'Creative industry' doesn't mean 'creative' accountancy!

When it comes to tax avoidance (or, as accountants have been more correctly calling it for some years, tax planning ), there are legal and moral perspectives.  The latest Icebreaker case has very clearly demonstrated the genuine tension between the two and, as fellow AccountingWeb blogger, Philip Fisher, recently pointed out, it seems to be the advisors getting caught in the crossfire.

Legally, providing methods are within HMRC guidelines, tax avoidance (rather than tax evasion) is permissible in the UK, but this is something that most people - including the government on occasion – seem to forget. 

Tax avoidance is, in its simplest terms, a means of a company or individual reducing tax costs as much as possible, in the same way as they would naturally try and reduce other costs such as stationery or gas and electricity bills.  It’s good business practice, providing it doesn’t step outside the law.

For the creative sector, and particularly the music industry, the creative process offers plenty of opportunities for turning talent into tax relief and music into money.  However, exploitation of this talent can extend beyond pushing the latest girl band to the top of the charts. In my experience, when it comes to business, even the most street-savvy chart-toppers are often commercially naive and there are definitely plenty of opportunities for financial advisors, and even non-specialist accountants, to define the terms ' exploitation' and 'creative' in all the wrong ways.

Now, I don't want to get all 'holier-than-thou' on this, but morally - and certainly from an accountancy perspective - the reduction of tax costs should only be the by-product of a genuine and successful commercial business.  If a record label, studio or performer is generating a healthy income and making a profit, then there are tax benefits in the way the income or profits are paid to the directors, shareholders or musician.  Where Gary Barlow and other investors in the Icebreaker scheme came unstuck is that, according to the judge in the case, there appeared to be no real commercial intent with the scheme, or at least it was a secondary factor to the primary aspect of avoiding tax. While it may have been within the law, it wasn’t within the spirit of the law and that’s the issue.

But there is a certain irony to this debate, given that we're all being encouraged by the government to put more money into our pensions. Those payments are tax free so this is promoting tax avoidance – but in a 'good' way. The reality is, in most cases, those payments will be made from money that’s been generated from profits in the first place, but pensions and a sex,drugs and rock'n'roll lifestyle don't always make comfortable bedfellows.  Perhaps there is a need for a reality check and, when it comes to tax avoidance, it’s easy to get caught up in a moral panic without seeing the bigger, positive picture.