I was asked yesterday by a pretty experienced tax journalist how I defined the difference between tax planning and tax avoidance.
"That", I said "is easy. It's getting legal opinion."
What did I mean? Simply that if you are tax planning then you either reduce your tax risk ( which happens by getting things right, rather than taking the risk of getting them wrong) or at the very least you arrange your affairs in ways that you know will not create tax risk for you. There are obvious examples: paying money into a pension, for example does not create tax risk, and nor does putting money into an ISA within allowed limits.
Tax avoidance, on the other hand always, and without exception, increases your tax risk. That is because you are doing something about which there is uncertainty. in that case, many tax advisers would suggest that you got a tax barrister's opinion to confirm that your action was legal, as defence against any counterclaim from HMRC. Examples might be claiming allowance for expenses where it is not certain that these are due in law, or using an offshore structure when the motive could be questioned. In all such cases the taxpayer's risk is increased by undertaking the transaction. That is what tax avoidance involves.
NB: I'm grateful to tax barrister David Quentin for this incredibly powerful, and simple, insight into the difference between the two categories of behaviour.
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So anything not requiring counsels opinion is not tax avoidance? Sounds a bit narrow to me!
No, that’s clearly not what I was saying
Not getting counsel’s opinion when it is appropriate is just recklessness
Oh, hang on: you may be right, after all
in my experience the difference is that one is paying the right amount of tax whereas the other is paying the least amount of tax.
Based on what you have written above, Amazon is merely tax planning, not avoidance
If you think that you’re very seriously mistaken
No I am not, the very fact that the UK will not challenge the structure proves I am right. The structure is so basic even a first year student will tell you that there is no need for counsels opinion.
Incidentally, why so important for counsels opinion? Why not a tax advisor or solicitor? And in any case, it is only an opinion, not a guaranteed status of the facts to the law.
Suggest you and Mr Quentin find another test – read some of the journal articles written David Goldberg QC to get you started properly.
Read my response
Respectfully, Gavd Goldberg might be the last person I’d start with
Your loss then, you could learn something from him.
What?
How to be offensive, or be a libertarian?
Note really interested in either of the above which seem to be playing the man the man not the ball.
You could, however, learn about tax in general from him and tax avoidance in particular. He probably has given the subject more detailed and reasoned thought than most.
I presume you are joking?
Not at all. Why should I?
Are you suggesting that we pay greater attention to you and David Quentin rather than a tax bar silk, with far greater experience than the two of you put together?
I think it must be you who is joking
If you honestly think I should take note of a man who on his profile says his aim is to beat the Revenue and who wishes to align himself with Thatcher then you are, very definitely, joking
Doesn’t quite read like you suggest
However, he does pretty well for Inland Revenue when he represents them, perhaps he wants to beat the taxpayer when he acts against them. Anything wrong with that? Probably not…taxman good, taxpayer bad.
But woe betide anybody who wants to beat the taxman.
And I beg to differ
This case is closed
Parliament makes 4000 laws a year. Sometimes you need legal opinion to check you’ve not violated something you’ve never heard of before!
That’s not counsel’s opinion
That’s checking you’ve got things right
That’s planning
Please do not pretend you don’t know the difference
A desire to test the limits of a relief creates tax risk. But that you are within or without the relief is not answered by the question, have you created tax risk.
So not sure, ultimately, where your/David’s test takes one? What am I missing?
Testing a relief to its limits is all about risk
That is the point
Whop needs to test a relief to its limits, and why?
One example that springs to mind might be what expenditure qualifies for r&d credits. The definition of qualifying r&d spend is incredibly vague and unhelpful
There are also occasions a when 2 separate sections don’t actually work together and you need to determine what takes priority. I had to go to counsel once over the late paid interest rules,and that was purely to make sure we completed the tax return correctly, nothing to do with avoidance or planning!
Respectfully, I think your comment untrue
You could ask HMRC how to complete the return
And you could have made a white space declaration
You asked for an optimal solution from counsel that I suspect involved neither and that’s not the same thing at all
It is true RM. Hmrc were incredibly unhelpful when it came to the inconsistency in the late paid rules and wouldn’t give a straight answer (suspect they were overwhelmed with clearance applications at the time) so we had no choice but to get an opinion
I enjoy your blog and don’t always agree with all of it, but the discussions are always interesting and enjoyable. Alienating your “regular readers” by suggesting they are lying about something does not become you, and is probably a quick way to reduce the number of regular visitors!
If you honestly think I court reader popularity that is another mistaken assumption on your part
I happen to still doubt the need for the ruling you applied for
You doubt that 2 sections of different tax acts don’t work together or you doubt that hmrc are too busy or understaffed to give a taxpayer some guidance? Both have been recurring themes of your blog over time so I have to say I’m surprised you have doubts about this given im actually giving you evidence to support your blog assertions about tax simplification and hmrc resources!
I do not doubt either
I am not sure why you needed counsel’s opinion to complete the TR on them given the issues you mentioned
But you say I’m wrong
OK: let’s leave it
So are we saying then:
If HMRC says a particular tax behaviour ‘X’ is wrong and pursues it through the courts and loses (i.e. the courts say the behaviour was OK), then retrospectively, X was always ‘tax planning’ for the purposes of this distinction.
Taking it further, if HMRC says X behaviour is wrong, but DOES NOT pursue it through the courts (because it is unsure how the courts will go). HMRC then reaches a settlement with the taxpayer without the matter having been litigated. On the same logic, then that behaviour was also ‘tax planning’.
Is this what you’re saying?
That’s so bizarrely argued it’s not even worth responding to
Sorry, I assumed your concept of ‘tax risk’ was the same as ‘legal risk’ which (in a nutshell) is ‘what would a court say’. The court is the final arbiter on the rights and wrongs. Not the regulator, not the mob.
However, it seems from your response that ‘tax risk’ and ‘legal risk’ are not the same thing.
Can you please clarify?
I do not have the advantage when moderating comments of seeing what I wrote previously so I’ll guess
Courts review maybe less than 0.001% of all tax decisions
HMRC may review 0.1%
Tax risk can be seen as distinct then – including a much wider spectrum, including the simple fact ‘will it be reviewed’?
But that is the first of many such differences
When asked for the difference you replied “That’s easy…”
OK. So this will be easy: a personal services company called Thorn In The Side Ltd, planning or avoidance?
In case your wondering, it’s the vehicle used by Nigel Farage and was the subject of a psot by you earlier this week.
No legal opinion needed
The government accepts such arrangements, whether I like it or not, and IU am having to accept that fact
But there is IR35 – which I suspect did not apply in that case
But I did not comment on that particular case – I commented on Farage’s broader commentary, as well you know
Yes but the IR35 covers employment. I would suggest that in the UK Farage isn’t employed, instead he is just a man down the pub talking out of his arse.
I like the idea of risk as a measure of avoidance. I think the concept is useful if you think about what events constitute an insurable risk. It would be possible (all things being equal) to insure a tax vehicle or arrangement against a finding of future illegality. We would not normally consider doing the same for a monthly payment into a pension. It would not constitute an insurable risk anymore than walking along the street in an English town would.
No, you didn’t set a link to the actual interview, which was just a little disingenuous. He was asked explicitly about his arrangements. His answer was expressly in THAT context. And yes, he called it avoidance. I’m sure though he’ll be delighted to receive this comfort from an expert.
However, you definition, your single narrow definition, is so interesting. Are you saying that putting in place a structure thought up by an accountant, a tax professional or a bank employee, without seeling Counsel’s opinion, isn’t avoidance? Are you saying that seeking Counsel’s opinion makes it avoidance? Is it that ‘simple’ or would you like to go back to your journalist friend and expand a little?
You show the extraordinary limitation in the libertarian’s thinking
Of course I did not mean the statement literally. It was a heuristic logic that I offered
If you genuinely don’t realise that a rule of thumb isn’t a way of making a decision on such things then I feel very sorry for you
“t was a heuristic logic that I offered”
I fear you owe your pretty experienced tax journalist an apology. Had he (or she) asked *how you can tell* the difference, that would be a reasonable answer (although starting it along the lines of “a good rule of thumb is…” would have been clearer), but that was not what you report being asked. A heuristic is very much not the same thing as a definition.
We actually discussed the issue for 10 minutes
I did not write a verbatim report
But what I did write very clearly explains the reasoning – and is obviously heuristic in nature
The problem is all yours
I would also suggest that you would in that instance you would have a received an ‘opinion’ from the accountant in question which is tantamount to a legal opinion so falls into Richard’s definition anyway.
An accountant’s opinion does not provide risk insurance – which is key
“The problem is all yours”
If I were the only one not to have understood your post as you intended, I would be inclined to agree (one of the perils of my job being a tenancy towards pedantic degrees of precision), but as you can see from other comments, this isn’t the case.
May I suggest an addition to your collection of heuristics – If several people have misunderstood your post then the writing was insufficiently clear.
Or the commentators share your pedantic mind set within an antagonistic framework for commentary
That”, I said “is easy. It’s getting legal opinion”
Not the slightest hint at a heuristic logic, or indeed that your example shouldn’t be taken literally. It seemed a direct answer to a direct question and, unless the resected journalist who suffered this “heuristic logic” posts to the effect that he understood it to be such, I simply don’t believe you.
P.S. And as usual, I expect the Courageous State to hide behind the moderator at this point!
If you really have no clue by now after all the time that you have read this blog how I think then it’s more than a moderator that you need
I do not, and never will, subscribe to the narrow minded literalism that drives neoclassical economics, neoliberalism and positivism
But you have never once comprehended that and so continually, indeed, almost always, get what I write wrong
I don’t think your hubristic rule of thumb is very helpful…or even required – it’s already a pretty simple distinction.
To restate it in medical terms; it’s a bit like saying the difference between whether someone has indigestion or is having a heart attack depends on whether they decide to consult a physician. Really ?
In truth whether it’s tax avoidance or planning just depends on whether you are applying the legislation as Parliament intended; but I thought you already knew that ?
Hubristic?
Is that meant to be a joke?
Or should I worry about your capacity for misunderstanding?
Clearly I meant “heuristic” – ipad – autocorrect failure (again)
Which bit have I misunderstood ?
All of it
Starting with heuristic reasoning
¨The court is the final arbiter on the rights and wrongs. Not the regulator, not the mob¨
Not as far as this gov is concerned. If the court decides the gov is/was wrong, it simply changes the law.
Problem solved.