Monday, July 6, 2009

Tax avoidance - the tangled terminology

It looks like some of the media have been swept away by the relentless bandwagon pushed by HMRC, the Treasury and Ministers that all 'tax avoidance' is bad and somehow equates with tax evasion.

I last commented on this here in a post: I'll huff and I'll puff - empty threats from the taxman?

Whilst part of me would like to agree that there is a clear distinction between acceptable tax planning and unacceptable tax avoidance (or "harmful tax practices") I know it's much more difficult in practice.

More recently we have seen ample evidence of MPs attempting to justify their expense claims by reference to the letter of the rules rather than to the spirit of them. I've commented before about the hypocrisy of such claims by Ministers who are in favour of applying tax law by reference to the spirit rather than the letter of the law. What's sauce for the goose...

Under a heading: City firms scheme to hide bonus boom from HMRC, the Sunday Times yesterday reported that Grant Thornton (GT) has sent a document to clients outlining one scheme that could afford a “potential tax saving of approximately 40%”. GT were quoted as saying that the incentive scheme in question was "not in any way related to the 50% income tax rate”.

The Independent today reports Francesca Lagerberg, the head of tax at Grant Thornton, going further and stating that the firm was not seeking to engineer tax avoidance schemes.

“These proposals, from us and all the other accountancy firms, are not the aggressive schemes that were sometimes employed a few years ago. There is no tax structure in place that will help bankers avoid the top rate of the income tax and other charges,”

“We are offering bespoke solutions to companies that want to incentivise employees. It often involves government-sponsored schemes such as salary sacrifice practices. The last thing our clients want to spark is an investigation by HMRC into clients’ remuneration polices.”

According to the Independent a spokesman for BDO Stoy Hayward, confirmed that the firm was also offering similar services to banks but also stressed that it was not trying to engineer tax avoidance schemes.

I tend to think that both GT and BDO have accepted here that 'tax avoidance' is being used by the media as short-hand for 'abusive' schemes and 'harmful tax practices'. I don't think they had any real choice.

Let's be honest - tax advisers (by definition) advice clients on tax issues. This will frequently involve them in advising clients on how to avoid paying any more tax than is absolutely necessary under the letter of the law. In its simplist form this is therefore tax avoidance. And equally I believe that most taxpayers want the right to obtain such advice. Let me stress (again) that one of the reasons I gave up giving tax advice myself was because of what I perceived as client demands for more agressive tax planning advice than I was myself comfortable to provide.
The time is coming however when there will be more public debate and discussion around the different terms and what is acceptable as distinct from unacceptable tax avoidance. I appreciate that the Guardian attempted to do this earlier in the year with their tax gap investigation. And there are some commentators (eg Richard Murphy) who suggest that the solution is easier than many of us would accept.

Having said that I did summarise a possible distinction on this blog almost exactly a year ago. If memory serves this originated with Richard - who knows that I share a number of his views even if we do not always agree on the most effective way of securing change.

What do readers of this blog think about the terminology used to describe different approaches and attitudes to tax avoidance?

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