The difference between tax planning, tax avoidance and tax evasion.

Tax Planning

Is the legal process of arranging one's financial affairs to minimise tax liability.

• For example, you might engage in tax planning by making contributions to a tax-advantaged retirement account, such as a pension or an Individual Savings Account (ISA). This can reduce your tax burden by allowing you to save for the future on a tax-free or tax-deferred basis.

Tax Avoidance‍

Is a legal practice of taking advantage of tax laws loopholes to reduce taxes owed to the government, and it is legal.

• For example, a company might engage in tax avoidance by setting up a subsidiary in a low-tax jurisdiction and routing profits through that subsidiary in order to reduce its overall tax bill. This might be considered tax avoidance because the company is using a legal mechanism to minimise its tax liability, but it is not acting in the spirit of the law.

Tax Evasion‍

Is the illegal practice of deliberately avoiding paying taxes. It is an offence and can lead to fines and even imprisonment.

• One example of tax evasion is if an individual earns money from providing services to clients, but does not report all of the income they receive, they are committing tax evasion. This individual might receive cash payments from clients that are not recorded in their books, and therefore not reported on their tax return. This is illegal and can result in criminal charges being filed against the individual, as well as fines and possibly imprisonment.