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A matter of tax and morality

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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.

13th Apr 2022
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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.

Home truths

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.

Camera inaction

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.

Replies (31)

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By Justin Bryant
13th Apr 2022 17:53

"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?"

"We must all be grateful to Ms Murty for donating tens of millions of pounds to the Exchequer."

Unless the second above comment is heavily sarcastic, the above comments are basically contradictory (the first one is correct). The fact is she's been found out (as almost certainly acquiring a UK domicile of choice on the facts with no realistic current intention to ultimately spend the rest of her days in India or elsewhere overseas - as she's married to a long term Brit with no such apparent intention either) and for her to now claim she's essentially volunteered to pay UK tax on her offshore income is a joke.

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Replying to Justin Bryant:
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By RayM55
13th Apr 2022 19:56

On the facts I suspect any challenge to her Indian domicile would fail. The short period of time she has been in the UK, her age, and the lack of permanence, evident from what she has said, all point to her not adopting and English domicile. It is also perfectly reasonable to speculate that they will stay in the UK only whilst Sunak’s political career is active.

In any event I am sure that she is well advised and with only three or so years to go before she becomes deemed domicile the arrangements in place will assure that we get little of her wealth.

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Replying to RayM55:
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By Justin Bryant
14th Apr 2022 09:46

I disagree for the reasons stated by me above. Her non-dom status only washes if her husband has the same intentions as her (hence their joint would-be GC trick).

If you were right then any old long term immigrant who marries an established Brit with an established English based family etc. can use the "I intend to look after my aged parents overseas in due course" excuse to retain their non-dom status indefinitely. If HMRC accept that as an excuse (especially in her case) then they clearly shouldn't.

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Replying to Justin Bryant:
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By RayM55
14th Apr 2022 10:16

Nonsense, no one knows what his long term intention is and even if he intends to remain here that does not mean she shares that.

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Replying to RayM55:
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By Justin Bryant
14th Apr 2022 10:55

By "especially in her case" I mean being married to someone who is for all practical purposes most unlikely to assert in a witness statement that he has plans to spend the rest of his days in India with her (and I'm sure her billionaire parents can afford the best elderly healthcare money can buy etc.). A lack of a WS from him can be prejudicial to her case by adverse inference under established case law.

Based on the current facts that's clearly not nonsense (unless they admit they do not intend to be married and living together long term), unlike pretty much everything you say.

As I said, if I were wrong then that could be used as a fig leaf excuse for any old long established UK resident non dom with a UK based family etc. (ignoring deemed dom rules of course).

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Replying to Justin Bryant:
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By RayM55
14th Apr 2022 17:00

It is quite obvious that you have very little experience in this area, nothing wrong with that. But I suggest you do some research as to the approach of the Courts over the years.

The assumption that because she is married to a politician she is thereby by inference assumed to have made a firm decision as to the rest of her life has no judicial support at all. And what is clear is that until now the Courts have demanded clear evidence, inference does not cut it and the burden of proof would be on HMRC.

And at the end of the day none of us know the facts.

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Replying to Justin Bryant:
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By Justin Bryant
14th May 2022 10:11

This Twitter tax bloke agrees with me:

"Dan Neidle
@DanNeidle
·
Apr 7
And it looks like this is Mrs Sunak’s rationale for Indian domicile not being lost.

Seems a reasonable technical position to take. But presumably means the Chancellor is also planning to leave the UK in say 10 years. Which is surprising."

Although he does not join the dots re their GCs.

Anyway, he's ex CC head of tax, so I guess RayM55 is the one with zero knowledge here.

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Replying to Justin Bryant:
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By RayM55
14th May 2022 18:01

Ha ha, if only you knew!

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Replying to RayM55:
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By Rgab1947
14th Apr 2022 15:19

I personally dont care two hoots of her wealth (Good luck to her). I also find Non-dom status normal. After all there are many living and working here in the UK (especially in the financial sector) who are on secondmend or for a 5 year or less stay with every intention to return to their home countries. I do think 15 years is too long a period though.

But take serious issue that a person married to the Chancellor uses the (perfectly legal) non-dom election to avoid tax and by her election is making clear she does not see the UK as her permanent home. But then neither did the Chancellor with his Green card.

I like my rulers to have some commitment to the country.

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Replying to Rgab1947:
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By rockallj
19th Apr 2022 13:05

Rgab1947 wrote:

I personally don't care two hoots of her wealth (Good luck to her). I also find Non-dom status normal. After all there are many living and working here in the UK (especially in the financial sector) who are on secondment or for a 5 year or less stay with every intention to return to their home countries. I do think 15 years is too long a period though.

But take serious issue that a person married to the Chancellor uses the (perfectly legal) non-dom election to avoid tax and by her election is making clear she does not see the UK as her permanent home. But then neither did the Chancellor with his Green card.

I like my rulers to have some commitment to the country.

Agreed, it's up to HMRC establish whether non-dom status is applicable, which appears to be perfectly legal and legitimate in this case. We would be remiss and lacking in professional duties & judgement if we did not do so for our relevant clients.

My issue is the apparent lack of commitment in the chancellor to his long-term future of the UK, when he is responsible for major tax-policy. Everyone one else will have to abide by the rules and parameters he sets when he jets off into the sunset.

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By SteveHa
14th Apr 2022 08:55

I can't help but wonder what benefit there is to the Sunaks of her agreeing to pay £millions in the future to save his £151K PA job. There is almost certainly an imperative, but I can't think what it might be.

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Replying to SteveHa:
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By Justin Bryant
14th Apr 2022 09:39

In my view they both know they've been rumbled for the above reasons and so that's a sunk cost.

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Replying to SteveHa:
By ireallyshouldknowthisbut
14th Apr 2022 12:17

SteveHa wrote:

I can't help but wonder what benefit there is to the Sunaks of her agreeing to pay £millions in the future to save his £151K PA job. There is almost certainly an imperative, but I can't think what it might be.

heh you are funny. Anyone would think whole point of Sunak being there is to ensure taxes on wealth stay low and look after his friends and family, and ensure donors to the party are well taken care of. That is his mission. The £150k is pocket change in the income he will make whilst there whilst exploiting his position of power. Its no accident CGT is still at Osbourne levels. Who of course got paid a huge amount of money by BlackRock in "consultancy" fees for hiking up ISA limits and dropping the taxes on investments amongst other kind gifts to the sector.

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By matthewleitch
14th Apr 2022 14:06

Does anyone know if Ms Murty has paid tax on the relevant income in another country? I understand she hasn't paid in the UK, but what about paying elsewhere?

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By tedbuck
14th Apr 2022 15:02

Morality aside, I think that if she has not broken the law what she does with her money is up to her. And it shouldn't be in the public domain so whoever let it out should be prosecuted under GDPR. Bet they are not though.

Have I heard the same shouts about the Russian football club owner and the like whose wealth appears to have arrived by devious means. Still he owned a football club so that's all right.

Did I also read that NHS consultants, rather than attending to NHS cancer patients during Covid were privately doing lots of cosmetic surgery - but that's the NHS so that's all right.

And wasn't HMG throwing our money at Covid PPE etc - not to mention a Test and Trace system that didn't work and was never likely to but that's all right because that's the Government.

And the boast, seen recently that HMRC had just about doubled its receipts from IHT. That's the tax that takes 40% of people's hard earned and taxed money just because they are dead and it's easy to do. But that's the Government again so that's all right.

Never mind the fact that HMRC are so incompetent that it can take them 8 months to make a Corporation Tax repayment and as for answering letters - forget it. But it's HMRC so that's all right.

One wouldn't mind paying the taxes if the money was wisely spent but politicians are purblind and just grab at any chance for more taxes.

I didn't mention inflation but look at the taxes which benefit from inflation - IHT, SDLT,CGT all tax inflation which HMG are supposed to contain. We used to have indexation allowance which helped with the CGT but Cameron/Osborne killed that at the same time they started the hate campaign against BTL investors.

Don't notice them having a go at the footy players do you?

I think the world has lost its sense of perspective egged on by a totally irresponsible media not least the BBC who, guilty of helping their people to avoid/evade tax, are quick to pick on anyone else who might be accused of the same thing. But that's OK because the BBC are unbiased -aren't they??????

The world ain't what it used to be, I'm afraid.

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By Charlie Carne
14th Apr 2022 16:07

A number of people on here and in other related posts seem to be suggesting that HMRC could (or even should, in their opinion) determine that Akshata Murthy has acquired a domicile of choice in the UK due to her moving to the UK and their belief as to her long-term intentions.

I am no expert on the tax law around domicile, but my understanding is that the "choice" in a domicile of choice is solely that of the taxpayer and that, if the taxpayer does not actively choose to apply for a domicile of choice, then their domicile of origin will automatically apply until death, even if they appear to retain no ties to the country of their domicile of origin (which, by the way is clearly not the case here, as the vast bulk of her wealth and extended family ties are still in India).

Per HMRC's Residence, Domicile and Remittance Basis Manual at RDRM22300:

"A domicile of choice can only be acquired where an individual is both:
- resident within a territory subject to a distinctive legal system or ‘municipal law’
- intends to reside there indefinitely (refer to RDRM22320)
Acquisition of a domicile of choice requires the concurrence of residence and intention*, although either may exist independently prior to the other."

[* my emphasis added]

So, even if HMRC could unilaterally determine a domicile of choice based upon their interpretation of the facts, the taxpayer need merely state that their intention was to go back to the place of their birth at some point (which may not be until they've retired). To argue that this cannot be the case because she is married to a Brit, is to suggest that she remains a chattel of her husband, unable to exercise her own free will!

I am aware that HMRC may deem a foreign domicile of choice to no longer be applicable and revert a taxpayer to their domicile of origin if that origin was the UK, but this is the power to revert a dom of choice to dom of origin, not to create a dom of choice when one has not been made.

As I say, this is not my area of expertise, so I'd be interested to hear from someone who has professional experience of this area of tax law.

EDIT - I note that Philip's article was written on the subject of the morality of tax and my contribution above pays no heed to the morals or otherwise of using domicile to reduce one's tax bill. The purpose of my post was to question the interpretation of HMRC's powers over choice of domicile. As to morals, I have posted elsewhere this week on AWEB about my views on that.

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Replying to charliecarne:
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By RayM55
14th Apr 2022 17:20

Typically the Courts have examined the lack of intention to remain by considering the circumstances in which the person says they would leave. A credible basis would normally swing it.

So I will leave when I’m 80 would most likely not work, I will leave when my work contract finishes probably would. My children are at school here and I will leave when they finish would also probably work.

However the longer the person had lived here the more credible that circumstance would need to be.

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Replying to charliecarne:
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By RayM55
19th Apr 2022 17:00

Agreed although it would be possible to determine on the evidence, drawing such inferences as may be necessary that she has adopted an English domicile of choice.

On the available facts I don’t believe a Court would make such a finding at this time or in the near future. And since she can no longer access the remittance basis in three or so years the whole point is largely academic.

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By rockallj
19th Apr 2022 13:16

I'm sure than domicile of origin (DOO) is easier to prove then domicile of choice (DOC).
Especially if you're trying to shed UK DOO for a foreign DOC having left the UK with the intention of it being permanent.

I still think politicians (who do not understand the rules i.e. most of them) conflate residency with domicile. No doubt Ms. Murty will be worse off not claiming non-dom in the UK, but it not may be as much as some are hoping depending on the details of the double tax treaty with India.

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By maasrw
19th Apr 2022 15:46

There seems to be a misconception that domicile is a matter of choice. It is not; it is a question of fact. My concern is that Ms Murty may have been bullied by the press and the Labour party into lying to HMRC. I suspect that if her marriage to Rishi were to break down she would return to India. If that is right she will not have acquired a UK domicile of choice. She can, of course, pay tax as if she were UK domiciled and can forbear from claiming the benefit of the remittance basis, which is what she appears to have done, but that says nothing about her domicile.
I should also take up Philip's challenge on film schemes. Most of these raised very little finance towards making films. The money subscribed by the s0-called investor was put on bank deposit. I accept that the deposit enabled finance to be raised, but it is fatuous to think that a major film producer, such as Disney, could not have raised that leveraged finance itself.

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Replying to maasrw:
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By RayM55
19th Apr 2022 16:56

I suggest that Mrs Sunak has had no exchange with HMRC other than to tick the domicile box and claim the remittance basis on her SATR so no question of her lying will have arisen.

Far too much analysis is being undertaken on social media when in truth we don’t know the facts. And worse, many of those making these pronouncements seem to have little idea what they are talking about.

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By TASG
26th Apr 2022 11:45

Mr Thornhill was sued in this case by sophisticated investors who could and should have known better than to rely upon his opinion, and I therefore agree with verdict. But how was his professional opinion formulated?

Mr Thornhill was fined a mere £10,000 for acting as an impartial adjudicator in a property dispute after entering into a £500k business arrangement with one of the parties - the party whose side his arbitration award favoured (https://www.lawgazette.co.uk/top-qc-fined-10000-over-payment-in-property...), bringing further ill repute to the bar since he went bankrupt in 2017.

I am confident that the notoriously toothless BSB will decline to examine if sufficient skill and care were used in formulating the opinion.

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By Mad as a March Hare
01st May 2022 10:22

The purpose of an accountant is to minimise the tax liability of a client and to maximise the client's profits, and to advise the client as to what he can legally do to achieve those aims.
If you want to advise clients about morals I suggest you give up accountancy and become a vicar.

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Replying to Mad as a March Hare:
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By RayM55
01st May 2022 12:51

Mince!

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Replying to RayM55:
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By Mad as a March Hare
02nd May 2022 19:19

RayM55 wrote:

Mince!

I would respond if your comment made any sense. All I can assume is that you were writing your Tesco shopping list and wanted to make a cottage pie.

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Replying to Mad as a March Hare:
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By RayM55
03rd May 2022 07:56

I was using the shortest word I could think of, actually a Scottish term, to indicate that I thought you were talking complete nonsense.

There is no such obligation on any accountant and if in your professional life you disregard morality (call it wise/sensible/self aware, whatever you like) as to guide to where the line should be it will not be long before you or your clients lose sight of where the criminal line is.

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Replying to RayM55:
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By Mad as a March Hare
03rd May 2022 09:42

Of course there is an "obligation" to minimise your clients tax liability and maximise retained profits, why else would they pay you?
I clearly stated “advise the client as to what he can legally do to achieve those aims”.
Your morals will almost certainly not be those of your clients and what gives you the right to impose your morals on others? There are a lot of people out there who object to paying taxes spent on nuclear arms, maybe you do, but the law says that £x tax is due regardless of what the Government choses to spend it on. You might think it morally wrong to pay employees only minimum wage, but it is not for you to dictate business decisions to your client. Does a vegetarian accountant refuse to act for a butcher? Does a tea total accountant refuse to act for publicans? Does a Christian accountant refuse to act for atheist clients?
Morals (or lack of them) are a private matter for the individual, not something that should be imposed on others.

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Replying to Mad as a March Hare:
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By RayM55
03rd May 2022 11:26

This is just more of the same, your analogies are all wrong, we are talking about morality in the context of tax.

There is a spectrum ranging from fine to criminal but there is within that spectrum a range of activities which although legal would in the eyes of many be considered wrong. And to repeat if you simply close your eyes to that objective reality then it is only a matter of time before you are on the wrong side of the line.

If that happens, don’t say you were not warned.

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Replying to RayM55:
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By Mad as a March Hare
03rd May 2022 11:44

Something is either legal or not legal. There is no in between. Stating that there is “a range of activities which although legal would in the eyes of many be considered wrong” is utter rubbish. There are people who think that the rich should be taxed at ridiculous rates, and others who see no reason why they should pay more than others. If it’s legal then it’s legal and it is not your place to “consider” it anything but legal. If you don’t approve of a legal way to reduce your client’s tax then speak to your MP and get the law changed. Until then if you fail to reduce your client’s tax liability by legal means then you are acting unprofessionally and failing your clients.

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Replying to Mad as a March Hare:
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By matthewleitch
03rd May 2022 12:07

There are situations where a tax scheme suggested by a tax advisor is unethical even though it is unlikely to lead to prosecution for breaking the law. (1) Where the scheme is designed to be undetectable. (2) Where the scheme deliberately exploits uncertainly about the exact interpretation of the rules in the hope that the tax authority will not risk wasting money on what might be a wasted legal action. (3) Where the scheme is an imaginative exercise to exploit a loophole (i.e. a wording of the law that fails to capture perfectly the intention), and every reasonable person can see that the scheme is against the intention of the law.

Tax advisors who do any of the above bring discredit on themselves and their profession.

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Replying to Mad as a March Hare:
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By RayM55
03rd May 2022 15:20

I suppose if the name fits! I suspect you know that you are talking nonsense so there is no point in continuing this conversation. Matthew Leitch has is right.

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