What’s the difference between ‘tax evasion’ and ‘tax avoidance’?

I used to avoid paying tax. I opened an Isa for my pitiful savings, for example, to avoid tax on the interest. But now I daren’t say I avoid tax because HMRC is encouraging people to report me for it. ‘Report tax fraud or avoidance,’ is the headline on a public-service government website. ‘Report a person or business you think is not paying enough tax or is committing another type of fraud,’ it urges.

In the past, it seemed clear. The Oxford English Dictionary says: ‘tax avoidance n. the arrangement of financial affairs so as to reduce tax liability within the law. tax evasion n. the reduction of tax payments by misstatement of income or other illegal means.’

The definition offered by HMRC is more circumspect: ‘Tax avoidance involves bending the rules of the tax system to try to gain a tax advantage that parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.’ You’d think operating within the letter of the law would guarantee a peaceful life, but no. ‘If you’re involved in a tax avoidance scheme HMRC will fully investigate your tax affairs, and may also treat you as a high-risk taxpayer – this means HMRC will closely inspect all of your tax affairs in future, not just your use of the avoidance scheme.’

Schemes are the things that really get the taxman’s goat. But to be fair to him, the distinction between evasion and avoidance has long been wobbly. In 1922, when Winston Churchill was chancellor of the exchequer, parliament debated measures to reduce avoidance of supertax. One MP, Dennis Herbert, came up with a phrase to cover disapproved avoidance: tax-dodging. This, he said ‘although it is within the law, and is, therefore, quite permissible as long as they can do it, is not quite according to the rules of cricket’.