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.

Representing the sinners

Image via WikipediaPart of my work as a tax practitioner is to represent those who for one reason or another have not declared their income properly. Sometimes they have not declared their capital gains either. Sooner or later they need help from someone like me.

There are all sorts of reasons why people find themselves outside the tax system. I have certainly heard some tales. I can however see certain trends in the way my new clients might have fallen outside the system.

The innocent

Some individuals do start out in innocence in that they may start a very small business for “pin money” which would be well below the level of income tax or National Insurance. Their business might then take off, they think they ought to have told HM Revenue & Customs before, and they become afraid to do so for fear of retribution. Thus they go on outside the system for several years. At some point they are either caught by HMRC or (as I much prefer) they approach me for help because they simply want to come clean and meet their obligations to the Exchequer. I love people with a real conscience!

The oblivious

Strangely there are some who really never dream that they could possible be liable to tax. These are more commonly those who receive some sort of investment income upon which they “assume”, if they had thought about it at all, that the tax is already paid. Other people in this category may include those in receipt of rents on their property. Yes, there really are some extremely naïve types who have no idea that the Government might want its share of their income.

The not so innocent

This category really knows that they should be paying tax. They just like to live on the edge and take the risk of being caught, but somehow they do not expect to be. They may have earnings or have let property.

The net tightens

It is a popular belief amongst both the public and some accountancy and tax professionals that HMRC does not have the resources to catch tax evaders, and especially small time ones. They think that HMRC prefers to concentrate on the big fish amongst the dodgers by going after the miscreants who have substantial funds in Swiss bank accounts. They believe that the Liechtenstein Disclosure Facility represents the main type of evasion mainly being targeted.

HMRC have other strings to their bow. For example they have been checking the Land Registry and have been finding not only undeclared capital gains realised by property investors, but also significant undeclared rents from such properties. Judging from instructions I have received from new clients who have been found out, this is a very successful initiative.

All are welcome

Helping new clients who want to come out of the woodwork and into the system is very pleasing, and I am happy to assist those who have been nabbed by HMRC too. I don't judge people and in the end they all need help.

The variety of work is hugely satisfying, and once we have established that there is absolutely nothing else which has been forgotten in the way of income or gains, I can get a fair deal.

Of course I don't like tax evasion because dodging obligations to the Exchequer is much the same as taking the money out of our own back pockets. For the small timers, though, whether innocent, oblivious or a bit guilty, HMRC mainly wants them in the system rather than bankrupting them or hanging them at Tyburn Tree. In the end it is better to cough up some money and have someone like me represent them, because afterwards there will be no more looking over their shoulders.

Royal wedding cant, hypocrisy, and the taxpayer

Wills and Kate are getting married and I wish them every happiness. I hope this Royal wedding will be a great show too, although they should have it just as they want it.

Of course there is the usual whining from commentators and journalists that the taxpayer should not have to pay for this, and the Royal Family should stump up a good deal of the cost.

Well, like it or lump it, but the Royal Family is a tremendous asset to the United Kingdom. Overseas media take a huge interest. The Royals are still worth a huge amount in terms of exports and attract millions of tourists from around the world, many of whom will come especially for the wedding. Manufacture of memorabilia is already in full swing, and William has made sure by use of her engagement ring that the Diana factor will feature heavily. Money is going to pour into our country from around the world. Yes, a lot of people are going to make serious money and yes, a lot of tax is going to be raised by the Exchequer and it will be a great deal more than the cost of running the wedding including all the policing and security. It is probably a much better money-raiser than the Olympics.

No money is going to be diverted from hospitals or welfare because the tax raised is going to be extra money. I am less a Royal fan than I was, but let us not get diverted by those who have an agenda other than their pretence of social conscience.

Let us enjoy the Royal wedding and the financial benefit the Exchequer, our clients and we will derive from it.