Bending vs breaking tax rules

A recent email exchange has prompted this supplement to a piece I wrote for this blog in March: How far can you bend the rules?

That posting referred to the controversial phrase then included in HMRC's draft Charter. It stated that we could expect them to "Pursue relentlessly those that break or bend the rules."

My posting attracted much by way of comment (thank you all). By way of summary, in so far as is relevant to my observations below, I noted that:

• 'Bending' and 'Breaking' the rules are two quite separate concepts. Only the latter is illegal.

• Note that the sentence refers to bending 'the rules'. Is this deliberate or should it say 'the law'. The former are set by HMRC and the latter is approved (usually with only perfunctory consideration) by Parliament. But there is still a crucial difference.

• I've been here before. I can see both sides of the argument. The statement is controversial because it's ambiguous. It's also not going to be applied consistently due to resource constraints.

HMRC have since revised their draft Charter and the sentence in question now states that you can expect HMRC to: "Tackle people who deliberately break the rules and challenge those who bend the rules"

I applaud this recognition that different treatment is appropriate for the two distinct categories of behaviour. In the same way the new penalty regime is evidently designed to distinguish the generally compliant taxpayers who make mistakes from the deliberately non-compliant. Penalties will be charged more onerously on the latter - and quite right too.

And this brings us back to the age old distinction as between those who simply bend and those who actually break the law. Many would argue that only those who have evaded tax should be tackled.

Whilst there may have been no intention to break the law sometimes the bending is so severe that a fracture seems inevitable. In such cases it seems only reasonable to me that HMRC should be expected to challenge what has been done, how much force was applied and to apply x-rays to determine the possible damage. Only then will they know if the law was broken or not. And of course sometimes the rules are bent so far it takes the Courts x-ray to determine whether or not the rule has been fractured and in effect broken.

What would you suggest HMRC does when faced with people who seem to be bending the rules, possibly close to breaking point?