When did paying less tax become morally questionable?
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Until .gov.uk acquires the rights to dictionaries ........
the definition of avoidance is, "Minimizing tax liabilities legally and by means of full disclosure to the tax authorities". On that basis, putting contributions into pension schemes, using ISA's, EIS, VCT, timing capital expenditure in a business are all avoidance, timing dividends and share ownership in private companies. They all reduce tax liability; they are all legal and they are all disclosed. I detect no rule bending to gain advantage.
HMRC's definition is intended to colour the meaning by introducing emotion to it. In doing so, it is an attempt to say, "if HMRC does not like it then it is not what Parliament intended".
If the legislation is unclear or capable of different interpretation it is for the Courts to examine. The Court looks to see if the legislation bears that interpretation then regardless of Parliament's intent then the law is the law. If it is ambiguous then the Courts are allowed to look at what Parliament intended.
Whilst our Parliamentary democracy may produce some apologies for representatives it is the public that elects them; the are not appointees of a committee chaired by Liz Homer.
its not moral at all .. its just the law
its nothing to do with morality.. and politicians are not really in a position to talk about that given the way many of them behave.. so dont feel bad about minimising your tax liabilities ..tax schemes are only there because governments generate stupidly complicated tax legislation (and pay large amounts of money to those who draft it,(sometimes very badly)
and as for hmrc ..even though their officers will tell you they also pay tax too , even at the higher rate,... but they should remember their nice little civil servant salaries are a 100% tax on the rest of us
finally.. just think about how much of your money you see wasted.. now thats the real moral issue that governments dont like to talk about
Funnily enough ...
... most of those who moan about tax avoidance either do substantial amounts of cash jobs themselves or pay no tax as they are in receipt of benefits.
However, contrived schemes to avoid tax are not the same as using the appropriate law to pay the least tax, but the law needs to be clear and specific, it was changed to stop companies buying losses, the current schemes are no different.
The problem is the 20% avoiding 80% of the tax as a "scam" queer the pitch for the genuine 80% who are "entitled" to relief for the other 20% as a natural and just result of their genuine endeavours.
Defining avoidance
I don't think anyone has seriously tried to displace the dictionary definition here. It's worth noting that Section 206 Finance Act 2013 refers to a 'General Anti-Abuse Rule'. The word 'abuse' is IMHO a more accurate description of what Lesley Stalker classifies as 'stage 3'. Furthermore it carries a fairly light baggage in terms of morality connotations.
BTW what would be classified as stage 5? Just asking.
Personal morality....
The thing about morals is that they are personal.
If enough people feel the same way morally, then the law is usually changed to accommodate that consensus.
There are lots of people in the UK who think adultery is morally wrong but not enough such that the law is changed to make it illegal. In some countries it's illegal and you can be stoned to death for adultery.
Some people think you should drive past schools at 19mph even if the speed limit is 40mph but if you happen to be doing 39mph you aren't breaking the law and nor are you guilty of 'speeding fine avoidance'. If people want things changed they should campaign to change the speed limit to 20mph and not start chucking bricks at those driving past at 25mph.
As far as tax is concerned, there are some stupid laws which can trip people up so they end up paying more tax than is 'fair' but the taxman is under no obligation to adopt a 'moral' approach and let the person off. I can't work out why taxpayers are supposed to have regard to fairness and morality when HMRC do not.
As for MPs. If I recall correctly, when the expenses scandal broke, they all said they were following the rules and it was the rules that needed changing and (for the most part) no they didn't see any reason to refund any expense or tax they had gained by.
And finally, is it just me or has morality only become important since the government ran out of money and needed more?
In parallel
Quite a bit of my work involves NI avoidance. We never hear about that, so I presume it's all right. Of course, if the politicians would like to start talking about national insurance...
Morals
Since when did this Tory Government have any Morals. ( reduce the poor to the gutter)
All right for the plebs to have morals but millionaire politicians no chance.
Knee Jerks!
This witch hunt - since that is what is happening - is simply a Government so incompetent it can neither arrange the economy effectively, nor balance its own fiscal accounts, reacting to serial bad press emanating from such as Starbucks, Google, Apple, Amazon et al, creating clever and arcane corporate ownerships and tax strategies which optimise dual taxation treaties.
Joe Public, struggling under the burdens of static wages and salaries, (effectively fixed at ten year old values), ever increasing direct and stealth taxes; greedy utilities and energy suppliers and generally rising living costs, reacts angrily over media constantly reporting on Tax Avoidance.
Since the turn of the last century, the system of taxation of income has enjoyed robust checks and balances: any aggrieved taxpayer could escalate their concern through the courts and indeed, take matters right to the House of Lords (Now Supreme Court).
The system worked, and worked well, by the Revenue raising assessments, the taxpayer disputing them and eventually statutory law was, as it always is, decided and determined by precedent.
Previously, when a taxpayer's advisers mounted a cleaver interpretation of tax codes, if the Revenue was unhappy, then they challenged: and eventually, the clear outcome was enshrined in statutory law. Not content with this, Labour decided to create a new system of HMRC acknowledging a "Scheme", giving it a number and demanding employed schemes be entered by registered number on tax returns.
However, this concept simply played into the Revenue's hands! Since they could then challenge and test any new scheme, and reject many, without facing due process of law: the thin end of the wedge.
APN's etc are the inevitable outcome.
Perhaps in conclusion, it is well worth remembering the summing up of Lord Clyde.
"No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.
James Avon Clyde, Lord Clyde, Ayrshire Pullman Motor Services and Ritchie v. IRC (1929) 14 TC 754."
Not just the Tories!
Millionaire Politicians?
How many Labour and Lib Dem politicians are millionaires? Do you actually think they are any different?
Just because they are Labour/Lib Dem does not mean they behave any more morally than Tory millionaires and just because you are Tory does not mean you automatically behave immorally!
Tax avoidance/evasion
As Dennis Healey so accurately said, the difference is the thickness of a prison wall- and that covers cash transactions.
Is paying your builder in cash conspiracy to cheat the public revenue?
On morality and tax planning, either we are taxed by law or by confiscation.
If by law what if we abuse that law- or as HMRC express it, use the law"in a way Parliament did not intend". Given the ridiculous volume of tax law, how can anyone know what Parliament intends?
The Courts struggle with badly drafted laws all the time, but only in very rare cases do they seek to address the question outside the words of Statute ie Pepper v Hart.
There are good practical reasons not to abuse tax laws, as failure can be extraordinarily expensive, but either what is done is lawful or it is not.
"Equity and taxation are strangers"
'Nuff said
"Every man is entitled to order his affairs so as that the tax is less than it otherwise would be"
Lord Tomlin
I think the key word here ...
"Every man is entitled to order his affairs so as that the tax is less than it otherwise would be"
Lord Tomlin
... is "order"!
Most would have no problem with that, it is when "order" is replaced by "contrive" that a gulf appears in what is acceptable to whom.
The first puts the horse before the cart, the second quite clearly the converse.
How do we know ...
... what Parliament intended? The annual Finance Bill receives minimal scrutiny from MPs before being passed more or less on the nod. Most MPs are either incapable of understanding the complexities of the tax legislation they are passing or cannot be bothered to put in the effort to achieve understanding. Hence Parliament itself doesn't actually intend anything. The Treasury and HMRC officials who draw up the Bill may intend something but we'll never know what that is.
And what, exactly, is the definition of a loophole?
salary v dividend
I have never quite understood why pension provision is often overlooked when the objective is to reduce National Insurance liability.
This will be even more necessary when the new rules come into effect from 2015-16.
TAXATION
Taxation in all its guises is the appropriation of someone's income. It is not nice - it is in itself immoral - but it is necessary.
Therefore it should be used to the minimum necessary and individuals and companies should be encouraged to exploit so-called loopholes - some of which were probably expertly designed by those highly paid consultants employed by HMRC.
And as to higher rates of tax - why? Surely we should encourage people to earn more and so pay more tax, rather than to scare them away (Like Mr Hollande), or to seek out alternative methods and locations.
The problem is that governments just cannot prevent themselves from dreaming up new ways to tax and spend, in the same way that the EU bureaucrats continue to dream up new laws (because that's what they are employed to do), which means that they will never run out of ideas. I think that is called Peter's Principle.
Tax simplification instead of using it for social engineering. I can hear the grunts from here!
It's that sscotsman....
Morality came into tax when Gordon Brown went on and on about paying the "right amount of tax".
In his view the right amount was the highest amount, but as has been noted above there is no obligation to do this.
However with politician after politician, of every hue, echoing this cry the distinction between avoidance and evasion has become deliberately obscured.
The politics of envy mean that every worker who has to pay PAYE and NI as an employee as they cannot change the way they are paid is envious of those who have the means or intelligence to mitigate their total liability somehow. Generally it is not only the mitigation but that these peopel earn far more than the "man in the street". Politicians have seen this as a way of being popular.
Take banker bashing. For every bonus of £100,000 paid to bankers the take by the Treasury is higher if it is paid to the banker under PAYE than it would be if the bonus was not paid and the company retained it as profits. Do the math and prove it for yourself. However it is politically expedient for politicians to bemoan the large amounts of pay as it may gain them some votes.
Is it morally wrong to have a family company which earns £100,000 before owners drawings and to pay salaries of £50,000 to H & W or to just pay £100,000 to the husband. Think about how much more the government would get in not only taxes and NI but also the child benefit reclaim.
Then add in payment by way of dividends rather than salary. Which of these is the right amount of tax. I know which way I would advise my clients.
So it is all Gordon the grasshopper's fault (Ant and Grasshopper fable) that morality has come into tax. The man has more to answer for then just the financial crisis we have been in for the past 6 years!
Gordon's tax dream.
Starting with RTI, Gordon would have liked it to progress to ALL INCOME going online, HMRC and it's agencies would deduct all tax due, and the individual would receive the net (if any) into the bank. WTC would be there as a safety net.
It reminds me of Romania when I first visited in the early 90s. Everything produced belonged to the state, and the people were allocated what was considered necessary for their needs. Naturally, the civil service and government was outside the system, as is pretty much the case here.
So - GB would be one income pot to be distributed how GB saw fit.
So - over to you, EU.
Paying fair share is an irregular verb
I (we) pay more than my (our) fair share,
You pay your fair share - I thought using thou for the singular was too archaic,
He, she, it (they) do not pay their fair share
Fair share is inversely proportionate to the distance from self.
i.e. what we do to reduce our tax is acceptable; what anyone else does is abusive. How many will honestly say, "I am not taxed enough"? Until you are willing and will pay more, how do you reconcile the morality of expecting others to do so?
The morality, fair share argument comes up so often but there is no single answer; it's too subjective. So we all spout out, try to get it off our chests and just as we have done that it starts over.
Subjectivity
The morality, fair share argument comes up so often but there is no single answer; it's too subjective.
mydoghasfleas is quite right. If you can perform the trick of separating the argument from your emotional response you will recognise that it's unresolvable.
The only definitive answer is the one you will find in Matthew 22 verses 15-22 ('Render unto Caesar...') but you might not like the logical outcome. On an emotional level anyway.
Immoral or Moral.
Morality is an illusion - and so therefore must be immorality (and fair tax).
Who can stop the movements of the world?
Who can improve upon the sacred?
MARGARET HODGE it seems.
Above (mostly) from Aphorisms of a Thirsty Fish by Wu Hsin (period 403-221 BCE) before Confucious but circa Gordon Brown.
"Order" contra "contrive"
Clearly - contrive suggest law-breaking or manipulation. That is not what the phrase was meant to convey, even though that is how Margaret Hodge would have us interpret it. It is she and the "morals" preachers who are attempting to set our minds in that direction instead of setting about firming up on the laws - and simplifying them at the same time.
Tripping a Global Trade War!
Dave et al cannot change established Dual Taxation Treaties, overnight: if at all.
To do so would trip a global trade war; the effects of which would, thanks to Thatcher repealing the 1948 Exchange Control Act in 1979. Companies and individuals can now freely export and import foreign currencies and sterling free of any controls.
Which is precisely how transnational trading multinationals such as Google, Amazon, Apple, Dell, Starbucks etc carefully select their fiscal base and move capital and profits, using license fees for IPR, transfer pricing and etc.
One could not expect the mass media to comprehend such core realities.
The present political grandstanding by such as the odious Mrs Hodge (who owes her comfortable lifestyle to tax-planned inheritance from her tax avoiding steel trader father! As do her children; since their future and significant wealth is locked into inviolate offshore trusts!) is only and just that: political grandstanding.
As I stated, previously, this cause celebre is simply smoozing to the little guy, to vainly try and justify the absurd level of direct, indirect and stealth taxes: and attempt, safely ensconced in their million pound mansions, to promote the erroneous and spavined concept that "We are all in it together!"
Yes indeed, right, Dave; as you scull off to your Cotswold mansion this weekend!
That is what I was saying ....
.... the ones in the spot light haven't ordered their affairs to minimise tax, they have contrived their affairs to minimise tax and that is why people are angry.
Setting an elaborate and unfathomable chain of supply and impenetrable and murky groups of associated and subsidiary companies to distribute profits is low tax regimes is contrivance, not ordering as per the premise put forward in the YouTube link above.
Morals must be ubiquitous!
.... the ones in the spot light haven't ordered their affairs to minimise tax, they have contrived their affairs to minimise tax and that is why people are angry.
Setting an elaborate and unfathomable chain of supply and impenetrable and murky groups of associated and subsidiary companies to distribute profits is low tax regimes is contrivance, not ordering as per the premise put forward in the YouTube link above.
However OGA, it is the law; and it is the very same body of law which HMRC, Government, Local Authorities rely upon to collect taxes, council tax, UBR, customs and excise duties and etc.
Statutory Law, under the England and Wales systems of jurisprudence is purposefully ambiguous and relies on precedent to ultimately define it during trial.
Perhaps most important of all, none of this is new: perhaps the first significant exploiter of global tax planning opportunity, when creating a transnational trading multinational corporate organisation was Aristotle Onassis, in the 1950s.
And the earlier statement is significant: since Government, Treasury and HMRC now seek to usurp such established tenets and precedents and create effective anarchy with such instruments as APNs.
Were nation states to be operated on a simple basis of morals, then this, laudable as it might be, would require all governments and politicians themselves to be impeccably moral: and the hope of this happening might best be described as lying somewhere between:
Stanford-Le-Hope: Cape of Good Hope: Bob Hope and No Hope!
Exactly ...
.... the ones in the spot light haven't ordered their affairs to minimise tax, they have contrived their affairs to minimise tax and that is why people are angry.
Setting an elaborate and unfathomable chain of supply and impenetrable and murky groups of associated and subsidiary companies to distribute profits is low tax regimes is contrivance, not ordering as per the premise put forward in the YouTube link above.
However OGA, it is the law; and it is the very same body of law which HMRC, Government, Local Authorities rely upon to collect taxes, council tax, UBR, customs and excise duties and etc.
Statutory Law, under the England and Wales systems of jurisprudence is purposefully ambiguous and relies on precedent to ultimately define it during trial.
Perhaps most important of all, none of this is new: perhaps the first significant exploiter of global tax planning opportunity, when creating a transnational trading multinational corporate organisation was Aristotle Onassis, in the 1950s.
And the earlier statement is significant: since Government, Treasury and HMRC now seek to usurp such established tenets and precedents and create effective anarchy with such instruments as APNs.
Were nation states to be operated on a simple basis of morals, then this, laudable as it might be, would require all governments and politicians themselves to be impeccably moral: and the hope of this happening might best be described as lying somewhere between:
Stanford-Le-Hope: Cape of Good Hope: Bob Hope and No Hope!
... the world now is small in trading terms so change the law - tax companies on UK turnover, not profit, it makes far better sense!
Not a Level Playing Field!
... the world now is small in trading terms so change the law - tax companies on UK turnover, not profit, it makes far better sense!
Since UK tax codes treat both corporate entities and individuals as identical, for tax, then the same would have to apply to the self employed even those on Schedule E.
Imagine the little one man band having to suffer tax on total revenue, with no allowances for purchases and expenditure: nil capital allowances etc.
And Schedule E taxpayers losing their personal allowances etc!
Sorry, but not feasible.
DON'T GET IT
Why does simplicity require everyone to be "impeccable moral"?
Tax is moral if it is someone else's tax and immoral if it is mine!
Ask Margaret Hodge and she will confirm!!
Franchise tax revisited
California collected "franchise tax" on a realistic basis in the past, by establishing four figures
What proportions of your Group
a)worldwide sales,
b)Real Estate and tangible assets
c)number of employees
are respectively in California?
d] What are your world wide profits
2] tax that proportion of world wide profits - in California.
How you combine a, b and c can be argued .
If UK said that such a rule would apply to all companies not having a DTA with the UK, and if necessary selectively giving notice of termination of DTA's say with Luxembourg and Ireland -I know EU rules would give problems! - multiunationals would be paying an objectively determined liabilty in the UK. Multi nationals would complain that this methodology potentially imposes tax on more than their world wide profits, but that is better than the current methodology which taxes in aggregate less than their world wide profits.
Tax havens would no longer help in tax planning, and intergroup transfers would be ignored everywhere.
How the scheme works for mining and oil companies and banks is also problematic , but morality or the " proper amount of tax" fall away as questions for argument.
In practice traditional 'Central management and control' and identifying the existence of a
" Permanent Establishment" to determine the tax liabilty of multi nationals will come to an end. sooner or later anyhow, and the sooner the better.
Neat way to Drive Corporates away from UK!
California collected "franchise tax" on a realistic basis in the past, by establishing four figures
What proportions of your Group
a)worldwide sales,
b)Real Estate and tangible assets
c)number of employees
are respectively in California?
d] What are your world wide profits
2] tax that proportion of world wide profits - in California.
How you combine a, b and c can be argued .
If UK said that such a rule would apply to all companies not having a DTA with the UK, and if necessary selectively giving notice of termination of DTA's say with Luxembourg and Ireland -I know EU rules would give problems! - multiunationals would be paying an objectively determined liabilty in the UK. Multi nationals would complain that this methodology potentially imposes tax on more than their world wide profits, but that is better than the current methodology which taxes in aggregate less than their world wide profits.
Tax havens would no longer help in tax planning, and intergroup transfers would be ignored everywhere.
How the scheme works for mining and oil companies and banks is also problematic , but morality or the " proper amount of tax" fall away as questions for argument.
In practice traditional 'Central management and control' and identifying the existence of a
" Permanent Establishment" to determine the tax liabilty of multi nationals will come to an end. sooner or later anyhow, and the sooner the better.
And, look at the fiscal mess California is in!
Silicon Valley companies then simply moved main facilities offshore; made their Calif. operations minor subsidiaries, to whom they contracted and most incorporated in (e.g.) Delaware.
Corporates would argue (and I would concur):
a)worldwide sales: nothing whatsoever connected with UK. What counts only is Fiscal Residency:
b)Real Estate and tangible assets; We already pay exorbitant UBR on UK real estate:
c)number of employees: we already pay exorbitant Employer's NIC, etc:
are respectively in California?
d] What are your world wide profits: see .a. above!
With respect, .d. is risible!
What's next? HMRC trying to serve APNs on German major corporates, since: (i) They are members of the EU; and, (ii) They sell loads of, say BMWs here?
Exactly ...
What's next? HMRC trying to serve APNs on German major corporates, since: (i) They are members of the EU; and, (ii) They sell loads of, say BMWs here?
... tax based on UK turnover, not UK profit.
Back to earlier!
Since Corporation tax is assessed under Self Assessment rules Schedule D: then all Schedule D tax would have to be based the same.
Which would mean serious impact on microsized, class size zero and SME activities.
Level playing field, once again.
Otherwise avoidable under Human Rights Act, tra de la.
Thing is, the UK government - or more accurately the successive shambles of the past 30 odd years, have, thanks to their adoring globalisation and inwards investment, paddled their canoe up the rather nasty creek and now lost the paddles.
What is of course urgently required is a total rethink on taxes, holistically: in order to reduce the statute codes and thereby reduce the opportunities for arcane, clever and cunning avoidance.
Let's face it and imagine (Heh! It's Christmas or very nearly): all those highly paid accountants, tax barristers and specialists out on the streets having to find alternative gainful employment!
Perhaps they could in the future do some really useful work and help to elevate third world Britain from effective fiscal penury!
Just imagine: all those fertile brains, creating new products and actually adding to the intrinsic value of GB plc.
Exactly ...
... change the law so it works, profit based tax is lunacy as it is so open to manipulation.
I have been saying this on here for years, you could operate like flat rate VAT so different sectors have different rates depending on whether they are product of service based, tax will be built in to sales price and if you can't make it pay you shouldn't be trading.
I think with Margaret Hodges threats today the avoidance scheme peddlers days may be numbered anyway!
Other accountants can then concentrate on adding value to clients rather than being a cost of compliance.