Here’s your starter for ten in our weekend slot where we throw up an idea or thought for debate…
Here’s an issue which often comes up when tax avoidance and evasion is talked about on this site. Is tax avoidance acceptable, i.e. is it morally acceptable to follow any and every legal means to avoid paying tax? And why (or why not)?
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33 Comments
I feel that when your tax avoidance is keeping to the letter of the law, but breaking the spirit, then it becomes morally unacceptable. Of course, when you try to define the spirit of the law, it is extremely subjective. So to stay on the right side of morality, rich people should give a lot to charity 🙂
If you think it is not acceptable to adopt any legal means to avoid paying tax, who is going to say where the boundary lies? Who is to say which part of the law you should take advantage of and which you should not? The previous commenter says you should follow the spirit of the law but admits that’s very subjective. The authorities are not going to let you off tax you are legally obliged to pay even if the “spirit of the law” is that you shouldn’t pay it. Why should it work the other way round?
Jaffa cakes are treated as cakes rather than biscuits and therefore not subject to VAT. If you eat them like biscuits, are you morally obliged to send in the VAT in order to abide by the spirit of the law?
I guess it depends on whether it’s a deliberate taxbreak or a loophole, as well your own personal feelings towards the state.
I agree with George.
Phillip Green is not guilty of breaking the law. But clearly his wife is a tax exile and this is a convenient way in which he avoids paying taxes.
The truth is that he can still lead a very comfortable life and still afford to pay the full amount of taxes. It will be no hardship for him. As a result of him and people like him evading the spirit of the law, this means that other people on lower incomes who cannot take advantage of this “welfare state for the rich” have to pay even more taxes to make this up.
This kind of Tory scrounging is nothing more than pure greed.
Not a question of moral acceptability or ‘right’ or ‘wrong’, and nothing to do with quasi notions such as ‘in the spirit of the law’. Taxation legislation provides avoidance evasion opportunities for the wealthy and continues to do so. Cannot see tory led government chasing any of this down, just another income generator for the rich.
The line has to be whether it is legal or not. If people don’t like something they can argue their case and the law can be changed if needed. In this as in most things people will say it’s not the law but: This way lies chaos and confusion. Morals these days seems more about one group of people trying to force their view on other people without going through the proper channels. Even the suicide bombers will say they are morally right.
Where the spirit of the law is being abused, clearly the letter of the law needs changing. Simplification and abolition of allowances and exceptions should be the rule. The simpler taxes are, the less room there is for “creative interpretation”. Everyone resident in the UK or with business here should be subject to a minimum withholding tax, with limited exceptions where this can be reimbursed.
Not everything that is immoral is illegal.
In this case certainly the legal loopholes should be closed, but that is not an easy thing to do. Shouldn’t stop us from trying however.
This argument comes up time and time again. There is no such thing as tax avoidance. It doesn’t exist, unless you want to count every instance of paying tax as tax avoidance on the basis of that-I-didn’t-elect-to-pay-MORE-tax. When we buy products from shops, we avoid paying paying VAT at 37% by paying VAT at the required 20%. When we pay our income tax, we avoid paying tax at 63% by paying it at the legally required rate (through PAYE, usually).
When a company does something legal but confusing to the ordinary person, such as diverting work and hence profits legally through a previously loss-making practically dormant subsidiary company to use up an unrealised tax repayment from HMRC, they are no less avoiding paying tax than I am when I don’t volunteer to pay more income tax.
Certainly there are ways for companies and individuals to legally pay less tax. The answer to that is to require people/companies to pay more tax by either closing what some perceive to be “loopholes” or by raising headline rates.
“Tax Avoidance” is a synonym for “Complying with all laws and regulations to pay the minimum legally required amount of tax”.
@ Geoffrey Payne
How do you decide what is immoral. Just because some people don’t like something or think it should not be done, which seems the only judgement, does that make it immoral. Even when things are put up for discusion by all of society, there are still plenty of grey areas.Tthe law is the only sensible guide.
The aim of a tax system should be to maximise the revenue that can be used for social good and for, for alleviating suffering, and creating growth and social mobility; there is little merit in increasing the theoretical amount charged only to see revenues fall.
The complexity of our tax system, the allowances and loopholes, make avoidance too straight forward for large companies; we should eliminate and close these in so far as is possible, but not so far as to deter businesses from operating in the UK thereby reducing the revenues we receive.
Personally I’d like to see the taxation system deter proceeds and wealth being off-shored, with something like an export or emigration super tax; I’d also like to see lower taxes on income, and more on concentrated and historic wealth.
I think this is what is wrong with society; we have this greed culture, if we view Tax avoidance like we view MPs expenses, and understand it is not in the best interest of those in power to do anything about it; it is a perk of the rich…
Is this fraud? no different to those being accused by the government of fraudulently claiming benefits, we do not hear the same rhetoric used for tax avoidance, this is what is wrong, and eventually it will come out into the public arena and like MPs expenses the public will not like it one bit, we are in the age of information have no doubt someone is searching away.
In answer to the question… no it is not acceptable, my view of course
“Is tax avoidance acceptable, i.e. is it morally acceptable to follow any and every legal means to avoid paying tax? And why (or why not)?”
Yes, because I start from the point of distrusting the ambitions of the state, and presuming that they will take more than i wish, to do more than i want done.
Any net tax rate over the 33% threshold is by definition questionable, and any over 40% is absolutely immoral, so if you want me to join the braying chorus of moralising and posturing about tax avoidance give me a tax-system that takes no more than 33% of income.
@ Geoffrey Payne
Philip Green’s wife not paying tax is a result of the fact she doesn’t live here. Or are you suggesting that we should tax people who don’t live in the UK? As for whether Philip Green should pay taxes on his wife’s assets, are you suggesting we should not tax people on their own ability to pay but on their relatives?
@ YouHaveNoIdea
“income generator for the rich” this is the problem with the post Labour world people see avoiding tax as revenue generating. Avoiding tax is a cost saving not raising revenue, revenue generation normally involves some form of productive activity.
Also you forget the huge increase in tax rules (which create the opportunities for evasion) happened under Gordon Brown. If you want to reduce “tax evasion” you need to make it simpler, if rules are simple and clear then there is less opportunity to avoid.
@ Richard
Spot on.
@ Andrew Tennant
There is a trade-off between the maximising of short term revenue and the long term growth maximising rate. So it can’t always be safe to head for the top of the Laffer curve.
Is it greed or are some people just jealous. The really rich have everything they could want materially so why do they bother paying minimal tax. Because they think they can use the money more wisely than the goverment, when you see people like Gorden Brown using our taxes to buy votes, I think they are right.
Goverments have a terrible record for using money well. Where as top buisnessmen have a proven record of using it wisely and creating jobs. If you think goverments are the only group that know how to use money then we should all get a set wage and evrything else should go to the goverment. Oh! I think that has been tried a few times and what disasters.
If somebody gets good money, so what. They either spend it and create jobs or invest it and create jobs. If people stopped being so jealous and just got on with life we would probably all be better off.
I’m seeing alot of ‘well if it’s legal’ comments that seem to be only talking about a ‘moral’ aspect to tax avoidance but I look at it slightly differently, to me Tax avoidance is people who have money playing the tax system, when the poor play the welfare system (still not doing anything illegal mind) they are called scroungers and parasites, they will have their benefits cut (10% HB), made to do ‘voluntary’ manual work and generally maligned by everyone and they are egged on by the tabloid press and political speech writers
Maybe the same language should be used for the tax avoiders that is used towards benefit claimants, it may not do any good but at least it would be fair.
@ nige
I was unemployed for about 15 years and from what I remeber playing the welfare meant lying, fraud and other illegal things to get extra money. There are plenty of legal claims that people can make. Those people aren’t scroungers and parasites. It is just the ones braking the law to get extra money that are.
@Richard
Please don’t think I was attempting to slur the unemployed, far from it, it was an (inept) attempt at sarcasm/irony.
I am myself disabled and currently in receipt of incapacity benefit awaiting the WCA by ATOS, which doesn’t exactly make me the Daily Mail citizen of the year, so after accusations of being a drain on ‘alarm clock’ Briton and reading ‘well if it’s not illegal’ type comments on tax avoidance, it kinda makes humour difficult so please forgive the lack of clarity :-/
It also depends on whether we’re talking about individuals or companies. As UK Company Law is structured currently, companies have a legal obligation to maimise shareholder value. This includes ensuring tax liabilities are at the legal minimum.
Tabman, I suppose it comes down to fundamentals. does tolerance of tax avoidance lead to a more efficient economy? does it attract more investment in Britain if there are ‘sweeteners’ in the tax system leading to more profit, is it something that should be accepted as the ‘end justifies the means’ argument?
If so that same argument could be placed for the welfare system, yes accept that there will always be those that abuse the system but do we allow that to ensure nobody in genuine need suffers due to draconian measures introduced to stop that same abuse?
for my part I would tolerate tax avoidance as a necessary evil as I would accept a certain amount of welfare abuse, so for me the end does justify the means.
Is there any person or business who would willingly pay more tax than they legally had to?
The real question is “is it ethical and morally acceptable to leave legal ways for the wealthy to avoid many common taxes that are put in place to ensure that the burden of supporting our society is shared fairly amongst those who can most afford it, and who benefit most from the standard of living afforded by such a society?”
I don’t blame anyone for paying the least tax they legally have to. I do have issues with the very rich making or influencing the legal framework within which they are taxed.
I should have said:
I do have issues with the very rich making or influencing the legal framework within which they are taxed “in such a way that allows them to skew this framework to their advantage”
Like MPs, you should ask whether you would be happy for it to be public. I have self-employment income, and could offset all sort of things against it (computer, lunches). Since my income is low I would be unlikely to be investigated, and there are items that meet the letter of the law. But I offset nothing (except wages when I employ other people) against it, because I would buy a computer anyway, etc.
People who claim to support a more equal distribution of income, should also think twice about claiming anything if they earn more than say £50k.
@tim leunig “Like MPs, you should ask whether you would be happy for it to be public.”
Thanks. That’s a good way of putting it.
If you have to go through such contortions that you’d be embarrassed if it became public, it’s probably immoral.
But changing the tax rules to prevent all such contortions is probably impossible, and even if it isn’t, it may be a bad idea. It could make the tax system unbearably bureaucratic, and cost more than the extra revenue it brings in.
Having seen some of the semantic arguments and complicated structures that are devised in order to avoid taxes I’m afraid that appealing to moral suasion or the sprit of the law will have little effct on the people concerned. They tend to start from a position that it morally wrong to pay tax in the first place and if the letter of the law allows them to get away with it then they will not worry about the threat of naming and shaming in the courts. And to be honest I don’t think I would want a l;egal system where judges are able to invoke the “spirit” of a law – the precedents are not good.
The problems with tax avoidance usually arise when exemptions and exclusions are given for one particular good cause – which an army of tax experts will then try to expand for the benefits of themselves and their clients. The legislators need to be a lot more careful about the wording of such exemptions – and we probably need to consider a more general law which places an exemption on the total value of exemptions which can be claimed. Closer international co-operation wouldn’t go amiss either – the manner in which British tax havens and Eire have behaved in recent times is nothing short of scandalous e.g. why are Jersey branches of the majopr banks allowed to part of the UK clearing system?
Art said it best.
There’s a significant difference between an intended tax break and exploiting a loop hole.
Certain tax breaks were put in for a reason to encourage certain types of activity or to protect certain types of people. e.g. ISAs were made to encourage and reward people for saving.
Exploiting loopholes is a different matter. It means taking advantage of the complexity in tax law to claim money in ways that were never intended. What does Britain gain by allowing non-doms or those who register their companies in Switzerland a break in tax? The law clearly wasn’t designed to function in the way.
While the main problem is the law – these loopholes need closing – companies who go to the collosal effort of taking advantage of these loopholes are being dishonest and I think it’s fitting that activist groups like UKUncut drag their names through the mud and damage their reputation.
There is a lot of VAT scamming going on.People are setting up bogus companies and paperwork to scam the VAT system.With this money the criminals buy fast cars and big houses.They show off their illegal gains.Because of this crime taxes have to be higher for ordinary hardworking people.Some of this money goes onto supporting other crimes like drug dealing and prostitution,people trafficking.
The government must go after these scammers with all the force of the state.
Otherwise these criminals are just laughing at decent ordinary working people who think they are fools for trying to make a honest living.
David Cameron’s new chief spin doctor runs a legal tax “avoidance” scheme to manage the £150,000-a-year earnings of his television presenter wife. NUFF SAID
http://www.telegraph.co.uk/news/newstopics/politics/conservative/8306003/David-Camerons-new-spin-doctor-and-his-tax-avoidance-plan.html
I think moving assets from a country where your wealth is created and the creation depends on the infrastructure to another jurisdiction purely to avoid tax is immoral. You would be benefiting from something without paying your fair share for it.
It may well be legal, but that is usually because either the government being deprived is behind on the game, or because you can afford sharper lawyers and accountants than the government can.
If you do this you are freeloading on the government concerned (and by implication your fellow taxpayers).
If anyone has more money than they need for necessities and a modest lifestyle, they should then be thinking about how they can contribute by charitable giving. (To do Lord Ashcroft justice, he has given large sums away.)
Treasure Islands: Tax Havens and the Men who Stole the World by Nicholas Shaxson is required reading on the subject of company accounting across borders. One of its theses is the extent to which the UK is a tax haven and how many havens are under the British crown.
I’m not saying that we can be absolutely confident that governments spend every last tax dollar, pound, crown, euro or rand wisely, but I think using that as an argument to avoid paying taxes is self-serving.
I hope in due time that blatant tax avoiders will be joining drunk drivers, MPs who grossly pad their expenses and those who make cheating the welfare a business as figures to be despised.
“I hope in due time that blatant tax avoiders will be joining drunk drivers, MPs who grossly pad their expenses and those who make cheating the welfare a business as figures to be despised.”
Despise them all you want Ian – but this will not actually solve the problem – the difference between blatantant tax avoiders and the others is that they (just) operate within the law. There is a lot to be said for morality in publics – but you still have to change the law if you want to be effective. Where are the concrete proposals for dealing with the problem? Perhaps you should look at how the extension of CGT was watered down unde rthe Coalition.
Has anyone noticed how often they are offerred a VAT receipt nowadays even though they are clearly not on business, so having such a receipt should have no advantage whatsoever?
There is no such thing as Tax Avoidance. Tax evasion is illegal and should be prosecuted. You cannot avoid paying tax that you are legally obliged to pay. My wife and I are directors and shareholders of our (very small – no employees) company. we make sure that we pay ourselves so that we only pay the minimum amount of tax. This means paying a minimum amount on PAYE to cover NI obligations, using up both personal allowances and sharing out income through ‘drawings’ as that offers a better tax rate than PAYE That is perfectly legal, and I see no moral problem with that at all.
How can I avoid paying tax that I am not legally required to pay?