Tesco's tax avoidance schemes: Every little one counts

Food shopping when you are hungry is always a no-no.

The debate on "good" versus "bad" tax avoidance perpetuates a false idea that there is a continuous slope moving from innocence in tax matters through increasing levels of heinousness to imprisonable tax evasion. It suits HMRC to put forward this idea. In reality there is an absolute discontinuity where legal planning stops and tax evasion starts. The point where that discontinuity lies is defined by statute.

It's up to accountants and lawyers to highlight this point at every opportunity. Heaven knows the public are easily misled on this sort of thing. It's up to us to get the right message across.

If there is a moral point about the Tesco case, it is that the directors of a public company have a duty to use all legal means to maximise the return to their shareholders. You can extend that to the return to employees as well. If the directors have an opportunity, within the law, to avoid incurring a liability to tax, then there is no doubt they ought to pursue it.

I was trying to use a silly example to make a serious point. The Tesco case seems to have been about a purported distinction between "good" and "bad" tax avoidance. I agree with the judge that this is a meaningless distinction. Where I differ from M'Lud is that he seems to have said that they are both as bad as each other, whereas my view would be that they are both as innocent as each other.

I realise that in what follows I am going to sound like a disciple of Ayn Rand. I can assure you I'm not in that category. But there is a vital point to make.

There is a real and fundamental distinction, which unfortunately journalists seem not to understand, and which HMRC encourages politicians to muddy in the public mind, between tax avoidance and tax evasion. Tax avoidance (as in my chocolate digestives example) means not incurring a liability to tax in the first place. That is legal. Tax evasion means taking steps to get out of paying tax that is legally due. That is illegal.

Both politicians and HMRC persist with the message that avoiding incurring a liability to tax is a bad thing. They are basing that on the concept that there is an underlying moral principle that demands a "fair" contribution from all taxpayers. There is perhaps something to be said for that idea, but it isn't actually the basis for the system. Taxation is a creation of law, not morality. In other cases you can have laws that attempt to codify an underlying moral principle, such as the law against murder, to take an obvious example. Murder is wrong whether there is a law about it or not. The function of the law in a case like that is to try to match a pre-existing moral requirement. But tax law isn't like that. Taxation is the expropriation of the citizen's legal property, and it can be done only in conformity with express authority from clear and exact laws. Wasn't that what the English Civil War was fought over? (OK, I realise the Parliamentarians had a few other issues, but legal authority for taxation was one of their key points.)

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I would argue that any sort of biscuit is bad so you might as well go the whole hog and get the chocolate digestives.....

I'm sure its good. After all, the plain biscuits are likely to have less calories.... :)

I go into Tesco feeling hungry. I see some chocolate digestives. I like chocolate digestives. But...there's VAT on chocolate digestives. So, to avoid suffering that impost, I buy plain digestives instead.

That's tax avoidance.

Is it "good" or "bad" tax avoidance?