What is tax avoidance?

[Rob79]

https://www.gov.uk/government/news/t...-tax-avoidance

The above is published today by HMRC.

To put this in context. HMRC has previously issued versions of this and this is just one more iteration. It is entirely HMRC centric and some of the statements made are potentially misleading. In particular it does not mention that the goalposts of what is tax avoidance or not have moved a vast distance in the past 10 years and what was seen as acceptable in 2004 is now firmly the wrong side of the line. A lot of those situations have yet to be tested in Court.

The "8 out of 10" claim is spurious. HMRC has won a lot of cases because they have permitted only certain cases to reach Court. Over the long period (another 5 years) the success rate will fall.

Crucially, there is still no definition of tax avoidance that is worth its salt.

The list is a relatively decent indicator of the general position but please don't panic over the detail as almost all of it can be challenged.

[prozak]

That is like the Daily Mail's guide to tax avoidance.

[Lewis]

Well it used to be known as this

Tax avoidance is the legal usage of the tax regime to one's own advantage to reduce the amount of tax that is payable by means that are within the law.

Tax avoidance - Wikipedia, the free encyclopedia

However HMRC clearly now see it to be the same as evasion:

Tax evasion is the illegal evasion of taxes by individuals, corporations and trusts.

Tax evasion - Wikipedia, the free encyclopedia

This document is a classic example:
https://www.gov.uk/government/news/h...t-tax-avoiders

HMRC is serious about stopping avoidance: the government is taking unprecedented steps to clamp down on the small minority who try to avoid paying tax that is legally due.

I am curious as to why HMRC has unilaterally decided to change the definition when nobody else has, e.g. search anywhere on the web/dictionaries/legal sites etc. and they define avoidance as legal and evasion as illegal. Why don't HMRC just call it evasion instead?

[malvolio]

It's a fine distinction, to be fair. Avoidance is not paying taxes you know not to be owed: for example - a very simple one - by understanding your personal allowance calculation and what can contribute to it. Evasion is not paying taxes you know (or should know, in a world of self assessment and declaration) are owed.

The fine line is using tax allowances that are themselves entirely legal but which you aren't entitled to claim, a good example being Chris Moyles claiming allowances against losses incurred as a used car dealer without actually trading any used cars, or applying corporate schemes intended to maximise returns from pension funds to normal earned income.

It's because the vehicle itself is legal that there isn't a black and white separation between this artificial avoidance and genuine evasion. HMRC need to make the distinction clear, but the chances of them clarifying anything is vanishingly small.

[BolshieBastard]

What hacks me off is that hmrc seem (to me at least) to be merging and winning the opinion that tax avoidance is illegal.

Apparently there's tax evasion, 'aggressive' tax avoidance and tax avoidance. And in the eyes of many thanks to hmrc, all are equally illegal.

[SueEllen]

What hacks me off is that hmrc seem (to me at least) to be merging and winning the opinion that tax avoidance is illegal.

That's why it's fun to tell every permie with an ISA or pension they are tax avoiders.

[centurian]

The fine line is using tax allowances that are themselves entirely legal but which you aren't entitled to claim, a good example being Chris Moyles claiming allowances against losses incurred as a used car dealer without actually trading any used cars, or applying corporate schemes intended to maximise returns from pension funds to normal earned income.

It's because the vehicle itself is legal that there isn't a black and white separation between this artificial avoidance and genuine evasion. HMRC need to make the distinction clear, but the chances of them clarifying anything is vanishingly small.

I still don't understand why that isn't treated as fraud. Somewhere along the chain, at least one party must be telling porkies - surely that makes it evasion.

I suspect it comes down to being able to prove deception, which is very hard when all the documentation says it operates one way, yet there is an implicit gentlemen's agreement between all the parties that it will work another way.

[SueEllen]

I still don't understand why that isn't treated as fraud. Somewhere along the chain, at least one party must be telling porkies - surely that makes it evasion.

I suspect it comes down to being able to prove deception, which is very hard when all the documentation says it operates one way, yet there is an implicit gentlemen's agreement between all the parties that it will work another way.

The law and tax regulations in the UK aren't black and white unlike in some other countries. The way they are written gives people/companies plenty of scope to try their luck, and some of them actually succeed in court.

There are numerous examples of people/companies interpreting them differently from HMRC, but you only hear of the cases HMRC wins and those that involve contractors.

Remember some people class us as evaders for using limited companies not understanding why we are forced to operate as we are thanks to previous governments, and that the tax regulations we use apply to any small closed business.

[centurian]

The law and tax regulations in the UK aren't black and white unlike in some other countries. The way they are written gives people/companies plenty of scope to try their luck, and some of them actually succeed in court.

That bit I understand

What I can't fathom is that if you have to tell a lie ("I am a car dealer", "that money is a loan") in order to make a tax avoidance scheme "work", why is that not fraud.

[DonkeyRhubarb]

If you are curious about the car dealer scheme, which Chris Moyles participated in, here is the FTT judgment.

http://www.financeandtaxtribunals.go...18/TC03314.pdf