Recent press headlines have failed to make any distinction between tax planning and tax avoidance, which may suggest that the politics of envy are the only ones that matter. Unusually, the censuring tone seems to be common across all of the presses’ political spectrum; suggesting to me that as a nation, we are economically and ethically naïve.
From the Guardian; here.
From the International Consortium of Investigative Journalists, the holders of the Panama Papers, here.
Back when I was qualifying as an accountant, there used to be the concepts of tax avoidance and tax evasion; where avoidance was taking legal steps to minimise tax payable and evasion was deliberate concealment, slight of hand or worst, knowing it to be breaking the law. These days instead of avoidance and evasion, we seem to have “tax planning” and “avoidance”.
The press seems incapable of recognising the difference between taking reasonable steps to minimise a tax bill from nefarious concealment from HMRC. Some commentators seem to want people to throw themselves under the tax bus.
There appears to be no positive consequences to overpaying tax; you do not get a “thank you” letter from the Chancellor or HMRC, a red carpet reception at the Department of Work and Pensions or tea and medals with the Queen. So why would anyone do it?
If you want to make a difference in a particular area, like foreign aid or medical research, then retaining as much of your own money as you are able and making a charitable donation will give you more control, arguably more efficiency and potentially more satisfaction.
Conversely, not paying tax is an act of selfishness; on a small populous island like the United Kingdom, there are considerable public assets that we all share that have to be funded. Large scale infrastructure, like the road network, is almost impossible to develop piecemeal.
Tax laws in the UK are set by Parliament, so I would suggest that it is the citizen’s duty to pay the required level of tax and the legislature’s duty to make that payment easy to calculate, easy to pay and proportional to their means.
This is where tax becomes unstuck; tax in the UK has evolved, failing to keep pace with the business environment and not being effectively reformed as the process is dangerous to our political betters. Taxation is political dynamite, especially if you believe as a politician, your first duty is to get re-elected.
Back in 1929, the legislature made it clear that a taxpayer could arrange their affairs to minimise tax, so long as it was within the law, this sets up the idea of tax planning, so it is not a new idea.
More recently, in 2013, Hansard reported the words of Exchequer Secretary to the Treasury, David Gauke MP, which attempted to define the boundary between tax planning and avoidance;
“For those not immersed in matters relating to tax, the debate on tax avoidance can be a confusing one, not least because the term ‘tax avoidance’ can be used somewhat loosely. Legitimate use of reliefs is not tax avoidance:
Claiming capital reliefs on investment is not tax avoidance – when those reliefs were introduced precisely to encourage the investment in question.
Claiming reliefs against double taxation is not tax avoidance – when the alternative would be taxpayers paying tax twice on the same income.
Claiming back tax on legitimate charitable donations is not tax avoidance – any more than ticking the ‘gift aid’ box is.
Not paying tax on your pension contributions is not tax avoidance. Taking out a tax free ISA is not tax avoidance.
Clearly, the examples I have listed represent perfectly reasonable tax planning – making use of reliefs for the purpose they were intended, and ensuring one pays only what one is liable for. Now I would hope this would be obvious to anyone who understands the purpose of reliefs. ………
Buying a house for personal use through a corporate entity to avoid SDLT is avoidance. Channeling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance. Paying loans in lieu of salaries through shell companies is avoidance. And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.
These kinds of schemes are where we are focusing our efforts, and they are all, to borrow a phrase from the Chancellor, ‘morally repugnant’.”
Following the exposure of the Panama Papers, the legislature needs to consider the actual purpose of giving taxation privileges to offshore money; how does that serve the purposes of UK Inc.? There is a lot to be said for simplicity in all things but tax has not got more straightforward in my lifetime.
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