An American judge once said “Taxes are the price we pay for a civilized society.”
He was right. Tax is central to our way of life. It pays for a vast range of things we need – and which the market has never supplied, and could not supply.
But it does more than that. It pays for government itself. And without government to enforce law and order, our right to own private property, and to enforce the contracts that underpin business then we wouldn’t have a private sector as well as not having a state sector. It’s not too bold a claim to say that tax is fundamental to our well being.
There’s a problem though: it seems that some who want to live in civilised society don’t want to pay tax and so want to get round the rules that underpin any fair system of government.
When it comes to tax there are three forms of cheating. First there are tax evaders. They simply break the law by making false declarations or no declarations at all to tax authorities and so don’t pay their way.
Second there are those who admit they owe tax and then just don’t pay it: a surprisingly large number of people and organisations – mainly businesses - abuse the law and society in this way.
Lastly there are the tax avoiders.
Tax avoiders do – as the advert claims - “what it says on the tin”. In other words they try to avoid the law. They do this by finding loopholes in the tax law of one country or between the tax laws of different countries or between tax and company law, all of which means they try to claim that they can legally pay less than a parliament that created the tax law they’re avoiding intended they should.
Tax avoiders aren’t breaking the law. If they were they’d be evaders. As a result they claim that they’re doing nothing wrong. But that’s as good as claiming those practicing apartheid in South Africa weren’t doing anything wrong when it was legal to undertake that abuse. Tax avoidance isn’t as personally offensive but it’s an abuse against society and each law abiding person in it just the same. What the tax avoider does not pay someone else must pay if everyone – including the tax avoider – is to get the services they want from society.
Tax avoidance is, then, an offence against society at large even if it’s not illegal. And it is, like apartheid, heavily targeted abuse. To avoid tax you have to first of all owe tax; secondly you usually have to afford the advice on how to tax avoid, and very often you must have income in excess of your current needs, as a lot of tax avoidance is about shifting money around – and if you need every penny you earn to live then that’s not possible. The result is that tax avoidance is a crime against society that shifts wealth from the poor to the rich and tax burdens form the rich to the poor in any society. In its worst cases – in developing countries – it is helping continue assign whole populations to poverty though lack of education, health and other essential services. Some have argued as a result that tax abuse is the organised commercial crime in existence since the abolition of slavery, and I agree with them.
That doesn’t mean that everyone doing tax planning – like claiming the allowances due to them in law for business expenses, pensions paid or extra tax relief because they’re old – is a tax avoider. They’re not. The law makes clear people are intended to get these tax reliefs, so anyone is entitled to them if they have, of course, paid the expense in the course of their business or the pension contribution in question or really are old. Claiming those reliefs is what we call ‚Äòtax compliant behaviour’. That’s making appropriate tax returns to ensure you pay the tax that the law intended you should pay, and no more.
Tax avoiders don’t do this: they try to pay less than the law intended and still claim what they’re doing is legal. Typical abuses include:
¬? Businesses artificially shifting profits out of the UK to tax havens;
¬? Businesses claiming allowances and reliefs to which they’re not entitled – but which loopholes permit until they’re closed;
¬? People shifting income within families to people who haven’t really earned it, to pay lower tax as a result;
¬? Trying to claim that income is actually a capital gain – when capital gains are taxed at lower rates than income.
These abuses are common. And may are widely endorsed by accountants, lawyers and bankers who sell these schemes to their clients. But that doesn’t make them acceptable. It’s been estimated that they cost the UK £25 billion a year – although H M Revenue & Customs say it’s somewhat less, but on the basis of statistics that seem hard to justify.
Whatever the true story – and whatever the true number – there’s not a doubt tax avoidance happens, is a real problem to tax authorities, and a cost on everyone – and most especially those least well off – in society.
Tackling it is vital. If one third of it were stopped each year then I estimate £8 billion of extra funds would be available to the UK government. That, by itself, won’t stop all cuts. But it would:
1. Pay for school sport;
2. Provide free university education;
3. Ensure the sure start programme was properly funded.
That’s three ways of increasing equality, access to education, well being and economic growth in society.
Tax cheats stop that.
That’s why stopping tax cheats is the right thing to do.