A matter of tax and moralityby
A recent statement by the Chancellor of the Exchequer’s wife raises fascinating issues about the morality of tax avoidance. Philip Fisher begs for simpler tax legislation and asks whether it is time for taxpayers to behave morally.
The past couple of weeks have not been good for Rishi Sunak’s ambition to become the next Prime Minister. At the beginning of March, there seemed every prospect that he could be in place by the middle of the year.
However, following a Spring Statement that generated almost universal opprobrium, the Chancellor of the Exchequer’s fortunes were significantly damaged.
Unfortunately, that soon became the least of his concerns, with the latest revelation that he broke the law by attending BJ’s birthday party and appears to have lied to Parliament about it.
This revelation came hot on the heels of news that Mrs Sunak, who prefers to go by the name of Akshata Murty, garnered unwelcome front-page headlines when somebody (depending on which rumour you believe either the Labour Party or the Prime Minister) leaked the information that she was not domiciled in the United Kingdom.
In principle, this would seem to be of little relevance, were it not for the fact that Ms Murty took advantage of that status to save a reputed £4m of UK tax every year.
Initially, using the kind of defence that Boris Johnson has made his own, the Sunaks informed the media that everything was above board and strictly legal.
That may well be the case, although HMRC really should be investigating the validity of Ms Murty’s non-dom status and whether she really intends to make a permanent home in India. After all, she informed the US tax authorities of an intention to make her permanent home there. How many permanent homes can you have, even if you are a billionaire?
By Friday, the pressure had got too much and the Chancellor’s wife declared that, in future, despite the fact that she was perfectly entitled to do so, she would cease to claim UK non-dom tax relief on income arising overseas.
Bravely, the justification that she put forward was that this was morally right. Nobody has actually picked up on the point that she would presumably accept the premise that previously her behaviour had been immoral. More echoes of dear old BJ, some might think.
It also begs the question as to what goes on in the Sunak household when they discuss moral issues over the breakfast table, since the Partygate denials, while hardly on a Johnsonian scale, stretch the bounds of morality beyond any normal limit.
In taking a strictly moral stance, Ms Murty has brought to the fore a generally well-hidden debate in accountancy and legal circles about whether morality has anything to do with taxation.
Last week’s column looked into a legal claim by those who subscribed to a failed film partnership scheme and unsuccessfully sued Andrew Thornhill QC, who reputedly gave an opinion that it was valid.
This might seem a controversial statement but, in my view, film partnerships were designed to assist the UK film industry to make more films. However, many of my colleagues, not to mention some very distinguished QCs, regard them purely as means of reducing UK tax liabilities, with actual films no more than a minor irritation.
Is this moral? If you think the answer is yes, please respond but ensure that you provide a full justification.
There is or is going to be a fine line between uncontroversial tax avoidance planning, slightly more aggressive behaviour and schemes that Ms Murty and even her husband would regard as immoral.
It is hard to imagine that many would take issue with those who invest in pension schemes, thereby obtaining upfront tax relief, at the expense of paying tax when future withdrawals are made.
The middle ground might include simple inheritance tax planning but probably not taking a cash payment for services and failing to declare that for VAT or income tax purposes.
Where the morality alarm bells should go off will vary from individual to individual. Much of the tax planning done by the super-rich involves complicated trust arrangements, companies in tax havens and obfuscation to ensure that nobody in the tax office will ever manage to discover the identity of an asset’s owner or owners.
One imagines that the majority of the population would score this as failing to pass morality test, especially if they were told that the initial funds had been obtained illegally and then laundered through the City of London.
Frankly, our legislators have a lot to answer for. The tax statutes have become overly long and complicated, allowing canny barristers to find loopholes aplenty, thereby taking advantage of opportunities to rob (deprive if you prefer) the Exchequer for the benefit of their clients (and indirectly themselves and other professionals).
Well-meaning attempts to redress the balance, for example by instituting a General Anti-Avoidance Rule, have had little practical impact.
Within the word of the law
Many accountants reading this column will undoubtedly take the view that anything that is strictly within the word of the law is permissible. That is indisputably true, provided that schemes do manage to remain within the scope of the law, which isn’t always the case.
The problem is that, to quote Charles Dickens through the mouth of Mr Bumble in Oliver Twist, “the law is an ass”, and in order for it to operate in the manner intended by Parliament, the only solution is to beg taxpayers, typically those at the very top of the income and wealth scales, to behave morally, that is, pay more tax than they strictly need to.
We must all be grateful to Ms Murty for donating tens of millions of pounds to the Exchequer. That is unless she rearranges her financial affairs to prevent that outcome.
If the good lady wants to complete the job, she might ask her husband to find a way of introducing a morality clause into tax legislation, before the couple emigrate to the United States.