Taxpayers seem to frown on tax avoidance even though they have the right to minimise the tax they pay by arranging their financial affairs according to the law.
Almost two-thirds of taxpayers believed tax avoidance schemes were widespread and HM Revenue and Customs (HMRC) does too little to tackle the issue.
That’s despite a string of court cases stretching back almost a century supporting a taxpayer’s right to arrange their affairs to pay the least tax they can – providing they are honest and transparent about their actions.
A survey by HMRC found that taxpayers thought too many people were getting away with tax avoidance.
However, official figures disclosed HMRC believes only 0.5% of Treasury revenues are lost to tax avoidance and hiding income behind off-the-shelf tax avoidance schemes was only practised by a few wealthy individuals.
Self-employed accused of tax evasion
HMRC now collects money washed through tax avoidance schemes upfront. Taxpayers must prove their scheme works to reclaim the cash.
Taxpayers also believed tax evasion was rife among the self-employed, who hid their true earnings or failed to report their incomes to HMRC.
Tax evasion is a crime and involves fraud, false accounting or money-laundering.
Small and medium sized companies felt HMRC was more likely to be discovered by HMRC, says the report, mainly because businesses were targeted by tax inspectors looking for directors or employees involved in tax evasion.
Why people avoid paying tax
The report may also have a blurred view of tax avoidance and tax evasion as prime Minister David Cameron and Chancellor George Osborne have often interchanged the terms even though they relate to different activities.
Tax avoidance is not a crime.
HMRC also asked taxpayers involved in avoidance schemes why they took part in the activity.
Most agreed that tax avoidance was a grey area, but followed the law.
HMRC explained that the responses echoed marketing materials for tax schemes that described avoidance as ‘being smart with taxes’ and a way to exploit technical loopholes within the law.