Tax avoidance vs evasion vs planning
These are three distinct things, and the difference matters. Tax planning is the legitimate use of reliefs and incentives exactly as Parliament or Congress intended, and it is legal and proper. Tax avoidance is exploiting loopholes to get an advantage lawmakers did not intend; it is legal but contrary to the spirit of the law, and it is what GAARs are designed to counter. Tax evasion is deliberate concealment or misrepresentation to reduce tax; it is a crime. The UK government defines avoidance as bending the rules of the tax system to gain an advantage Parliament never intended. Evasion in the UK can carry up to seven years' imprisonment. The three sit on a spectrum of intent and legality, and the line between avoidance and evasion is contested in hard cases.
ByLoopholeKiln EditorialPublished
Figures current as of·Corrections
← Tax-avoidance glossary: 31 terms in plain English
Example: paying into a pension is planning; building an artificial scheme that manufactures paper losses with no genuine activity is avoidance; leaving cash income off your tax return is evasion.
Why it matters to a small business: all three concepts touch you, but only the first should. Legitimate planning, pension contributions, allowances, R&D relief, capital allowances, is open to firms of every size and is exactly what you should use. The elaborate structures large groups run sit in the avoidance zone, and sometimes beyond it.