Tax avoidance has been a prominent topic in the news in recent weeks, with reports of high earners paying minimal tax. What is the background to this?
First it is important to understand the difference between tax evasion and tax avoidance. Tax evasion is illegal and can land you in jail. Tax avoidance means using the law to avoid paying more tax than you need. Historically this has been perfectly acceptable. Now however the tide is turning and tax avoidance is being held to be ‘immoral’. There can be a fine line between artificial schemes and normal tax planning – such as the claiming of tax reliefs to reduce tax.
The Government’s intention is to bring in a general anti-avoidance rule, which will, in theory, stop artificial schemes without impacting on genuine commercial arrangements – much easier said than done.