There has been much talk recently from the Government about the dislike of tax planning and and thought it might be useful for a newsletter.

 

The government is pledging to raise billions of pounds by clamping down on “morally indefensible” tax evasion, a senior Lib Dem minister has said.

Likening tax evaders to benefit cheats… [they plan] the “ruthless” pursuit of tax evaders and those who use legal loopholes to minimise their tax bills.

“There are some people who seem to believe that not paying their fair share of tax is a lifestyle choice that is socially acceptable,” [Treasury Chief Secretary Danny Alexander] said.

Tax avoidance and evasion are unacceptable in the best of times but in today’s circumstances it is morally indefensible.

Source:BBC
There are so many issues with this recent statement and, as you can imagine, the tax profession is up in arms. There is much chatter about this already, but here are a couple of extracts, distilled along with my own thoughts for your digestion:

The problem is that HMRC wants to target the little guy, or at least the smallish guy, rather than the big fish. Of course if the little guy was a major political party donor or a lobbyist of some sort then they may not be targeted so robustly.

Clegg is by no means the first politician to demonstrate an inability to distinguish between legitimate arrangement of one’s affairs to minimise their tax burden [i.e. avoidance] and illegal acts of tax evasion.

The BBC had an interview with LibDem Chief Secretary to the Treasury Danny Alexander [Monday 20th September].  When it was pointed out that he had avoided tax by making a PPR [Principal Private Residence] claim for a house that was not his main residence he denied it completely.

… however a Daily Telegraph article, dated 30 May 2010, seems to suggest that Danny Alexander did admit that he took advantage of a “loophole” to “legally” avoid Capital Gains tax. There was no suggestion that Mr Alexander broke any tax laws.

Here if anyone wants to see it http://www.telegraph.co.uk/news/newstopics/mps-expenses/liberal-democrat-mps-expenses/7787519/Danny-Alexander-new-Treasury-chief-avoided-capital-gains-tax-on-house.html

I shudder when I see the term “fair share” bandied around. What is a “fair share”? I don’t know and I suspect no one does. A government exists to provide common services for a country. It needs funding. That much is obvious.

Without tax planning (avoidance, call it what you will) a person with high income will pay far more tax than a person on low income. Chances are quite high that the former makes much less of common services than the latter because he can afford private health care, private education, etc. Let us assume he uses tax avoidance to reduce his income tax bill to nil. But if he remains in the UK he is still paying, we assume, council tax, VAT, employer’s NI on domestic help, etc. This is likely to add up to a large sum. Should he be forced to pay even more and considered “evil” if he doesn’t?

It is up to the government to make tax law and they only have themselves to blame if the law does not work as intended. I have never seen any comments accusing the government of being evil or immoral when a tax law does not operate in a “fair” way forcing a taxpayer to pay more than his “fair share” and there are more than a few examples of this.
The problem is that envy of the rich and successful is a powerful emotion and one that politicians will seek to exploit time and time again. So labels of evil and immoral will continue to be applied to tax avoiders. After all how many votes do the tax avoiders have for the politicians to lose? Not many.

What’s “fair” is for the government to decide and make into law
What is the law is for HMRC to enforce
What is permitted (or indeed encouraged) within the law is for accountants to use for the benefit of their clients.
To me it really is really quite clear set of responsibilities, and you cant blame the taxpayers/accountants for using legal means to reduce the amount of tax paid.  If its not “fair” make it illegal, or in other words, the government needs to do its job properly and create clear laws that can be easily applied. If there is doubt, people will assume they do not need to pay the tax.

Apparently they plan to throw £900m at this little quango exercise. One more sceptical than I might wonder if this is a desperate marketing measure.
I wholeheartedly believe the tax system has now reached ridiculous levels of complexity and needs to be re-written from scratch. In the meantime we’ll all get on with life, within the boundaries of the legal system. Whatever they believe about tax planning and its status – good luck to them trying to make anything stick.