TAX EVASION AND AVOIDANCEGovernments distinguish between tax evasion and avoidance. While the former is illegal and may carry severe penalties, including imprisonment, the latter is simply the use of legal means to pay the least possible tax. Let us consider tax avoidance first. One simple way of avoiding tax, for instance, is to claim all tax allowances due and keep one's coding with the tax authorities up to date. Further, depending on the tax payer's occupation, a variety of expenses may be able to be set against income before it is taxable. For example, it-is open to the individual to save in tax-free schemes, father than those on which tax is payable. Similarly, anyone in a country with a territorial system of taxation can put certain assets abroad and leave them there to make interest or profits, repatriating them as and when favorable to do so from a taxation point of view. Putting money into trusts can also save taxes. A trust involves setting aside an amount of money or property which is then administered not by individuals but by trustees for the benefit of individuals, organizations, charities and so on. In the past, though this is less common now, men sometimes left their wives income from a trust rather than leaving them money outright. Leaving assets to minors in the form of a trust is much more common. Such trusts will normally (though not invariably) have a finite life, ending when minors reach their majority or sometimes at a later age, or on the death of the "tenant" of the trust. The money will then go to the "remainder men", the ultimate beneficiaries of the trust. Trusts set up in this way in the country of residence are not major ways of avoiding taxes. They are aimed more to safeguard the income and security of funds, though overseas trust have long been used as a means of tax avoidance - and sometimes evasion. Arranging to pass on assets during your life so as to avoid inheritance tax on death is another legal way to avoid tax. So, too, is arranging maintenance payments in cases of separation or divorce in certain proportions between parent and child to minimize the tax burden. It is not uncommon for payments to children to be tax-free. Tax evasion is quite different: it is deliberately not paying tax due, can be quite simply not paying a tax bill when it is received. It may, however, be more than that, including deliberately hiding income or concealing a capital gain which is within the ambit of that tax. The penalties for tax evasion are severe. There may be a simple fine for not filling in a return correctly, though the authorities will rarely take action if there has been a genuine mistake. Equally, however, fines may be imposed which are several times the total of the tax evaded. Severe or persistent offenders may face jail sentences. Whatever the penalties, attempts at tax evasion continue. In the EU probably the most common form of tax evasion is not paying VAT and the decorator may then not declare the income, or not declare it fully. No one knows the scale of this type of tax evasion, but it is certainly widespread and has a tendency to increase if the level of VAT is raised. Those indulging in tax evasion naturally assume they will not be caught. They forget that the tax authorities have large departments dedicated to finding evaders, and a lifestyle more lavish than declared income can support will soon be detected. Generally, it is not worth taking the risk.
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