The short answer is, ‘different things to different people’. And that is one of the reasons why the issue is not going to be resolved any time soon; at least, not sensibly.
Let’s be absolutely clear about this, “tax avoidance” is not the same as “tax evasion”. Tax evasion is, essentially, the process of evading a tax liability through illegal means, whether those means are simple non-reporting of income/gains or other more complex methods. That’s quite easy to understand (although the press – and some other commentators – do like to regularly misuse the term). No, the difficulty is with the term “tax avoidance”.
The meaning of “tax avoidance” is harder to pin down, and the waters are getting muddier by the day. As a simple contrast with “tax evasion”, it is the legal use of reliefs etc. to reduce one’s tax bill. Some years ago, that distinction was clearly understood and it worked. That was not to say that Government approved of all “tax avoidance” strategies, many of which were the unintended consequence of badly drafted legislation. Legislation was regularly amended in order to remove those opportunities.
The difficulty is that any action which results in a lesser amount of tax being paid than would have resulted without that action is, strictly speaking, “tax avoidance”. But clearly that is silly.
Lets say I have a sum of money that I wish to invest and I have the choice of an ISA or another, otherwise identical, account. If I invest in the ISA, my tax bill is reduced as the interest will be tax free. Is that wrong; of course not.
I wish to support a particular charity, so I make regular donations. Being a taxpayer, I can then choose to make these donations under Gift Aid. If I chose to use Gift Aid, the charity recovers the basic rate tax I have paid on my income and I get higher rate relief on the payment. My tax liability is therefore lower than if I had not donated to charity, or if I had donated but not under Gift Aid. In either case, the charity would have been worse off, of course. Did I do wrong by donating under the Government’s Gift Aid scheme; of course not.
These actions are clearly not ‘bad’ – are they?
Unfortunately, the temperature of the debate is rising fast, fuelled by ill thought out and often emotive comment – some of it from people who should know better. Unfortunately, this is preventing the real debate from moving forward in a sensible manner. It seems to me that the debate is now around the ‘morality’ of particular actions, rather than the actual ‘legality’. The problem with this, however, is that the terms “evasion” and “avoidance” are no longer sufficient on their own. If we are to move this debate forward, we need to be clear exactly what it is that we want to stop – and if that is “tax avoidance”, then we need to be clear exactly what that means. I’m certain that it doesn’t mean stopping people taking advantage of tax reliefs that Parliament intended should be taken advantage of – or branding people who do so as “tax avoiders”.
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