Taxgate - Round IV - 10 (Controversial?) Conclusions

Philip Fisher
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Should we be jumping up and down about this week's sensational tax avoidance revelations or laughing them off as part of life's rich pageant?

It has certainly been a lively week in the world of tax. Not too long ago, this column suggested that Tax might be the new football in terms of profile.

It is always good to feel that you are involved in something exciting and many tax practitioners would probably believe that their profession was always sexy. Unfortunately, following the recent media coverage all this week in The Times and elsewhere, certain parts of our sexy industry might begin to look pornographic to the outside world.

Having had the spotlight shone on a number of different tax avoidance schemes from the perspective of the front, leader and inside pages of one of the nation's premier newspapers, this may be a good time to reflect on the lessons that should be learned from the investigation into these “tax avoidance vehicles with a commercial veneer” to quote today’s leader.

1.       There is absolutely nothing wrong in minimising one's tax liabilities provided that the means used are legal. It is worth emphasising that there is no concrete evidence that any of the schemes cited in The Times is anything but.

2.       It seems from some responses to this column that there is a dichotomy between those who believe that following the letter of the law is never wrong and others who think that the purpose behind the legislation is also important. The courts have certainly begun to follow the latter route and if for example the word "not" had been accidentally omitted from a piece of legislation, would anyone really expect that the polar opposite of the original intention should be applied? This does make some questions about the quality of statutory drafting, which might be a topic for another day.

3.       The relationship between tax avoidance and morality has been a big issue. Should all of us in every sphere of life consider the wider impact on society before taking action? Taking things further, is there anything worse about saving several millions of pounds of tax by entering into a scheme that is technically permissible than "forgetting" to put a £50 payment for a quick bit of DIY on to your tax return? Others can draw their own conclusions.

4.       Jimmy Carr is worse than a mass murderer. Of course he isn't. All that the comedian did was follow some very rich sheep into a scheme used by thousands of his peers. He has been the unfortunate victim of a newspaper exposé that could just as easily have picked on a number of other high profile figures.

5.       From the reports in The Times, it appears that the schemes under scrutiny may well not stand up to the full rigour of a legal attack. If that is the case, then the morality question goes out of the window as all of the beneficiaries will be obliged to pay the tax with interest and penalties.

6.       The lack of resources given to HMRC by successive governments has left them in the embarrassing position of having a journalist doing their dirty work for them. It is good to know that the Revenue are investigating some of the highly publicised tax avoidance schemes that we are hearing about. It would have been far better if they had concluded their investigations long ago or possibly sent out the kind of intervention letters that ordinary taxpayers get. This would have fired a shot across the bows of those in the schemes and quite possibly dissuaded them from making further investments.

7.       Will the much heralded General Anti-Abuse Rule eliminate these kinds of schemes? There seems little doubt that such a consequence would justify its introduction in the eyes of the legislators.

8.       In order to create a level playing field in which the ultra-rich are paying the levels of tax set by Parliament, HMRC needs to have the manpower and knowledge to counter or at the very least investigate as many questionable tax avoidance schemes as possible. It is not apparent that this is the case.

9.       Some may wonder why the current initiatives of that august body are attacking people supplementing their income with a few sales on eBay or a bit of extra-curricular teaching. The amount of money that could be recovered from such tax evaders will be minimal, probably no more than the savings by a single person under some of the schemes currently hitting the headlines.

10.   What impact will this week's revelations have on the tax avoidance industry. There are two conflicting possibilities. The first is that many potential investors in such schemes will believe that the risk of public opprobrium or harassing by HMRC is too high to countenance. The second is that others might have had their eyes opened to the chance of reducing their tax rate to practically nothing and will be desperate to leap on the bandwagon.

It will be interesting to see HMRC's next steps. Will they go to the intervention letter route, assessments or possibly some amnesty-style settlement for those who want a quiet life? Then again, they might give all of these schemes a clean bill of health in which case we will all pile in.

This has certainly been an exciting week for those of us embroiled in the apparently murky world of tax. Discussing these issues with other practitioners suggests that almost all would be grateful for a closure of some of the schemes that are likely to get the profession a bad name.

On the other side, a different faction will believe that as long as the schemers create plans that remain within the word of the law they are doing nothing wrong.

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