiders saying that "a small minority bend or break the rules by deliberately avoiding or evading their taxes - and we are resolute in tackling these people".

Celebrities such as Jimmy Carr have come under criticism from the media in the past for participating in tax avoidance schemes.

The scheme used by Carr, known as the K2 scheme, meant that wealthy Britons paid less than 1 per cent tax, costing the taxman £168m.

The organisation 'UK Uncut' challenges large corporations and businessmen who attempt to avoid tax. Sir Philip Green, who runs the Arcadia group, is among UK Uncut's targets.

Green does not actually own the Arcadia group, it is instead in the name of his wife, who lives in Monaco and doesn't pay income tax. In 2005, the business tycoon paid himself a dividend payout of £1.2 billion which was channelled through offshore accounts in the tax haven of Jersey before ending up in his wife's tax-free bank account in Monaco.

Tax avoidance is not the same as tax planning or mitigation. Tax planning is conduct which reduces tax liabilities without going against Parliament, for instance, through gifts to charity or investments in certain assets which qualify for tax relief. Other examples of mitigation include saving in a tax-free ISA or paying into a pension scheme.

Tax evasion is to escape paying taxes illegally. This is usually when a person misrepresents or conceals the true state of their affairs to tax authorities, for example dishonest tax reporting. In November 2012, HMRC announced that they "will relentlessly pursue those who engage in evasion, with serious consequences for those who don't pay all the tax they owe, from financial penalties to criminal conviction." An exception here is Switzerland, where many acts that would amount to criminal tax evasion in other countries are treated as civil cases.

Harry Redknapp, former Portsmouth fooball manager, was tried for tax evasion after it was revealed that he accepted an untaxed bonus from the football club which was paid into an account named after his pet dog, Rosie.

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66 Comments

I.Moral Posted on Sunday 29 Mar 2020

My daughter is a student, and what the fashion industry terms 'petite', she can therefore sometimes buy 'children's sizes' In doing so she avoids VAT, this is not what parliament intended. If you bought DVDs or games from online retailers such as Game or HMV before April 2012, you got them cheaper because you too were avoiding VAT. By your definition this is avoidance? Or just common sense?

If Goldman Sachs were to delay paying bonuses until after 6th April, their employees would save 5% on their income tax. Parliament knew this could happen, it always happens when tax rates are reduced. Therefore this is just planning not avoidance?

The difference between tax planning and avoidance is that "I" do tax planning "other people" are involved in tax avoidance. There is no morality in the tax system, just the law. Tax receipts are low because the economy is stagnating. If the government wants to collect more money it needs to draft legislation properly, and manage the economy. 'Tax avoiders' and 'dole scroungers' are moral panics designed to deflect attention from the government's shortcomings.

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Olga Posted on Sunday 29 Mar 2020

That's a sensible answer to a chlgelnaing question

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Anonymous Posted on Sunday 29 Mar 2020

your nan

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Anonymous Posted on Sunday 29 Mar 2020

Your uncle

Nick Jones Posted on Sunday 29 Mar 2020

The recent discussion about tax and our obligation to pay it has often thrown terms like 'fraud' around, so I'm very pleased to see an article trying to distinguish tax evasion (fraudulent, unquestionably illegal) and tax avoidance (legal). However, I'm not sure that there is such a clear distinction between tax 'planning' and 'avoidance', and to that extent I agree with the previous poster. How do we categorise ISAs or VCT/EIS investments? Pension contributions? Salary exchange schemes? . All of these are means of 'avoiding' tax. And I don't see why Amy should think that 'tax deductions' are (by implication) always dodgy - though admittedly I'm also unsure what she means; if she means say, claiming work expenses against tax, surely this is OK?

I'm not convinced that we can easily make a distinction based on 'what Parliament intended'; at least, I'm not sure that my powers of mind-reading extend that far. If Parliament doesn't like certain avoidance/planning schemes, it has the power to legislate against them (so perhaps the recent outrage against Starbucks, Amazon et al was directed against the wrong targets?). But until it does, we are thrown back on our individual sense of what is legitimate avoidance, and what is a step too far, and it's unlikely that we will all agree about this. Of course the demands of morality go beyond the demands of law, but in cases as complex as this we often rely on the law to inform our sense of what is right and wrong.

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Anthony Posted on Sunday 29 Mar 2020

Taxation is legalised theft backed up with state violence, therefore tax avoidance is a moral duty.

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nirma Posted on Sunday 29 Mar 2020

love it

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truthsayer Posted on Sunday 29 Mar 2020

poor student alert there. damn socialist

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Keunho Posted on Sunday 29 Mar 2020

I can't tell you how timely this is. I have noiectd a lot of worrying and trust issues in my current love relationship. 99% of what I am worry about is self created because of past relationships where people I love let me down.I feel like I have noiectd what is really causing the worry.Been working on feeling ok about having those emotionsTrying to get better about expressing them and getting supportAND working on seeing what is good and growing THATI also am working with an emotional intelligence coach to help me undo the past hurts so I can feel more peace and joy.This article couldn't have hit at a better time.Thanks for your wisdom, caring, and sharing.You are helping bring more love to the world.Kristie

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The Hobbit Posted on Sunday 29 Mar 2020

"Tax avoidance is not the same as tax planning or mitigation."

Oh, come off it. They're exactly the same thing in principle: you act so as to minimize your tax bill within existing legal structures. The only difference (or purported difference here) is to do with the amount of money involved. Frankly, this is a tedious semantic exercise (avoidance vs mitigation), the only purpose of which seems to be to allow certain folk to still use the term "tax avoidance" like it's a dirty word.

You should at least acknowledge that tax avoidance is the same in principle, whether it's practiced by multi-national businesses, households, wealthy individuals and poor individuals, and ask the question which underlies all this: when is avoidance acceptable and when is not, i.e. how much money will escape the clutches of HMRC?

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munoda chimhamhiwa Posted on Sunday 29 Mar 2020

tax evasion is a way of tax planning which is legal whereas tax avoidance comes from underground activities which are illegal and constitutes penalties

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hang_them_all Posted on Sunday 29 Mar 2020

fuck the taxman

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bob Posted on Sunday 29 Mar 2020

i agree

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Robert Posted on Sunday 29 Mar 2020

"Tax evasion is to escape paying taxes illegally."

No; it isn't. That sentence does not say what you think it says. Tax evasion is to illegally escape paying taxes. The difference is subtle but critically important, especially as far as the courts are concerned.

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Alby Posted on Sunday 29 Mar 2020

Like Paige and Kamila, I've also paid attention to Dweck and prsaie in the context of parenting my kids and not for myself. And yet, I am sure that it's the prospect of prsaie or fear of not receiving it which can hold me back. On a related note, I lost my parents a number of years ago. While difficult, the positive opposite side of that coin was that it freed me up from their expectations (or my expectations of their expectations!). As a result, I was able to pursue dreams and journeys I never could have before. Note to self: don't be a slave to Praise. It helps no one.[]

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Timothy Posted on Sunday 29 Mar 2020

This should be in the business section!

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Juan Posted on Sunday 29 Mar 2020

Take a look at David Glantz, . The Soviet approach to secriuty is interesting, seeking to use active deception and concealment to obtain Security, that quiet and hardworking and indispensible sister to the glamorous Goddess of War, Surprise. The Soviet approach treats aggressive reconnaissance at all levels from tactical patrolling to use of secret agents, as part of a continuum with denial of intelligence to the enemy. Glantz's book is an eye-opener about several key episodes in the Great Patriotic War, in particular the deception operations that preceded in July, 1944.

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osama shk Posted on Sunday 29 Mar 2020

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Zofia Posted on Sunday 29 Mar 2020

God! Even a duck like me has a better understanding of tax than this. Tax evasion is when you can't be bothered to pay tax and tax avoidance is when you can't be bothered to pay tax. Bird brains!

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Mirry Posted on Sunday 29 Mar 2020

Hi Tara!! I loved your writing! I was just tnakilg about the same thing over the #30In30 blog challenge I participated in. I also recently confessed I never shared my writing afraid of what others would think. But now? Not so much. The result has been amazing. And I'm satisfied with it so far and trying to improve every day. But the issue really is with praise. Thank you for writing about this![]

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yawn Posted on Sunday 29 Mar 2020

This is not news. This is part of a glossary.

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bigger yawn Posted on Sunday 29 Mar 2020

You could do an article with the equally enthralling 'headline': "What is the difference between News and a Dictionary

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Paulo Posted on Sunday 29 Mar 2020

You can, but you might run into problems. Due to the fact that your mohetrs name may not be on your bank account, either the bank or the IRS might flag it as fraud and not deposit it into her account. What you can do, she can open up a greendot card and have her refund direct deposited into that card. They are available at Wal-Mart and most grocery stores. You will just get the information off of the direct deposit form on the greendot website and enter that into the bank account information when she e-files. This will save the hassle of not using your bank account and maybe having it bounced back.

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George Posted on Sunday 29 Mar 2020

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John Davies Posted on Sunday 29 Mar 2020

HMRC are bigger schemers and liars than most of the big businesses they hand out passes and sweetheart deals to.
They have been caught using illegal methods of entrapment and trickery on the unsuspecting public time and again and have lost plenty of court cases as a result. Yet nothing is done.
Their figures are fake, their access to the law and subsequent misuse under common law and common decency is technically illegal. Yet nothing is done.
They are just another corrupt arm of an increasingly authoritarian government that has been purposefully living beyond it's means with the express intention of enriching world financiers and obtaining personal golden parachutes from these parasitic industries. If you don't believe me follow the money, most of the breadcrumb trail is there for the finding in public documents if you care to take the time and join the dots.
For all the tax evangelists who falsely claim that HMRC collect the money that pays for public services; you couldn't be further from the truth. Public finances are raised privately through the sale of government bonds and borrowing from the bank of England privately at interest hence the national debt spiralling out of control as the criminal leverage is passed on to governmental cronies in the banking industries. Tax merely services the interest on the debt, which technically is illegal as any country has the right and the opportunity to print and issue it's own currency debt and interest free.
I rest my case, now go try and arrest a HMRC or government official and feel the full power of the state used to crush you into jabbering jelly.

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