Tax Avoidance vs. Tax Efficiency

[Jog On]

Been reading around a fair bit regarding the whole tax thing and keep coming up against the terms "tax afficiency" and "tax avoidance". It seems that tax avoidance is what the government are trying to crack down on by bringing in all these different measures and overly complicated procedures whereas tax efficiency is bandied about as a 'savvy thing to do' in various financial publications and even on government websites when discussing tax credits etc.

Is there a clear difference between tax avoidance and efficiency when it comes to how much tax we should be paying?

At what stage does 'minimising your tax bill' become 'not paying your fair share'?

From what I can see there is a bit of a grey area that is only really defined by different people's perceptions of what is the right thing to do. To some only paying the minimum amount legally required is the option that makes most sense - why pay more than you should have to? To others there seems to be some moral obligation to pay more tax than they are legally required to. Then there's the whole issue of not just paying the bare minimum for the sake of 'flying below the radar' and not getting investigated which seems to be the most popular.

I would find it very helpful if there were some clear definitions on what is 'efficient' and what is 'avoidance'. Because as I see it both definitions mean the same thing but from different perspectives.

Anyone able to clarify?

[milanbenes]

maybe the best people to clarify this are gordon and hector

[nucastle]

The government passes laws that benefit the rich (by and large) ....

... The average working joe pays the most tax, and has the added pressure of social conditioning that drums it in to him that anything less than paying the full punitive taxes that the government imposes, is somehow 'wrong'.

We already pay alot of tax, and for high earners its even worse - personally i dont see whats so bad about playing the game by the rules that have been set, especially since our money will end up going back to the government the moment we spend it anyways.

A few people on here seem to come down like a ton of bricks on anyone who wants to 'work the system'.

[threaded]

Yes, it has been one of the main thrusts of Gordon Brown period as chancellor to muddy-up the difference between tax efficiency and tax avoidance. It's getting beyond a joke when even educated people such as yourself find it a confusing area.

[malvolio]

At what stage does 'minimising your tax bill' become 'not paying your fair share'?

Never. There is no obligation on anyone to pay any more tax than they have to. This was even enshrined in Parliament by the then Chancellor and has been a basic tenet of UK policy ever since Income Tax was introduced in the early 19th century. It is only Gay Gordon and his barely concealed left-wing centralist policies that demand more income from anywhere and hang the consequences.

Tax avoidance is perfectly legal, tax evasion isn't (rightly). There is no such thing as a "fair" amount (which is a purely Socialist bit of political bollocks with no real context), only that which is dictated by legislation.

[Hart-floot]

Yes, it has been one of the main thrusts of Gordon Brown period as chancellor to muddy-up the difference between tax efficiency and tax avoidance. It's getting beyond a joke when even educated people such as yourself find it a confusing area.

Saw this in the paper today quotes an example of a City trader tax "efficiency" scheme. Still trying to get my head round it......

"Until recently, Gordon Brown has been adept at finding other ways of extracting money from the rich, by abolishing the married couples' allowance and tax relief on mortgage interest, for example. A few nice little earners still exist. If you are a City trader, for instance, you can put a big chunk of your bonus into your pension, since contributions up to £215,000 are tax-free. The smart thing to do is claim the maximum tax relief at 40%, then take out a mortgage for the sum you have saved at 5%, netting a profit of 35% on the deal, courtesy of the Exchequer"

[AlfredJPruffock]

Is there a clear difference between tax avoidance and efficiency when it comes to how much tax we should be paying?

Yes.

The difference is the thickness of a prison wall.

Unless you are a buddy of Mr Blair - like bizz tycoon Mr Philip Green - who doesnt pay a penny in UK Tax.

Not a sausage.

Mr Philip Green is a keen supporter of New Labour.

Naturally.

[wendigo100]

Is there a clear difference between tax avoidance and efficiency when it comes to how much tax we should be paying?

Yes.

The difference is the thickness of a prison wall.

Surely not Alf, I have them down as being the same thing. Tax evasion is illegal, but the other two are legal.

Gordon Brown is trying to make certain tax avoidance schemes illegal, but where he succeeds that simply makes them tax evasion schemes.

Forget 'not paying your fair share' - that is bollocks bandied around to appeal to the woolly-headed, and has no standing in law.

[Denny]

Been reading around a fair bit regarding the whole tax thing and keep coming up against the terms "tax afficiency" and "tax avoidance". It seems that tax avoidance is what the government are trying to crack down on by bringing in all these different measures and overly complicated procedures whereas tax efficiency is bandied about as a 'savvy thing to do' in various financial publications and even on government websites when discussing tax credits etc.

Is there a clear difference between tax avoidance and efficiency when it comes to how much tax we should be paying?

At what stage does 'minimising your tax bill' become 'not paying your fair share'?

From what I can see there is a bit of a grey area that is only really defined by different people's perceptions of what is the right thing to do. To some only paying the minimum amount legally required is the option that makes most sense - why pay more than you should have to? To others there seems to be some moral obligation to pay more tax than they are legally required to. Then there's the whole issue of not just paying the bare minimum for the sake of 'flying below the radar' and not getting investigated which seems to be the most popular.

I would find it very helpful if there were some clear definitions on what is 'efficient' and what is 'avoidance'. Because as I see it both definitions mean the same thing but from different perspectives.

Anyone able to clarify?

As far as I can see, the term 'avoidance' is a term that is arbitrarily used by the government to only include those measures that the Government approves of at that time. The ISAs, etc. There are no hard and fast rules to apply that gives clarity to the rest, which is largely down to legal interpretation of the muddiness of various offshoring practices, and tax minimisation efforts and schemes set up by various accountants which the government may or not pick up on or bother to pick up on. Avoidance is largely a game of cat and mouse when the government aren't actively encouraging it with their own approved avoidance schemes.

The term evasion is what we all know is blatently illegal and no accountant or lawyer could lawfully sanction either. Again, this is largely down to a combo of legislation and legal interpretation of the circumstances. At the one-man band end, this would include not declaring income at all on a tax return (cash in brown envelope slipped under table jobs), or with a limited borrowing (or defrauding company funds to make money for personal gain) without declaration of the profits the annual accounts or disguising the movement of money on the tax return.

If rich, setting up overseas holding companies in certain countries, possibly with rented Swiss accountants as Directors, purely for tax evasion purposes or dodging share dealing practices, because the Goverment can't chase the money owing to them due to an inpenetrable wall of silence brought on by 'client confidentiality'obstructions. The government have specialised teams working on the latter, but usually the clients have expensive slick and not terribly honest lawyers on their side to keep the escape routes open for as long as possible when the government finally does catch up.

The term 'tax efficient' means paying as little as possible, depending on your own personal moral code. At the very least, it means that you take advantage of all possible government sanctioned avoidance schemes (maximing out your ISAs every year etc.) and carefully timing your business capital expenditures to maximise tax exemption advantages and so on.

[Denny]

Never. There is no obligation on anyone to pay any more tax than they have to. This was even enshrined in Parliament by the then Chancellor and has been a basic tenet of UK policy ever since Income Tax was introduced in the early 19th century. It is only Gay Gordon and his barely concealed left-wing centralist policies that demand more income from anywhere and hang the consequences.

Tax avoidance is perfectly legal, tax evasion isn't (rightly). There is no such thing as a "fair" amount (which is a purely Socialist bit of political bollocks with no real context), only that which is dictated by legislation.

Not paying your fair share is very clear. It actually means that you should pay more than you are actually paying. So, if two self employed people both make x amount and one declares all their income and the other doesn't. The latter is 'not paying their fair share.' Seems clear enough to me.

It's how this term applies that is muddied, particularly with IR35 issues. It's not the terminology itself that is wrong or socialist or other bollocks you keep spouting off to justify feeding your greedy little heart and, no doubt, the fuel tank in your Porsche.