Between them, left leaning politicians and the media have succeeded in whipping up the UK electorate into a frenzy about tax evasion and avoidance. It won’t be long before we hear the sound of tumbrils rolling down the road towards the guillotine. However, the tax services industry is hoping that a modicum of common sense will start to prevail well before Madame Defarge starts clicking her knitting needles. In a recent article, the tax services team at leading accountants Baker Tilly has reminded us all of the dangers of throwing the baby out with the bathwater if we start getting too hysterical about abuse of the tax system.
What is clouding the whole tax evasion and tax avoidance issue is the public’s failure to fully appreciate the exact difference between avoidance, which is the minimisation of one’s tax bill via legal means and tax evasion which is achieving the same thing via illegal means e.g. by simply not declaring income. What concerns tax services professionals is that most people seem to adopt a totally subjective approach to deciding what is right and what is wrong and there doesn’t seem to be much official guidance coming forth to rectify certain misapprehensions amongst the general public.
As providers of tax services are quick to point out, if Google or Starbucks reduce their corporate tax bills by moving profits around from one jurisdiction to another, that is currently legal under present legislation. However, such examples of industrial scale tax avoidance pale into insignificance when compared to the billions lost through deliberate tax evasion by participants in the black economy and, yes, that includes the army of cleaners, gardeners and general tradespeople whom Mr Balls famously declared should be forced to issue receipts.
According to providers of tax services, the public’s perception of what is right or wrong depends largely on how well heeled the perpetrator is. This somewhat basic rule of thumb may seem rather quaint in the land of Robin Hood but is it really the ideal basis for a modern, civilised society where it is simply the rule of law that should prevail?
It’s alright for the tax services industry to point the finger at those politicians and media presenters who love playing to the mob but there is little doubt that both Parliament and HMRC bear much of the responsibility for the widespread confusion that seems to surround this subject. For its part, HMRC is making the issue even cloudier by stating that tax avoidance can somehow morph into tax evasion if there is an intent to circumvent what Parliament intended when it passed certain tax legislation.
As for Parliament itself, if companies and wealthy individuals are taking advantage of loopholes in tax legislation, then clearly the legislation itself needs to be revised and tightened up. The problem is, of course, that some unscrupulous members of the tax services industry will always find new ways of exploiting gaps in the tax legislative framework.
There is no doubt that the electorate is baying for blood and, in an election year, the politicians have to satisfy this lust. The Chancellor has already set in train an agenda to get large multinationals paying their fair share by designing a tax which places more emphasis on where revenues, as opposed to profits, are earned while Danny Alexander, the Chief Secretary to the Treasury, has proposed on national TV that a new offence of corporate failure to avoid preventing an economic crime i.e. tax evasion, be created. This would apply to institutions like those banks and accountancy firms who have veered heavily towards the tax evasion end of the avoidance spectrum.
As for the tax services professionals themselves, one or two worry that this last idea risks enveloping innocent people by accident and suggest instead that the tax services industry has its own independent regulatory body rather like the Financial Reporting Council for auditors.
One thing looks clear to the layman: if the use of artificial tax avoidance schemes is to be considered tantamount to illegal tax evasion then this needs to be enshrined in law and not left to interpretation by individuals depending on their own particular moral compass.
If you are interested in what the Budget 2015 will announce on this subject or are concerned about what constitutes acceptable and legitimate tax planning as opposed to tax evasion, please do not hesitate to contact the tax services team at Baker Tilly.