For The Avoidance Of Doubt
I’d written a quick draft of that rare thing called a “post” last Thursday when a phone call from school signalled a sickly daughter who needed collecting and caring for, and therefore the consigning of said draft into a saved items folder. And now the sickly one is back at school, and I’m not in work, and I’ve cast my eyes over the draft and decided it’s more-or-less fit to post as is, with minimal tidying-up, so I may as well.
For it’s the tax avoidance versus tax evasion distinction that was and is a frustrating one for me, relying as it so frequently does on such lazy thinking. Often is seems enough for someone to simply say, “ah, tax avoidance, remember, is perfectly legal” and consider it job done, as if “legal” and “right” are synonyms. We saw a close cousin of this attitude during the MP’s expenses scandal, with many of our elected representatives protesting that buying Persian rugs and duck islands at the taxpayers’ expense was within the rules and therefore fully justified and defensible. But we don’t, I think, feel that morality is or should be wholly defined by the law, or vice versa. And so the “tax avoidance is perfectly fine because it’s legal” argument is self-evidently bollocks.
For myself I think that tax avoidance is such a broad term that it is not an especially useful one. At one extreme you can have someone whose accountant is simply trying to make your money work for you by ensuring that you take full advantage of any tax reliefs available. Tax relief, I think we can assume, is put in place to encourage certain behaviour, be it home ownership, philanthropy, investment or whatever. Regardless of whether you think government should be promoting such things, it seems almost rude not to take the treasury up on its offer to partake in such activities. Personally I would baulk at even calling such things tax avoidance. They are, rather, just part and parcel of common sense money management and planning. At the border of the other extreme is, of course, tax evasion, which is illegal, plain and simple.
It is the middle ground where I think true tax avoidance lies; and “lies” seems to be the appropriate word. Take the K2 scheme that Jimmy Carr has been unfortunately vilified for (and I say unfortunately because I doubt he devised the scheme, and he’s surely not the most egregious example of tax avoidance in the country (that’s not even mentioning that there seem bigger fish to fry than tax avoidance) but is being picked on mainly for being famous; although, even at the most sympathetic face-value reading you would have to wonder why he didn’t ask questions when he was told his tax rate would be plummeting to 1% rather than just assume all was well). Insofar as I understand the scheme (and I doubt I do), money is received as income, but then rather than being taxed at source as it would be for (probably) you and (definitely) me, it is spirited away to a “company” in Jersey, and then “loaned” back to the original recipient at a vastly reduced tax rate. It is those inverted commas that show why it is dodgy; the company is not just any old financial institution providing a variety of services, but a shell existing solely to temporarily house someone’s income (yes, income); the loan is nothing of the sort, rather it is said aforementioned income being returned to that original someone minus the usual amount of tax. In short, the company and loan are a fib. What type of fib? May I suggest a big fib, and quite possibly a fat one as well?
That for me is true tax avoidance. It differs from tax evasion only in that it is considered legal, but it is considered legal only because the law hasn’t yet caught up with it; rather like a brand new hallucinogenic drug is legal only because the law cannot ban something that hitherto hasn’t existed, oh but it soon will. It is a world way from a financial expert carefully stewarding your money through the thicket of tax reliefs and exemptions to reduce your tax bill and ensure you don’t pay any more tax than you need to; rather it is a flagrantly dishonest procedure designed to shirk your genuine tax rate. And if we started referring to the former as, say, “tax planning”, and reserved the term “tax avoidance” for the latter – or even called it what it is, namely “tax evasion which isn’t quite illegal…yet” – then I think this debate may become a little more intelligent.