Is HMRC confusing tax avoidance with tax evasion?

Tax avoidance has been headline news this year. Google has managed to avoid paying about £3.2 billion worth of taxes in the last five years and there was been public anger at revelations of disparities between the profits and tax paid by large corporations.

HMRC and the Treasury are cracking down on tax avoidance and aggressive tax planning. The secretary to the Treasury, David Gauke, says we must minimise tax avoidance and points out that it is unfair that the deliberate creation of tax avoidance schemes leads to some people paying less than their fair share.

The problem here is that tax evasion is illegal, whereas tax avoidance isn’t. Many tax accountants are now concerned that the lines are becoming blurred, especially in the eyes of the Revenue. Tax avoiding organisations insist they are doing nothing wrong and are operating within the law, whilst other people, such as Dave Hartnett, say tax avoidance is a moral issue and is against the spirit of the law.

Google received £2 billion in advertising revenue income in 2009 and yet it only paid UK corporation tax of £3 million instead of the £190 million expected. Profits from overseas operations were legally moved between company subsidiaries, including the Netherlands and Ireland, before ending up in Bermuda, a country with 0% corporation tax. Google says it has set up a tax-efficient structure, which complies with the countries it operates in.

Last year, it was alleged that Vodafone and Barclays have both been “let off” large corporation tax bills.
The difference between the amount of tax owed to the Treasury and the amount collected is about £40 billion. David Gauke says one sixth of this is down to tax evasion and a similar amount is attributed to tax avoidance.

It seems that, until the letter of the law is clearly defined, the problem of tax avoidance will continue and HMRC will be unable to do much about it.

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