I was asked yesterday by a pretty experienced tax journalist how I defined the difference between tax planning and tax avoidance.<\/p>\n
\"That\", I said \"is easy. It's getting legal opinion.\"<\/p>\n
What did I mean? Simply that \u00a0if you are tax planning then you either reduce your tax risk ( which happens by getting things right, rather than taking the risk of getting them wrong) \u00a0or at the very least \u00a0you arrange your affairs in ways \u00a0that you know will not create tax risk for you. \u00a0There are obvious examples: paying money into a pension, for example does not create tax risk, and nor does putting money into \u00a0an ISA \u00a0within allowed limits.<\/p>\n
Tax avoidance, on the other hand always, and without exception, increases your tax risk. \u00a0That is because you are doing something about which there is uncertainty. \u00a0in that case, many tax advisers would suggest that you got a tax barrister's opinion to confirm that your action was legal, as defence against any counterclaim from HMRC. Examples might be \u00a0claiming allowance for expenses \u00a0where it is not certain that these are due in law, \u00a0or using an offshore structure when the motive could be questioned. \u00a0In all such cases \u00a0the taxpayer's risk is increased by undertaking the transaction. \u00a0That is what tax avoidance involves.<\/p>\n