From Accountancy Age earlier this week, and overlooked at the time due to other issues on the agenda:
The £42bn "tax gap" might be an illusion, accountancy institutes have said.
The figure is supposed to represent the difference between the actual tax collected and what should be collected. But institutes have said that HM Revenue & Customs' concept of a "tax gap" is not useful.
Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, told the This is Money website: "It is like trying to get hold of smoke. There is no proper idea what that is and then we are trying to close it."
David Heaton, chairman of the tax faculty at the Institute of Chartered Accountants, said: "I think the tax gap is entirely misleading. The definition of what taxpayers should pay compared with what is actually paid is not very helpful. It is less than helpful because nobody really knows what taxpayers should pay.'
Roy-Chowdhury and Heaton also warned that the tax gap includes tax avoidance, which is legal.
An HMRC spokesman said: 'The tax gap is an important strategic tool, but we also set targets for the additional revenue generated through our compliance activity.'
I admit I find these claims from two representatives of the accountancy profession staggering. These people, representing professional bodies that are supposedly based on codes of ethical conduct, are effectively denying two things. The first is that tax evasion - blatant criminal behaviour - need be measured or targeted and secondly that tax avoidance - getting round the law - should be addressed in any way.
The language used - and I am sure the journalists quote correctly - is also telling. In hoping to sow doubt about the tax gap and by deliberately obfuscating on meaning the profession is asking that a blind eye be turned to what might collectively be termed tax cheating - much of it in the grey area where avoidance merges into evasion. That dividing line - so often relied upon by the profession, who happily trot out the line that avoidance is legal (even if of highly dubious morality) and that evasion is not as if they always know precisely where the line between the two might be - is shattered by their own suggestion that they do not know what the proper amount of tax a person should pay is. They cannot, in other words, tell the difference between evasion and avoidance because too often it is not clear.
But that does not then mean that the tax gap (which is clearly and unambiguously defined in exactly the same terms by both me and H M Revenue & Customs) is not an issue. It actually means that it is a very real issue - and that tackling and stopping the two key components within it - both tax avoidance and tax evasion - should be at the heart of the ethical responsibility of the accountancy profession.
In other words - the line glibly trotted out here that tax avoidance is legal - should be barred from the excuse book of the UK's accountacy profession if they want to retain the privileges that go with that status. They must say that tax avoidance - the deliberate act of getting round the requirements of the law, rather than complying with them - is wrong. And they must instead make clear that the duty of the taxpayer, and the tax professional, is to promote tax compliance, which is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. I assure you, that's possible.
More than though - if the professions are to offer ethical leadership they have no choice but do this. In which context I'd remind the accountancy profession of the words of the prime minister, spoken yesterday. He said:
“For me the root cause of this mindless selfishness is the same thing I have spoken about for years: it is a complete lack of responsibility in parts of our society.
“People allowed to feel that the world owes them something, that their rights outweigh their responsibilities and that their actions do not have consequences. Well they do have consequences.
“We need to have a clearer code of values and standards that we expect people to live by and stronger penalties if they cross the line.
“Restoring a stronger sense of responsibility across our society in every town in every street in ever estate is something I am determined to do.”
He could have been speaking of those who promote tax avoidance whilst ignoring their duty to society and who in the process ignore their responsibility to society. He could have been referring to a profession that fails to weed out those who cross the line.
Evading the issue of the tax gap suggests the accountancy profession is moving in the wrong direction. It's supporting those cheating the state of its revenues.
It's time for accountancy to embrace responsibility. And it has to do it now. It could do it by embracing a proper Code of Conduct for its members. Start here.
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While I agree with the thrust of your post above, and have repeatedly tweeted about the Tax Gap, avoidance and evasion, there are a few points that need covered.
As an ACCA affiliate (I teach accounts) the introduction of a professional ethics paper has begun to address the issues of behaviour and ethical behaviour. The accountancy bodies have stringent codes of conduct but these dont effectively cover the issue of minimizing tax liabilities. They do cover dishonesty and illegality.
Accountant – is not a protected term (so anyone can use it) which makes policing behaviours of ‘Qualified by experience accountants’ next to impossible. Making accountant a protected term was rejected by the last parliament (wrongly I believe).
I agree entirely that there is an avoidance of responsibility and not enough being done to enforce the behaviours we expect from the profession. I think that as a ‘profession’ we are as tainted as the rest (legal,banks, police,politicians) and have lost the trust of the public.
Tax avoidance is legal and the abuse of this line is an indicator that the Tax system needs a major overhaul and tightening. Allowances too complex and grey, good for avoidance and tax consultants. The tax system needs to raise the revenue the exchequer expects and not be ‘trying to catch smoke’.
I too am disappointed by the attitudes attributed above but sadly I am not surprised. No area of our civic/ government societies have managed to show the ethical and moral behaviour we expect.
Tax is the price for living in this country and its time that avoiders and evaders paid their way.
Thanks for this
Appreciated
[…] to Tax Research for pointing out this rather obvious […]
…because of we choose to define headline rates of tax just for the fun of it. Of course someone knows how much tax is actually due, it’s just no sod is willing to admit it publicly, adhere to the spirit of tax law or enforce it.
This government seems to be taking an ‘Ah, you’re a mate, just pay us what you *think* you owe’ approach to tax collection. If income tax or VAT worked that way, government revenue would sink through the floor in an instant. Then imbeciles like Liam Fox MP wouldn’t be able to afford their £15,000, tax payer funded, MoD jolly-ups in Spain.
“Hmm, I think I owe… let me see… 5% income tax (on disposable not GROSS earnings) and 0% VAT… yes, that sounds about right.” < Because nobody knows how much I owe the tax man, and silly little things that standardized, headline rates of tax aren't very helpful!
All very interesting richard but your distinction between avoidance and what is “mOrally due” is impossible to capture in legislation
Your hypothesis probably works if you are thinking about highly complex artificial tax schemes but a lot of what “tax planning” is not this. I’ve used the examPle before and will do so again, a Uk company wanting to sell a non core business has the choice to do so by paying tax on the gain or paying zero tax. Your hypothesis is requiring them to ignore SSE a tax relief specifically granted for this scenario. The directors fiduciary duties probably prevent them from doing so
There is no issue in this case: compliance allows this relief, right or wrong
You are deliberately obfuscating
Defining any law the determines what is “morally due” will not work as you point out. It simply creates a subjective approach, but goes beyond the ‘reasonable’ approach advocated in courts for the last 250 years. It is asking judges to becomes deciders of morality. Hardly appropriate as you might agree, and fraught with difficulties. At the moment we ask judges to apply laws in a reasonable fashion. This is subjecting judges to defining morality.
But judges aren’t applying morality to looters?
Come on – stop being crass
I’m asking for an utterly objective, realistic and viable approach to jurisprudence and you’re simply asking for amoral abuse of the law
If you can’t see why your attitude is contemptible you need to learn something about morals
But then your lack of appreciation of that subject may explain your comment
Italy seems to be getting it!
http://www.telegraph.co.uk/finance/financialcrisis/8696101/Italy-turns-on-the-parasites-on-society-in-tax-clampdown.html