Which side of the fence are you on?

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Dennis Howlett posted the following comment yesterday, but since not everyone looks at the comments I thought I’d share it more broadly:

You and KPMG are on opposite sides of a very tall fence. The problem for each of you is there is no common ground. What you propose represents a fundamental shift in the philosophy underpinning taxation, the answers to which don't only lie in a code of morality. You challenge human nature as it applies to business at a deep and fundamental level.

When the two sides can find a way of breaking down the fence, then progress will be made.

It needs the public and not just professionals to understand this. The alternative is that the Treasury grasps what you and others say for political purposes but does so from a position that fails to recognise its own failings.

No problem with a gladiatorial battle, but the real audience is the taxpayer. Win them over, and everything else follows. That inevitably means researching and exposing the impact of less than ethical practices across a broad range of nation states. IMO.

Well, yes to some degree you’re right. My view of how to create a successful business (and I’ve done more than a few) does not accord with KPMG’s (but then, if you read the KPMG tax report which started this you’ll see that HMRC reckon that KPMG’s world view does not always accord with their client’s — with which I would agree).

But there’s another point. Dave Hartnett presented some fascinating data to the KPMG symposium. Its source is not noted, but unlike some in the tax world, I trust Dave and am sure it is right. It is this:

Research carried out in Canada suggested that 50% of taxpayers would be compliant irrespective of the circumstances, and 10% would be non-compliant. The remaining 40% were capable of being influenced. Factors that would influence behaviour were: individual values; the level of support provided by HMRC (and the extent to which taxpayers had confidence in it); the opportunities available for non-compliance; the ease or difficulty of complying with obligations; the level of trust between taxpayers and HMRC; and the consequences of non-compliance.

What does this say? I suggest:

1. I start the battle with half the population firmly on my side (even if they don’t know it);
2. 10% will always be non-compliant — a statistic confirmed by research on UK tax compliance, by the way;
3. 40% might agree, which must mean that any time I can expect the majority to be on my side.

I like that. It’s a good starting point.

It’s also unsurprising. The KPMG world view is rarefied. Why? Well, their average profit per partner is £556,000 for start. That’s so far off the ordinary income scale that it is bound to have some influence on your thinking. What you see as normal when (after tax) you have about £27,000 a month to spend is going to make you see the world in a different way from the average person, who earns less than that gross in a year. You might see tax as optional. After all, you can buy yourself out of most everything it supplies (bar the legal system that lets you earn that much and supports your right to retain your profit).

Why say this? Well, for simple reason. Most accountants would have you believe that my starting point has something odd, even maverick about it. What I’m making clear is that this is not true. I’m with the majority. It’s the accountants who have to justify their position. Because it is the non-standard one, and it comes from their being in an unusual position where (even lower down the echelons) many partners in particular have a view of business that is not shared by their clients and of tax that is way out of line with that of society at large.

But I don’t dispute one thing. We do need the debate.