Monday, September 20, 2010

Doesn't everyone try to avoid or evade taxes?

In the light of recent announcements to limit tax avoidance and tax evasion I am forced to ask an uncomfortable question: Doesn't everyone try to avoid or evade taxes?

Well maybe not 'everyone' but certainly a large majority. I'm thinking of those who, for example:
  • Are self employed and are keen not to have to pay tax on all of their trading income (perhaps taking 'cash in hand');
  • Are employees and are keen to receive benefits, gifts and bonuses without them being subject to tax;
  • Are receiving a pension and do some work 'on the side'
  • Claim personal expenses as deductions from their taxable income (profits) when they 'put it on the business' despite the primary 'non-business' rationale for the expense;
All of the above constitute 'tax evasion' of one sort or another. It's just that many people tend to assume that it's something that only the rich and famous do and for much larger amounts of course. (And don't get me started on the MPs again!)

Again, many ordinary people are keen to avoid tax (legally). This may simply be a question of wanting to do all they can to avoid falling within 'tax traps' and thus avoiding that tax otherwise payable if they are within the rules for:
  • IR 35 (the freelance contractors tax)
  • Inheritance tax
  • The new top rate 50% income tax (which can create an effective liability of 60% in some situations)
And the financial pages and websites are full of adverts tempting us to avoid or reduce our tax bills. Where should the line be drawn? Last year I wrote a piece here: Tax avoidance - what are you allowed to do? A simple guide. And two years ago I wrote a piece: Distinguishing Tax Evasion, Tax Avoidance and Tax Planning.

Many of those supposedly targeted by the Coalition Government's new initiative will continue to accept advice that they can reduce their tax bills using tax avoidance schemes that are within the letter of the law. They will be unfazed by the suggestion that such tax planning is 'legal but morally questionable'.

And everyone else will continue to do what they can to keep their own tax bills low. To the extent that this is simply sensible tax planning there should be no problems. I wonder though whether accountants ever come under pressure to overlook, what we might term, amateur tax evasion by their clients?

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