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ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures

A client asks an adviser to explain the difference between tax avoidance, tax evasion and tax planning in the UK. Which statement is correct?

Tax evasion is the illegal concealment or misstatement of information to reduce tax. Tax planning legitimately uses reliefs and choices in line with what Parliament intended. Avoidance sits between them and is not automatically criminal, and paying interest never legitimises evasion.

  1. ATax evasion is the illegal non-disclosure or misstatement of information to reduce a tax liability, whereas tax planning uses reliefs in line with the intention of ParliamentCorrect
  2. BTax avoidance is always criminal, while tax evasion is always lawful
  3. CTax planning means arranging affairs to exploit loopholes against the intention of Parliament
  4. DTax evasion is lawful provided the taxpayer pays any resulting interest on underpaid tax

Explanation

Evasion involves illegality such as concealing income or falsifying information. Planning uses reliefs as Parliament intended. Avoidance is lawful in form but may defeat the intention of the legislation, so it is not automatically criminal, which rules out the claim that it is always criminal. Paying interest does not make evasion lawful.

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