Up to 78% of the public surveyed for HMRC recently believe that other people are dodging tax, according to research papers published last week.
Looking at public perceptions of compliance – particularly evasion and avoidance, this is part of the ‘promote, prevent, respond’ policy, designed to tackle tax avoidance and close a perceived £2.7bn avoidance tax gap. But is the case proven?
View from the Clapham omnibus
We don’t evade or avoid tax ourselves, but there are a lot of people out there who do. HMRC has got tougher on tax dodgers, but it might need to get tougher still. That was basically the message that came from three surveys. One looked at public perception of tax-marketed avoidance schemes, Exploring public attitudes to tax avoidance in 2015, another examined perceptions about compliance carried out with SMEs and individuals, and a third researched individual decisions to enter and exit marketed tax avoidance schemes among a range of taxpayers who had settled their affairs with HMRC .
Avoidance: Is it ever justified?
An ‘Opinions and Lifestyle Survey’ carried out by the Office for National Statistics, looked at attitudes to tax avoidance, and this was the first time questions of this sort have been pitched to the general public. It’s an esoteric area, so the interview spelled out what it meant by avoidance:
“Tax avoidance gets a lot of attention in the media, and it can be a complicated issue to understand. It is often confused with tax evasion (hiding your earnings or lying about tax)… or with legitimate tax planning, like putting your money in an ISA…”
“Tax avoidance is working around the rules of the tax system in order to pay less tax than Parliament ever intended – so operating within the letter, but not the spirit of the law.
“Tax avoiders often enter complicated, artificial ‘schemes’ that have no real financial purpose, other than to avoid tax. You may have heard about high-profile users of these sorts of schemes in the news.”
The vox pop
More than 63% of respondents thought tax avoidance schemes were widely used; 24% coming up with ‘very widespread,’ and 39% ‘fairly widespread.’ Strange, because as the survey goes on to report, “evidence suggests the use of tax avoidance schemes in the UK is not widespread… but the preserve of a small minority.” HMRC’s figures for the 2013-14 tax gap attribute 8% of the gap to avoidance.
But the man (and woman) on the Clapham omnibus don’t, on the whole, like it. For 61% of those surveyed, avoidance was never acceptable. 27% however, envisaged circumstances in which it might be.
There were a variety of suggestions:
- Legal schemes are there to be used
- It’s people’s right to pay as little tax as possible
- Big companies get away with it, so why not me?
- The government spends tax in ways I disagree with
- I pay too much tax
- If people can’t afford to pay their taxes
- If only small amounts of money are involved
- If the amount of tax is ‘unfair’
- If taxpayers are elderly or disabled
- If using ISAs
- If avoiding IHT
Holier than who?
Respondents had decided opinions about who should lead the way. They singled out people ‘who can afford to pay,’ those in the public eye, or who are perceived to be in a position to ‘set an example’ as people who ought not to use avoidance schemes. The 61% who thought avoidance schemes were always unacceptable said:
- It is unfair on others who pay tax
- Paying tax is a social responsibility
- Taxes are needed to fund public services
- Such schemes are immoral and illegal
This is all very well and good, but what is it actually evidence of? Certainly not a genuine understanding of avoidance. As Captain Mainwaring used to say in Dad’s Army, we may be getting into the realms of fantasy with some of the findings. Do people who can’t afford to pay their tax use tax avoidance schemes? Is tax avoidance about ‘small amounts of money?’ Where do ISAs come into it? There are technical definitions of avoidance and evasion - and tax planning - and they are very much more sophisticated than this. What the research reveals is a range of misunderstandings, based on what respondents ‘may have heard… in the news.’
And how widespread is avoidance? The Compliance Perceptions Survey looked at how people perceived evasion. And it pointed out an interesting discrepancy. 31% of the SMEs involved thought evasion was widespread. 78% of employees and 78% of the self employed thought so too. But at the same time, 60% of the self employed and employees thought evasion was always unacceptable. In other words, claiming not to be involved in evasion themselves, they believe that many others are. We would seem to be becoming a very suspicious society.
The times they are a-changing
But what the surveys do suggest is changing attitudes to tax compliance - and the profession needs to be alert. If the public suspects, and is encouraged to suspect, that most people are dodging taxes, it is more likely to report the business down the road to HMRC. And that could be your client.
Tax used to be a very private business. Those with enough grey hairs will remember the days of Income Tax schedules A to F, an arrangement designed so that no third party could get an at-a-glance perspective of a taxpayer’s overall financial status.
We now move in a very different world. Publicity and communications play a key role in policy, from name them and shame them powers for the taxpayer in your street; to the macro level pillory for players like Google, Starbucks and Amazon. “Communications need to reinforce the perception that HMRC is cracking down on avoidance and that society’s perception of what is acceptable has changed,” recommends the research on avoidance scheme users.
Chinese whispers, though, don’t make a good basis for policy. A continual drip-feed of bad-tax-guy publicity means the public may be forced to form opinions on partial information, which is then relayed back in an insidious loop as research findings.
Does government really want HMRC to shape policy as a result of what respondents “may have heard… in the news?” Taxpayers and HMRC alike deserve better.