The public's double standards over tax avoidance and tax evasion

Outrage
To be in Britain in 2012 means that it is quite impossible to avoid strident headlines about wealthy and earning individuals avoiding tax by utilising schemes. The case of the comedian, Jimmy Carr, has attracted particular publicity and it has led to confusion among not only the public but also journalists as to the difference between avoidance and evasion of tax.

In case anyone here is still confused. “tax avoidance” means avoiding paying tax by perfectly legal means if often rather arcane and somewhat artificial. “Tax evasion” means failing to declare to HM Revenue & Customs income, gains or commodities or services which should be taxed according to the law. Therefore tax evasion is illegal.

Avoidance of doubt

I believe my position on tax avoidance is clear.  and I am aware of my own responsibilities as a provider of taxation advice.  However, may I spell it out a bit further? I do not recommend any tax avoidance scheme (a cunning plan devised by some specialist provider), and will not introduce my client to any arrangement which has any degree of artificiality. If one of my clients is approached by someone else then I will ensure she or he understands the risk and pain of close scrutiny by HMRC before making a decision.

I do not go as far as the politicians in saying that tax avoidance is morally wrong. In the case of large corporate entities, the duty of the directors is to their shareholders, and that means preserving as much of the pie as possible to feed those who have invested their money in the business and incidentally in the livelihoods of their employees. There is an awful lot of confusion and strident headlines from irresponsible or plain ignorant journalists about avoidance. Most recently I saw a large corporate which had been in the news over a tax avoidance issue being accused of further avoidance because it had made a real, not artificial loss, and therefore had no profit to tax.

I suppose in defence of journalists, many are being bombarded with material from so-called experts who may be campaigners with bees in their bonnets.

Morality
Really, in respect of money which is legally ours, the moral judgement as to its use is in our own hands. I may not respect someone who makes no contribution to society, but I will not set myself up publicly to pronounce on moral issues. I have known vastly wealthy and successful people who gave absolutely nothing to charity, and of course personally I thought they should. Many years ago I also knew a very famous person who gave a great deal of his money to charity in a very low-key way. I wish the public knew what a really good and decent person he was (and a very nice man anyway), but I don't think he would have wanted the public to know, quite apart from my being bound by confidentiality. My lips are sealed.

Of course I do help my clients to pay less tax by claiming every possible relief and arranging their affairs to pay less tax in a way “that Parliament intended”, which is a phrase becoming popular with tax judges.

Shady customers
The public is swept along by the media hysteria about avoidance and yet there is still so little about tax evasion. Tax evasion is illegal. Every time someone offers to re-felt your flat roof or re-surface your driveway with a really good discount for cash, that means they will probably not declare the income in their tax returns. Of course, being the dishonest fraudsters they are, that means that if you have a problem later, you probably won't be able to get them back to fix it.
Some of these driveway people actually don't believe in paying any tax at all and this lot robbed the Exchequer of over half a million pounds which is our money. If they don't pay their share, we honest taxpayers have to pay more. This dodgy plumber also got caught too.

Accessories to fraud?
As long as the public aids and abets fraudsters by paying them cash, everyone else loses out. It is likely that far more tax is lost to dishonest small traders than in respect of legal tax avoidance by a far smaller number of wealthy individuals.

In the end we can all do our share of ensuring that everyone pays their “fair share” of tax, and that means not parting with bank notes when a cheque or credit transfer or payment be card would normally be appropriate. Just because a few avoid tax legally is no excuse for assisting dishonest people to dodge tax, because they might as well be nicking that tenner from your back pocket.

Wisdom of the aged

Image via WikipediaIn the week of his death there has been a lot written about Sir Norman Wisdom, who was a very funny man of his time, and in my book a lot funnier than many so-called comedians about today. There was at least no smut in his work where he essentially played the fall guy or fool. In real life of course he was no fool at all, but a shrewd cookie.

From the tax profession's angle we think of him as the man who lost the silver bullion case against the Inland Revenue. He put a lot of money into silver bullion with a view to making a fairly quick profit at a time in the Sixties when the pound Sterling was on the slippery slopes of devaluation. To cut a long story short he was found to be trading and liable to income tax on the profits of that trade. It is one of a few cases where one or very few transactions has been construed as a trade rather than an investment strategy. There is more technical commentary I could make but this is not the time or place.

A couple of the obituaries noted that Sir Norman  was  a “tax exile” in the Isle of Man. There has even been some criticism of him for having made his money and then going offshore to keep more of his income. Actually the Isle of Man is quite a nice place to go when you reach normal retirement age. Sir Norman only went when he was 65. It has a mild climate and quite low rainfall, especially when you realise it is sandwiched between a wetter Ireland and Lake District. Anyway, why should it be deemed immoral to retire to a nice place and pay a lower rate of tax as a bonus?

By the same token, is it immoral to work in a Middle East country with no income tax and at a high salary and (oh dear) not be earning it in one's country of origin , the UK, and therefore avoid being charged to tax by being non-resident? I would have thought it was a way of being responsible and making provision for family, and after all, if you are not present in a country in which you are not paying tax, you are not using the facilities that taxes are supposed to pay for?

Has it really come to this? Have politicians and commentators been brainwashed into criticising anyone who either accidentally or deliberately makes arrangements to pay less tax? Goodness me! If we use the facilities of the hotel we should expect to pay for them. Why is anyone expected to pay for the facilities they no longer use, especially if their hard-earned cash has in the past helped to build this facilities.

Artificial contrivances to avoid paying tax may or may not be morally questionable depending on your point of view. They probably are. Using tax free investment options must be OK since the Government allows for them in legislation. Using methods of reward that suffer lower taxes is no different from buying your food at Lidl instead of Waitrose or Fortnum and Mason, is it? We buy our petrol at the cheapest places and avoid motorway service areas. We have the choice. Why pay more?

Not being in the UK is a matter of lifestyle choice, surely? I wish politicians, some journalists and tax campaigners would grow up.