It would seem that the tax abuse industry has found a new line to defend its behaviour. I encountered this when speaking on the Jeremy Vine show yesterday, and it has been commonplace elsewhere. It is to claim that the use of ISAs is tax avoidance.
This is absurd. ISAs are Individual Savings Accounts. They are a mechanism available to any UK based taxpayer. Using them a person can save a set limit per annum in a designated account. The income and gain from those savings are then tax free.
Let me be clear, I think the £2 plus billion this costs the UK government a year is wasted money. Those well enough off to save do not need tax incentive to do so. ISAs are benefits for the middle classes. But that's not the point. The point is that by saving in this way a person is being tax compliant.
I define tax compliance 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.
In the case of ISAs, the economic substance is that money is placed in the UK in an account which is legally designated as tax free because the government wants to boost savings. The whole arrangement is above board. A national insurance number has to be given to open the account to make sure the scheme is not abused. Tax compliance is built in.
There is not a hint of comparison that can be made between this and setting up a series of aircraft leasing companies to buy a plane that it is then claimed is leased back to the owner with VAT reclaimed on the say to save millions on the purchase cost. That is an artificial structure set up in a place where the plane will hardly ever go with the sole intention of subverting the intention of tax law. The transaction is recorded in the wrong place and the economic form does not match what is reported. That is tax avoidance.
I will not say those who claim ISAs are tax avoidance are lying. I will say they are being disingenuous. I would add that I doubt that they even know what that means. They live in a world where misrepresentation of the reality of contractual arrangements for tax purposes is so commonplace that telling what is real and what really is avoidance or not is probably quite hard for them to do. But that does not mean anyone else needs to be confused by their claims.
If someone is doing precisely what the law intends and allows for and seeks to encourage then they are not tax avoiding.
When they are doing something that the law never intended to happen and get a tax advantage from it then they are tax avoiding.
It's not hard to spot the difference. Unless, it seems, you sell tax abuse.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Entirely agree. But then on the same analysis neither is the non-dom regime, the UK permissive financing regime, nor SSE. All have been legislated by parliament.
And some are subject to EU challenge
Of note; “The great swathes of coverage being given to the Paradise Papers largely focuses attention on its beneficiaries and the specialised offshore marketers of the schemes, but scant attention has been directed towards The Big Four global accounting firms like Pricewaterhouse Coopers (PWC), Ernst & Young (EY), Deloitte and KPMG, that enabled tax dodging by aggressively marketing schemes in Luxembourg, Panama, Jersey, the Cayman Islands and the British Virgin Islands to their clients using firms like Appleby as conduits. Long before the Paradise Papers, or the Panama Papers, the Enron scandal, Savings and Loan crisis, WorldCom, and the Global Financial Crisis (GFC) governments in the United States, the UK and Australia were colluding with the world’s biggest banks and their clients using aggressions dynamics not to defeat but to suborn the controls of the supposedly independent professionals: The accountants. They aren’t just designing new tax avoidance schemes the likes of which feature in the Paradise and Panama Papers. The Big Four accountancy firms are lobbying for and directly drafting the very regulations and loopholes that enable them.” from Renegade’s Claire Connelly https://renegadeinc.com/bean-counters-lost-paradise/ Not quite like ISAs then 🙂
On ISAs.
Presumably the underlying rationale for ISAs is not so much that there is ‘government’ subsidy through the tax system for middle class savers, but rather to ensure there is big pile of cash for the finance industry to play with.
This compares with many other government wheezes where the apparent recipient is not actually the principal beneficiary. For example Student loans which are supposed to finance students’ education are in reality a gift to the finance industry . Housing benefit is a gift to landlords.
The logic defeats the policy makers completely when it comes to the wider ‘Welfare Benefits System’ where the provision of reasonable levels of payments would be a gift to the entire economy via High Street spending.
Yes, been batting such comments away for a few days now. Pension saving is another one.
In that case I’m glad you’ll agree that the zero per cent I pay in income tax in the UK, as a consequence of spread betting, is EXACTLY the same as an ISA. The government intends that people use ISA’s to reduce their level of taxes. The government intends that people that profit from gambling, whether the horses, the lottery or spread betting, pay nil taxes on their winnings.
Individual SAVINGS Accounts – geddit?
Another way to put this: if you use a device to reduce your tax bill which was designed and legislated for by the government you’re OK but if you use a device created by any other person or organisation you’re not.
That may be a little simplistic but it’s not a bad heuristic
There’s no need to stuff around with this one. The obvious purpose of this ploy is to create a deflection which says: “oh no, there isn’t one rule for the elites and another for everyone else. We’re just like those ordinary people with savings accounts”.
This, wherever it is encountered, should be called out for what it is: a bullshit attempt at pretending that billionaires with secret tax scams are no different to the rest of us.
The increasingly obvious truth is that their world is one that most of us could scarcely imagine.
Maybe this is splitting hairs. They are not active tax avoidance in the way you describe re aircraft leasing (and dozens, hundreds even, of other schemes employing fancy artifices). The government, however, has sanctioned dozens, hundreds even, of schemes, such as ISA’s, in which citizens, mainly wealthy citizens, can avoid paying tax, with the result that others, mainly poorer citizens have to pay more tax either on income or expenditure, or poorer citizens receive less entitlement than they otherwise would.
If I were on benefits, with the prospect (even the IFS says it will happen) of even more reductions in my laughable standard of living then I would say that the wealthy (relative to me on benefits) who use ISA’s etc are not only engaged in tax avoidance, however legitimate, but are receiving a subsidy, aka benefit (just like me) and that it ain’t fair or equitable. John Lee, ex-govt minister proclaims that he has made a million (plus) by taking advantage of ISA’s. Then when he comes to sell he won’t pay any Capital Gains Tax either.
Just because something is legitimated by the government doesn’t change the true, or moral, nature of the activity. After all, slavery was legitimate, and the government when it made it illegal even compensated the slave owners for their losses.
ISA’s aren’t devices to encourage saving, they’re a bribe to voters, like “right to buy” etc etc. Morally dubious.
I agree in principle
But let’s be clear: these aren’t tax avoidance. They’re officially sanctioned tax spends on people who do not need them
I like your last sentence.
@G Hewitt: ditto
ISA’s are tax allowances. Those who complain about ISA’s being tax avoidance don’t even have the basic understanding of the tax system.
Government decide the rate of tax allowances, underpinned by legislation.
I actually think this could be a good sign. If the argument is moving from “there is nothing wrong with tax avoidance” to “ok, it might be wrong, but everybody does it” then that is progress of a sort.
The next step will be likening the “double Irish” to buying duty free cigarettes at the airport!