Evasion or avoidance?

Recent reports indicate that the Coalition Government is to spend £900 million more to cut down on the level of tax evasion and tax avoidance.

Whilst I fully support all measures to ensure that everyone pays the tax they should pay I think there has been some lax use of language. As someone who studied tax law, admittedly several years ago, I have always understood there was a big difference between tax evasion (illegal) and tax avoidance (legal). The difference is one that has exercised the Courts over the years and as I understand it essentially the difference is that any taxpayer is legally entitled to arrange their affairs so as to minimise the amount of tax payable – in other words to reduce or avoid the tax that would otherwise be payable. On the other hand tax evasion is where the taxpayer deliberately misleads the HM Revenue and Customs by not revealing the true extent of their income or the true nature of a particular transaction or series of transactions.

In simple terms everyone who has taken out an ISA (Individual Savings Account) is ‘guilty’ of tax avoidance as they have arranged their affairs in such a way as to reduce the amount of tax they have to pay.