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Tax Evasion - Denial Is Dangerous

15th May 2013
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Judging by the responses to recent columns addressing the government's attacks on tax evaders, many advisers do not seem willing to acknowledge the problem.

As we know from fictional dramas, the best way to overcome a weakness is to recognise it. Whether this is alcohol, Class A drugs or merely enjoyment of rich food, denial of addiction is almost always the prelude to a disaster.

In last week's column it seemed sensible to try and distinguish between various different types of tax mitigation activity.

Arranging one's tax affairs in the most effective manner is both legal and commendable. For example, the writer has a national savings account that pays interest gross. Few readers are likely to regard this as unacceptable behaviour.

Tax avoidance somehow sounds a little more sinister following unwarranted attacks from all and sundry, though it should not. This is perfectly legal as a matter of principle so what is the issue?

Things get a little more interesting when we address those new terms created by Mr Osborne and his friends, aggressive and abusive tax avoidance. They should still be legal, if on occasion they might leave a bad taste in the mouth.

However, as we keep hearing, morality has nothing to do with taxation and certainly many practitioners take the view that if the legislators are stupid enough to create loopholes in the law that allow the very rich to pay less tax than they should it is a positive obligation to take advantage until the law is changed.

The position has become more confused with recent court decisions, such as PA Holdings, that have apparently overridden the strict wording of the law in favour of a more purposive interpretation of the intentions of the lawmakers.

Up to this point, it is unlikely that many readers will have taken issue with the analysis of the current state of affairs. Where there appears to be a more serious dichotomy is between the man on the Clapham omnibus who sees all tax mitigation as an affront and those who do not appear to accept that tax evasion exists at all.

Last week's article looked at yet another impending attack on those who choose to evade tax. To take a simple example, one might look at somebody who has made a significant profit from a transaction in the UK some years ago, perhaps the sale of an investment property, and put the proceeds into an anonymous bank account in, for example, Lichtenstein. From that day to this, they have declared no tax in the UK or anywhere else on either the sale proceeds or the interest received each year.

Those of us that work in larger firms of accountants have investigation departments that assist those who get into exactly this kind of pickle and are either troubled by their consciences, inherit a problem from a deceased relative or get found out by HMRC and don't fancy a spell in jail.

The strange thing is that every time an article gets written about tax evasion, there appears to be a stream of correspondents eager to explain that it is perfectly legal to use every loophole written into the law.

What they fail to address is the fact that this country loses billions of pounds every year in tax revenues as a result of illegal activities similar to that described above and in many cases, very much worse.

It is time that we all make every effort to throw opprobrium on these fraudsters and, in this way, distinguish between their activities and those who are utilising perfectly valid avoidance techniques, accepting that there could be different definitions of what is within the law.

If we do not, there is a severe risk that both the accountancy and legal professions will begin to get tarred with the same brush as Members of Parliament, diving footballers and pickpockets.

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Replies (10)

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By D G
15th May 2013 23:48

If only

"If we do not, there is a severe risk that both the accountancy and legal professions will begin to get tarred with the same brush as Members of Parliament, diving footballers and pickpockets"

 

If we get paid the same money as diving footballers then I'm all for it :)

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Replying to possep:
Philip Fisher
By Philip Fisher
16th May 2013 10:08

But...

Despite considerable effort, I still haven't found anyone willing to pay a mint for my image rights.

What has Mr Beckham got that the average accountant lacks?

Answers that will fit in a tweet please.

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Replying to Kent accountant:
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By D G
16th May 2013 10:33

Answer

Philip Fisher wrote:

What has Mr Beckham got that the average accountant lacks?

Posh Spice ? 
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Replying to Kent accountant:
By Satwaki Chanda
23rd May 2013 09:22

He has the press on his side

 

Philip Fisher wrote:

Despite considerable effort, I still haven't found anyone willing to pay a mint for my image rights.

What has Mr Beckham got that the average accountant lacks?

Answers that will fit in a tweet please.

They created him. In the same way they created Anna Kournikova.

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By Flash Gordon
16th May 2013 11:48

@ Philip

What has Mr Beckham got that the average accountant lacks?

A pair of rolled-up socks strategically placed in adverts?! 

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By The Black Knight
17th May 2013 12:59

Shame!

Shame the article does not understand the difference between Avoidance and Evasion?

Two completely different things!!!!!

P.A. holdings did not change the letter of the law, only confirmed that substance over form was was an important taxation and accounting principle?

For the non accountant that's "if it looks like an elephant and smells like one then there's a good chance it is one"

As an accountant you have the pleasure of the majority not understanding what you do. Either an expensive adding up machine, or a tax fiddler. Both completely wrong in the vast majority of cases.

The tax avoidance problem is largely HMRC's fault because they are useless.Take it to the tax tribunal and make the point. (a separate tax tribunal would be useful instead of an it's not fair penalty appeal tribunal would be useful)

The tax evasion problem is HMRC's fault because they are useless. A few COP9 Letters and prosecutions would sort that out? But no we waste our investigation resources chasing unfounded stupid arguments about private telephone add backs, just because we couldn't find anything else.

They can't even be bothered to raise determinations on late tax returns...soon speeds things up unless it's an under.....ooh dear I've given away a clue?

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By nairsanty
18th May 2013 10:10

Lawmakers intention

What I recollect from a tax case law from the text books during my student days is that "intention" of the lawmaker / parliament is not considered for application of tax law.  The lawmaker's intention of a tax law is single and straightforward - to tax !  And this is why courts have to interpret tax law by its strict wordings.  I believe this concept has been set in precedent case laws for a long long time.  (somebody please correct me if I am wrong)   So if we have courts now moving towards "intention" of lawmaker, this will only bias all tax case judgements against the taxpayers !

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By andrew.hyde
20th May 2013 09:25

Lawmaker's intention

'The lawmaker's intention of a tax law is single and straightforward - to tax !' 

Not quite that simple, surely.  What's the intention of, for example, the Capital Allowances Act 2001?  Or Chapters 3-4-5 of Part 15 of the Corporation Tax Act 2009 (it's about Film Tax Relief, since you ask).

Both these enactments are beloved of avoidance specialists by the way.

A lawyer (which I'm not) will probably point out that 'intention' is just one of several methods of interpreting statute.  The tribunal's, or judge's, job is to decide which of these methods is most appropriate and then to apply it.

Incidentally I have my own Posh Spice at home and I wouldn't exchange her for all the footballers' salaries put together.

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By Simpsonm
21st May 2013 13:02

A colleague of mine whose company was liquidated 18 months ago rents a chair in a hairdressers.   He boasts of running two companies side by side providing funds each week to those companies.   His prices are extortionate and I fail to understand how this is legal.  He does not qualify for VAT or TAX .  Is this legal

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By andrew.hyde
23rd May 2013 09:42

Kournikova

What has Anna Kournikova got that the average accountant lacks?  A devastating double-fisted backhand? Or something else?  Answers on a postcard.

PS

'Denial is Dangerous'

It certainly is.  If you fall in, de crocodiles get you. (Sorry.  They made me do it.)

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