Tax Avoidance vs Tax Evasion

In this article, I will clarify the terms Tax Avoidance and Tax Evasion.

We often think about those terms when we hear of offshore tax heavens or investments.

There has been a lot of talk in the media about both. But what exactly is an offshore tax heaven, and why might someone want to use it?

Offshore investment is available to anyone,
However, an average person is not interested in anything as exotic as this, simply due to the lack of funds. Besides, we tend to avoid anything exotic like that, and offshore investment is controversial enough to rouse opinions and confusion. The opinions are based on an assessment of the motivations of those who invest offshore. With that said, one must acknowledge that the minority who do make such financial decisions may be driven by various factors.
As the level of regulation is tailored to the specific circumstances, those who are not domiciled in the UK and come from another country may be able to open bank accounts abroad with greater ease. Money transfers and unaccountability with tax authorities could be, to a greater or lesser extent, down to negligence and how honest those people are about their income in the UK or the country where they are taxed.

At the extreme end of things, regardless of domicile status, people may deliberately want to use offshore investments to conceal money from HMRC or another tax authority.

We must distinguish that there is a section of society that launches a class warfare fuelled against anyone doing anything with their money and they blur the line between tax avoidance (which is legal) and tax evasion (which is illegal). They attack investors on social media and are ready to shred them to pieces simply for the rason that they have money and use to their advantage what the law makers already considered.

So, tax avoidance is legal, but is it ethical? The answer to this question is yes.
Every manager of every corporation has a duty in law to pay the least amount of tax possible; that’s the obligation. The lawmakers can’t say we want you to make lots of money for us to spend on various things, but we don’t want you to make any money for yourself. Everybody wants money. These things became sort of high octane, and as the division lines are often fuzzy, most people have difficulties understanding the difference between tax avoidance and tax evasion.

Tax evasion is when a taxpayer, individual or corporation takes it upon themselves to bend the rules. It is illegal, and it goes against the laws of the democratic society as the UK people are happy to pay a fair amount of tax because they recognise that it pays for the public services and other things they would enjoy, use and benefit from. Tax evasion is theft from society. That’s what it boils down to, and that’s why it’s wrong and should be penalised. 

On the contrary, tax avoidance is what people should be doing to manage their businesses well to pay the least amount of tax while remaining compliant. 

When distinguishing between the two, we assess the motivations of the individuals behind it.
I like an old saying, ‘follow the money’, that doesn’t just come from tax avoiding or evading paying money but calls to look at the motivations of people and to practice the art of critical thinking and assess what makes people invest. It also makes it essential to investigate those calling for an enquiry into investments, what political spectrum they represent, why they question, and whether they are really interested in the loss of society or gains for themselves. As, of course, it could be somewhere in between.

We must embrace responsibility for the information we declare on our tax returns as the post-Covid digitalisation of banking and decentralisation of investments is inevitably making it harder to trace certain assets.