What is tax avoidance?

suitcase full of moneyTax avoidance happens when a person or company undertakes one or a series of transactions whose only or main purpose is to save tax by using loopholes and gaps in laws and regulations.

In other words, tax avoidance is about getting round the law to reduce a tax bill.

The schemes described in KERCHING! are all obvious examples of tax avoidance.

It’s often claimed that tax avoidance is legal, in contrast to tax evasion, which clearly is not.

The TUC disputes this claim. Tax avoidance is not illegal, but that’s not the same as it being legal.

It’s hard to suggest that getting round the law, or using the law in ways that were never intended, is legal. We’d rather call it cheating, and that’s why we’d agree with George Osborne when he calls it morally repugnant.

But that also means we have to make clear that tax avoidance is not about doing things that are very clearly legally permitted, and even encouraged by parliament. For example, paying money into a pension or an ISA is not tax avoidance. Parliament specifically grants tax relief to encourage these types of savings – the main aim of paying money into a pension put is to save for a pension, not to reduce a tax bill.

Unless the debate on tax avoidance recognises this we’re really not going to get very far.

NEXT: How can we tackle tax avoidance?