Do you approve of tax avoidance or do you think its morally wrong?

Do you approve of tax avoidance or do you think...

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Do you approve of tax avoidance or do you think its morally wrong?

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Locutus of Borg
By Locutus
15th Dec 2013 16:22

Is this another homework / past exam question?
There isn't a right or wrong answer to such a question, but you would get marks for being able to articulate the pros and cons of both sides of the argument and show that you have some understanding of what tax avoidance means in the real world.

So start writing your answer below.

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Replying to atleastisoundknowledgable...:
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By 2085267s
15th Dec 2013 16:24

no exams are finished, just genuinely wondering...

about your opinions

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Replying to johngroganjga:
Stepurhan
By stepurhan
16th Dec 2013 07:57

Does the OP have opinions?

2085267s wrote:

.....about your opinions

If you're going to ask a question like this, you really need to put your own opinions out there. For all your protests to the contrary, not doing so makes it look like you are a student with no ideas of their own rather than someone asking a genuine question.
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By Duhamel
15th Dec 2013 16:46

Depends, as always
Many people have different definitions of avoidance, so it depends on what definition and what type.
I'm in favour of people structuring their affairs to pay the minimum tax possible, I just don't see anything wrong with that.
I'm not in favour of tax avoidance schemes, but I understand that some clients are.
I also think many people ignore the possibility of unintended tax consequences when they are not careful, so people can end up paying a penal tax rate purely through ignorance.

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the sea otter
By memyself-eye
15th Dec 2013 17:03

I avoid tax

Because I'm too bone idle to work harder and therefore pay more tax than I do. It's about time folks (mostly in this government) realised that avoidance is legal EVASION is not.......

 

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By ShirleyM
15th Dec 2013 17:15

The OP asked about morality

As a very rough guideline, I tend to think that avoidance where a limit is imposed are fine, morally, as the tax savings are capped. Examples: ISA's, pension contributions, etc.

The schemes where there is no limit on the tax that can be avoided and the taxpayer still retains almost their full income, (less promoters fees),  is morally wrong as they are usually taking advantage of loopholes, as those laws were never intended to give an unlimited ability to avoid tax. Examples: abuse of foreign EBT's, non-repayable loans, etc.

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By User deleted
15th Dec 2013 18:25

In an altruistic world ...

... money is morally wrong!

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By ShirleyM
15th Dec 2013 18:37

ok OGA, I'll bite ...

Money is just a simplified bartering scheme, isn't it?

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By dropoutguy
15th Dec 2013 19:59

I'll tell you what is morally wrong

MPs who run three houses voting for a bedroom tax on council tenants who couldn't move houses even if they wanted to....

Sanctions quotas for benefits claimants...

Oh I could go on but my point is that even accountants ought to able to find more egregious examples of immoral behaviour than participation in even the most blatant of tax schemes.

 

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By The Innkeeper
15th Dec 2013 20:02

What is more morally repugnent

is that Members of Parliament who pontificate on such matters when they do not understand how the tax law works - especially if they happened to be in the Cabinet when the legislation was passed

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By ShirleyM
15th Dec 2013 20:52

Who advises Parliament on tax issues?

MP's are not experts in anything, so they hire experts to advise. Someone must advise them. Four of the Big Six help parliament draft tax laws! Do you think they may have conflicts of interest?

EDITED to add:

http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/870/87005.htm

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By User deleted
15th Dec 2013 20:53

@ Shirley ...

... but in an altruistic world you wouldn't need to barter!

Just read Brendon Chase - so feeling cynical on the one hand and nostaligic for a lost world on the other.

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Teignmouth
By Paul Scholes
15th Dec 2013 20:58

In the eye of the beholder

There are obvious extremes where, as Shirley say, someone is clearly taking advantage of poorly written law to contravene the spirit of legislation and I made the personal decision to avoid anything like that years ago, I don't want clients who think that sort of behaviour is OK.

There are however other areas where the situation is grey and where people have to make up their own minds.  I view the salary/dividend mix, we all (I think) now employ, in this light, I have a level of unease with it because it is inequitable but it has become traditional and I'd not be able to pay the mortgage if I insisted all my clients paid themselves salary for work done.  If however the government ever woke up to what NI they are losing and put a stop to it, it would create a shrug of the shoulders here.

Ultimately, the morals that evolve in any community or nation determine law and you can either decide to apply the law for yourself in advance or wait till everyone else catches up.

This is all fine for the person in the street but being an advisor brings a professional ethic into the mix, ie I think it's wrong not to answer client's questions on the iffy topics, even if it's only to point them at the information or at others who can take over.

 

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Teignmouth
By Paul Scholes
15th Dec 2013 21:42

Money need not be the problem

The accumulation of static wealth and the use of money to make money is, for me, the unacceptable face of the traditional economy.  I'm not widely read enough to imagine life without a measure of value (like money) in say the provision of labour but, it's when that unit of measure takes on a life of its own and becomes its own industry that I feel we have lost the plot.

But then, this is nothing new, and warnings were there in the Victorian era when there were still a significant number of influential commentators on co-operation and social responsibility but looking after number 1 is so much easier.

 

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By ShirleyM
15th Dec 2013 22:00

I'm not uncomfortable with the low salary/dividends route

The company pays tax on any profits distributed as dividends, and the absence of NI helps make up for the additional red tape, taxable benefits, etc. The dividends are also capped, as you still pay a higher rate of tax on dividends, if applicable.

The limited company scenario that does make me uncomfortable, is where profits exist, but are left in the company so that benefits can be claimed. Luckily, I haven't been put to the test on this.

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By MarionMorrison
15th Dec 2013 22:38

And I'm uncomfortable with exactly that Shirley

I hate the limited company route of low wages, fat dividends because it is an artificial structure, designed to convert what is really earned income into unearned income.  I'm old enough to hark back to an era when unearned income was taxed at higher rates that earned income (via Investment Income Surcharge), so to see people using a fake structure to avoid C4 NI is something I hate and consider immoral.  

But it's not possible to be cut and dried about the morality of tax avoidance because some avoidance is 'acceptable' and some isn't.  Claiming higher rate relief on a pension contribution is acceptable tax avoidance.  Claiming for spouse's wages where there is a genuine input by the spouse is fine in my book.  The conversion of wages into dividends via a company is dodgy. Setting up as a partnership so as to divide profits between a worker and their spouse and lower tax rates is dodgy.

It's one of the reasons why I shall be leaving the profession soon.  I appear to have a professional (and legal) obligation to aid and generate legal avoidance when my moral qualms would say 'no'.  

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Replying to atleastisoundknowledgable...:
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By Ken Howard
16th Dec 2013 08:31

Unfair taxes will always be "avoided"

MarionMorrison wrote:

I hate the limited company route of low wages, fat dividends because it is an artificial structure, designed to convert what is really earned income into unearned income.

And I'd agree with you if it wasn't for the double NIC, i.e. employees NIC and employers NIC,  That's the killer which I think is morally wrong.  It's the same "person" paying NIC twice.  If that same person was a sole trader, he'd only pay it once, i.e. Class 4 - 23% instead of 9%.  That's why the "tax" savings of the dividend route are so popular.  If it was just one lot of NIC, the "savings" of the low pay/high dividend route wouldn't be so high meaning fewer people would "avoid".

So, yet again, it's actually unfair tax/nic rules that acts as the prompt for people to look for alternative structures.

The sooner they scrap NIC, and increase basic rate income tax to compensate, the better.  It would wipe out a lot of the "avoidance" opportunities at a single stroke.

Complex, unnecessary and unfair taxes are the reason for the widespread tax avoidance! Simples.

After all,  mass incorporation has only become so popular in the last decade or so due to government rule changes.  Before then, we had advance corporation tax and go back a little further we had close company profit allocation (or whatever it was called).  It was Govt changing the rules that opened the floodgates as they were too thick to realise the consequences of their actions (as usual!).

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Replying to Glennzy:
paddle steamer
By DJKL
16th Dec 2013 10:40

Someone should introduce a tax rewrite thread

Ken Howard]</p> <p>[quote=MarionMorrison wrote:

 

The sooner they scrap NIC, and increase basic rate income tax to compensate, the better.  It would wipe out a lot of the "avoidance" opportunities at a single stroke.

Complex, unnecessary and unfair taxes are the reason for the widespread tax avoidance! Simples.

 

Which without some form of adjustment/ modification might be morally unfair on pensioners who would then require to in effect pay NI twice (once during their working life and once on their retirement income) and with some adjustment/ modification would likely conflict with the second point re complexity.

I do have sympathy with your viewpoint re NI, I on occasion have this wonderful utopian dream of both income and capital gains being taxed under the same regime with one set of allowances covering both and the same tax effect / regime irrespective of the form of entity that is used: then I wake up.

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Replying to David Hedley:
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By Ken Howard
16th Dec 2013 11:08

@DJKL easily solved

DJKL]</p> <p>[quote=Ken Howard wrote:

MarionMorrison wrote:

 

The sooner they scrap NIC, and increase basic rate income tax to compensate, the better.  It would wipe out a lot of the "avoidance" opportunities at a single stroke.

Complex, unnecessary and unfair taxes are the reason for the widespread tax avoidance! Simples.

 

Which without some form of adjustment/ modification might be morally unfair on pensioners who would then require to in effect pay NI twice (once during their working life and once on their retirement income) and with some adjustment/ modification would likely conflict with the second point re complexity.

Easily solved by a corresponding increase in the age allowance so that a basic rate pensioner would be no worse off.  There is already the law and mechanism for the age allowance for pensioners, so it's a very simple job to tweak the numbers to fit so that the pensioner on low or average income would be no worse off.

Also, don't forget that a proportion of pensioners won't have "paid NIC all their working life" - i.e. those with NIC credits or those who've only just earned enough to hit the NIC threshold without paying much NIC.  There are far too many ways to avoid paying NIC yet still enjoying the benefits that it supposedly brings.  (Of course, in the real world, we know that NIC is just another tax!!).

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By the_Poacher
16th Dec 2013 06:41

Outcome of avoidance
My main concern is for those who have to make up the shortfall. When some pair less than their notional fair share, "the rest", have to pay more. Avoidance opportunities are mainly available to the wealthy, those non PAYE or those who have a controlling interest in their company. So the additional revenue the government needs come from the squeezed lower and middle income groups.

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Stepurhan
By stepurhan
16th Dec 2013 08:47

Define terms

Claiming expenses could be considered tax avoidance as it reduces the amount of income subject to tax.

Do you only include expenses for which you have invoices and that are clearly solely business, such as materials purchases? Do you include a proportion of expenses where you have receipts but that you know there is private use, such as motor expenses? How do you determine a reasonable split for that private use? Do you include a provision for expenses you know they've incurred but for which they have lost the invoices, say postage where their business sells physical items online? Do you provide for expenses where there will never be an invoice, say wife's wages where you know she keeps the books?

Each of these scenarios stretches further from a strictly evidence based claim. Sooner or later there will come a point for each of us where we feel uncomfortable with certain actions that reduce tax, even if they are perfectly legal.

My main issue with the avoidance/evasion debate is that people who should know better, usually in government, keep conflating the two. If you are in government then you should be concentrating on closing the loopholes, preferably by simplification to avoid adding in new ones. To instead complain about businesses using loopholes in the laws you are responsible for is the height of lazy stupidity.

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By The Innkeeper
16th Dec 2013 09:07

All the academic studies

show that the lower the tax rate the higher the tax take. This might be hard for the politicians to swallow but they would soon see that avoidance declines.I am sufficiently long in the tooth to remember that when Mrs Thatcher's government cut the top rate of tax to 40% from 60% I had a client phone me up and tell me that he was quite happy not to go into tax planning schemes as he would be left with over half of his earnings.

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By MarionMorrison
16th Dec 2013 09:34

@Ken

It's not the use of dividends to avoid directors' wages that I abhor so much as incorporation to turn self-employed profits into dividends.  The same business can either pay 9%, built as a pure self-employment, 25.8% as director's salary or 0% as dividends.  

But I'm all over the merging of tax and NI.  Nothing but anomalies lie within the current structure.  I'm sorry to say Mr Innkeeper that academic studies do not show conclusively that lower tax rates causally equate to higher tax Revenues.  What they do show is that behaviour changes when tax rates go above 50%, that people see it as a disincentive.  But for some people making the levels of income that merit higher rates of tax, additional income has long stopped mattering. It's just a means of keeping score.

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By andrew.hyde
16th Dec 2013 09:46

Semantics

Most people take the view that 'my' behaviour amounts to 'planning' and 'mitigation' and is therefore sensible and acceptable. On the other hand, everyone else is indulging in 'avoidance' which is heinous, selfish and reprehensible.  We are lucky to have the English language at our disposal to deal with the nuances and subtleties of a subject like this.

If I was trying to be objective (and Anglo-Saxon) for a moment, I would say that in a democracy like ours,  people who do things to tax that are plainly not what Parliament intended are wrong.

If you want to enjoy a pint of beer in a pub, you pay what is on the bar tariff. If you want to live in a stable democracy, you also have to pay the price.  (Please don't argue with me about whether we have a democracy - that's a separate thread and you are welcome to start it off).

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By Kirkers
16th Dec 2013 10:18

10 days ago you said you were doing practice exam papers.. sounds like you're still doing them with questions like this.

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By 3569787
03rd May 2016 17:09

No morals in tax

.

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Replying to davidross:
Stepurhan
By stepurhan
16th Dec 2013 11:57

How many DISagree completely?

3569787 wrote:
Tax is legalized robbery - no morals in that; for how many agree completely with how every penny is (mis) spent; - any way to reduce a tax bill, no matter what it is called - NI, PT, CT, VAT, IT,  is acceptable.
So you think because some of the tax take is spent in a way you don't approve of, that is a justification for paying no tax at all regardless of the legalities?

I'm sure we could all come up with lists  of what we don't think tax should be spent on. I even suspect that a lot of things would appear on most of those lists. That is not the same as saying that you receive no benefit from services paid for by tax. There are such things as public goods, where benefit is received whether you contribute to them or not. I also suspect you are not going to turn down the state pension when the time comes, though you might quibble about the amount received.

Tax isn't a perfect system for providing such things, but what alternatives do you suggest?

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By User deleted
17th Dec 2013 00:17

I do ...

... tax is immoral, as is money. What would be moral would be an altruistic world where every one did what they could and got what they needed. If we were content with the physical and the spiritual we would not be obsessed with the material. As we are not, this will only exist in cloud cuckoo land and the imagination of sci-fi writers (In Star-Trek for one they have transcended money, as Picard said to a 20th century lawyer,  "A lot has changed in three hundred years. People are no longer obsessed with the accumulation of 'things'. We have eliminated hunger, want, the need for possessions.", and to Lily Sloane when she asked how much the USS Enterprise-E cost to build "The economics of the future is somewhat different. You see, money doesn't exist in the 24th century... The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of Humanity.").

I for one would rather sit around a fire exchanging stories, jokes, ideas and knowledge than I would huddled round 60 inch HD plasma all signing all dancing internet enabled TV with full sky package - in silence!

Seems to me these days we have so much knowledge, yet we know nothing, we have so much wealth, but we have no values and the still small voice of sanity is drowned by the tumultuos clamour of pandemonium.

Ah, the joy of democracy - that arch-nemesis of the humble lemming.

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Stepurhan
By stepurhan
17th Dec 2013 08:42

Imperfect Humanity

Alas, such an ideal would require the majority of humanity to be willing to work for the common good OGA. My experience of humanity is that is not going to happen any time soon. In the absence of such co-operation tax, whilst not ideal, is all we have.

I agree with you about the fire v HD plasma debate though. It depresses me when people just don't interact any more. Let's pull out some good old board games and have a bit of friendly competition with a few drinks. I have a copy of the 1961 edition of Go the international travel game from Waddingtons.

http://www.boardgamegeek.com/boardgame/7097/go-the-international-travel-game

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By ShirleyM
17th Dec 2013 08:42

I don't fancy a return to serfdom either

Where the 'Lords' of the land grabbed everything available & taxed their serfs into poverty.

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Replying to aobrien:
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By User deleted
17th Dec 2013 12:34

Return?

ShirleyM wrote:

Where the 'Lords' of the land grabbed everything available & taxed their serfs into poverty.

We are there already (if we ever left the system), it is just dressed up in different clothes!

Just because 6,999,999,999 people think one thing, doesn't mean the remaining 1 who disagrees is wrong!

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By Vaughan Blake1
17th Dec 2013 09:38

It was all going so well until 500BC!

The Pharaohs took a flat 1/5 of everyones income to pay for pyramids, gold hats and stuff. 

Then in 500BC Darius the Great replaced Juliud the Simpler (son of Juliud the Simple) and he said, "Listen lads, I've got a plan, wouldn't it be better to claim a higher percentage of income, but after expenses".

Tax planning and avoidance was born that very day as only evasion had existed previously.

Thus it came to be said, flat rate tax was a Pharaoher & Simpler system!

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By ShirleyM
17th Dec 2013 12:22

Good point, OGA :)

We are but serfs, allowed to reside here in order to provide labour and taxes for the 'Lords'.

'Only little people pay taxes'.

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By carnmores
17th Dec 2013 12:44

usual load of old rubbish

what would be better would be to have a discussion on morals per se rather than specifics of what tax tactics are immoral. Ethics i can just about stomach , but morals ......ugh. what used to be immoral is no longer and vice versa in many cases ,its very fluid, as the old line goes  'everything I like is immoral , illegal or fattening'  long may it continue ........Merry Christmas everybody! 

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