The thought police and the right amount of tax

Secret denunciations against anyone who will conceal favors and services or will collude to hide the true revenue from them. (Photo credit: Berthold Werner via Wikipedia)

Being shot at

 

These days it is really tough being a tax professional in the UK. There is hardly a day goes by without some media frenzy about supposed immoral tax avoidance, and we get all the blame as the villains of the piece. Many of us might be forgiven for being confused by all the hot air and smoke and mirrors into forgetting what tax avoidance is, so if you have, please remind yourself here.

The Jimmy Carr affair was the worst flare-up this year with the “comedian” being lambasted for wanting to pay less tax on his surprisingly high income. Yet in truth while only 26% of the population think tax avoidance is morally acceptable as against 64% who don't, 42% would probably employ someone to help them avoid tax as against 29% who wouldn't. On the face of it there are double standards among those asked, but perhaps not if we think about this a bit more.

I do not advise my clients on tax avoidance. If they engage in a scheme provided by someone else, that scheme will not have been recommended by me. I would likely brief the client on the risks of an HMRC enquiry and that the scheme might not work and that the client will very likely have to wait a long time to find out if it does.

What I do offer my clients is ways of paying the least amounts of tax under the current law as intended by Parliament. That is as morally acceptable as telling someone petrol is cheaper at one service station than it is at another, isn’t it?

Oppressive Culture 

 

The current climate or political culture, supported joyfully by the media, is that people and especially businesses should pay as much tax as possible. This now extends to international or multinational companies being expected by the press to pay tax when they have not made any money in the UK. Normally if one has no profit (i.e. no net income) one should not have to pay tax, but apparently it is thought that Facebook and Starbucks should, just because they are big and make profits elsewhere.

In a tax forum a well known tax commentator likened our tax system to the East German model, and it seems that some learned judges have been intimidated by the political climate into reaching decisions which favoured HMRC, but seemed strange. I had better not say more because there would be nothing worse than being sued by a lawyer.

Just the same, there is no public political dissent from the notions that not only should we not indulge in tax avoidance schemes, but that reasonable tax planning with contractors working through personal service companies is somehow morally beyond the pale. That is notwithstanding that so many Government agencies have insisted on contractors working through companies to avoid their obligations as employers on the human resources side, including giving notice, redundancy, providing pensions, as well as avoiding paying Employer's National Insurance on their tight budgets.

The new Communism

 

So the three main political parties all sing from the same hymn sheet, and anyone in politics brave enough to disagree would be instantly lambasted and attacked by the media, with the Treasury and Opposition spokespeople getting on their high horses. They would be joined by the usual suspects, purporting to represent the best interests of the workers on whose behalf they claim to speak.

Sadly, what has happened somehow over the last dozen years is that the State has instilled this belief amongst so many that there are others who are up to something, somehow fiddling their taxes down. Because so many people have suffered in the economic downturn, this belief is whipped up by politicians and their willing media by envy (it sells newspapers).

So in many ways our capitalist state has become like an old Communist State. I recommend this if you can spare ten minutes more of your time. Privately no one really believes everything they are told but publicly they are afraid to speak out simply to say that the picture painted is totally false.

From the public opinion poll mentioned above, we might infer that some of the 64% who say that tax avoidance is unacceptable say it because the thought police would get them, but privately admit they might do it themselves given the chance. Somehow, those of us who advise on tax but do not do tax avoidance have just the same been tarred with the same brush as the tax avoidance promoters.

We are innocent, OK?

 

The tax avoidance “industry” is a relatively small and accounts for £5 billion out of the £32 billion tax gap estimated by HMRC. That is not small beer even at less than one-sixth of the tax “lost” but very few tax professionals are involved in tax avoidance anyway. We are not wicked for assisting our clients through the diabolical bureaucratic tax maze that has been created. We help our clients get on with their lives and their businesses, to help stimulate the economy and help get the country out of the mess created on the watch of many of the current leading politicians.

Are we allowed to be heard outside our own cloisters?