The BBC has run a piece on people who want to pay their taxes on their web site. Good for the people in question.
But what I also noted in the piece was this:
Any public figure who takes a stand against tax avoidance, indeed, risks having the minutiae of their financial affairs scrutinised for evidence of hypocrisy.
Judith Freedman, professor of taxation law and fellow of Worcester College, Oxford, says this reflects the fact that the phrase "tax avoidance" is defined too loosely.
"Everyone does what they can to reduce the tax payable within the law," she says. "I don't think you should castigate the people who have responded to the incentives."
No, of course you don't Judith. That's the whole philosophy of the Oxford Centre for the Non-Taxation of Business Oxford Centre for Business Taxation, after all. Call it 'anything legal goes'.
But as the BBC note that approach has been rumbled:
For others, there is no ambiguity. [Businessman John] Caudwell says it's "complete nonsense" to compare ordinary paying into Isa savings accounts and pensions, which are subject to tax breaks purposefully created by parliament, with the exploiting loopholes sought out by accountants.
Quite so.
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The problem is that capital allowances, R&D tax relief and the Patent Box (for example) have all been described as tax avoidance tricks, despite being clearly intended by Parliament.
So Dr Freedman is quite right when she says that the use of the term is far too loose.
No one has said that
Although some aspects pf those measures has been criticised in giving apparently permanent and not reversing tax reliefs, as you would know if you read the material
Margaret Hodge has explicitly complained about the patent box being used to reduce tax liabilities, as (in her view) that is not what was intended.
Energy companies such as nPower, among others, got a lot of stick for claiming capital allowances and thereby paying no UK tax. I think it was 38 Degrees in particular that was complaining, though I could be wrong there as it was a year or two ago.
I think you have criticised capital allowances for not reversing where the business keeps investing, if I remember discussions about the Fair Tax Mark correctly, though you didn’t seem to get may people agreeing with you on that.
So, you appear to be agreeing with me
“So, you appear to be agreeing with me”
Well, yes, I think so, but only because you appear to be agreeing with me (and with Dr Freedman)
You say that “some aspects pf those measures has been criticised in giving apparently permanent and not reversing tax reliefs, as you would know if you read the material”
Now I have read the material: indeed, I’ve prepared R&D tax relief claims (I have half a dozen on the go at the moment) and Patent Box calculations (not so common), and I suspect I may be one up on you there.
The whole point of R&D and Patent Box is that they given absolutely permanent and non-reversing tax reliefs – nothing about them could ever reverse – so criticising them for doing so is either a) missing the point or b) just criticising them.
Now if these reliefs, that have been explicitly brought in by Parliament, and which could never have been imagined to be anything other than permanent reliefs, are counted as “tax avoidance”, then that term is being used in a very broad sense.
Given that you’ve said ISAs (also a relief that has been explicitly brought in by Parliament, and which could never have been imagined to be anything other than permanent relief) are not “tax avoidance”, then there is some contradiction:
– Margaret Hodge says an explicitly-given permanent relief (Patent Box) is tax avoidance
– You say explicitly-given permanent reliefs (ISAs) are not tax avoidance
I think Margaret Hodge is wrong and, given the above, it seems you do too.
I agree with Dr Freedman that the term “tax avoidance” is being used too loosely. As Margaret Hodge is using it to apply to something you say it doesn’t include, it seems that you agree with Dr Freedman too.
Which makes me wonder what the point of your blog post is. Why do you describe an approach you agree with as being “rumbled”, a term which suggests it’s not correct?
Note my exchange with Judith Freedman
Common ground?
Pull the other one
As cited in the quotation in the blog it would seem that Freedman is implying that someone exploiting loopholes is simply responding to incentives. But I note that HMRC’s own definition of tax avoidance is actually quite clear: ‘…bending the rules of the tax system to gain a tax advantage that parliament never intended.’ Now I’m sure that when Parliament makes the rules for our tax system it doesn’t do so from the mindset of “how much and in what way do we want this rule to be bent”. That is, there is no “intent” that a rule should be bent. Consequently, should we not conclude that the creation and exploitation of any loophole by bending the rules cannot be anything other than tax avoidance? And consequently loopholes can in no way be interpreted as incentives.
If however, the issue of rule bending arises from poorly drafted (ie. ambiguous) rules then one of the first things we might do to improve the situation is remove any tax expert/advisor associated with any of the organisations involved in the tax avoidance industry from the process of tax rule making. Or, where this is deemed impractical, in cases where they have been involved in the drafting of a tax rule and a loophole subsequently appears publicly censure them and the organisation they work for for their involvement in advising on/drafting weak legislation (as happened to the civil servants who drafted some of the rail franchises). That should act as an incentive to all those involved to draft tax rules that are as unambiguous as possible (ie. as Parliament intends), and thus reduce the scope for rule bending and the creation of loopholes.
You get my sentiment on Freedman’s position
It’s odd to think a person who can say that once argued for a general anti-avoidance principle
I agree with Ivan, particularly with regard to his comments about tax experts in practice and commerce drafting the legislation.
I can’t suppress the notion that in the same way Microsoft has written software with backdoors, which the NSA can exploit, those “helpful Big4 accountants” seconded to Government have written backdoors into tax legislation for example in relation to the Patent Box for their clients to exploit!
Hi Richard
The “will of Parliament” is being used a lot as an argument by tax campaigners, but it is a rather elusive concept and as a piece of rhetoric I think it plays into the hands of the anti-tax crowd.
The first thing you learn in a law degree is that there is no straightforward way to interpret legislation, and there is no clear “will” of Parliament as far as loopholes exist. I am sympathetic to the argument that if a particular piece of legislation has created a loophole which defies Parliament’s “will”, then Parliament should act to close it. And until Parliament does so, can we really say that Parliament has been “defied” by people who read legislation closely and literally?
I much prefer the simple argument of the smell test – sometimes a thing just stinks, and anyone who touches it knows their hands are getting dirty!
Keep up the good work.
Thanks
There is a lot of loose talk about “loopholes”, as if regimes like the patent box, or relief for investment in films, or the deductibility of interest, or entrepreneurs’ relief, or the substantial shareholding exemption, or R&D tax credits, or capital allowances, were not designed to reduce the tax payable. They were. That is the nature of tax incentives. If Parliament creates a tax incentive, people will use it.
Features like the tax rules for non-domiciled individuals or IHT business property relief are not “loopholes” either, although they do mean that less tax is collected.
Of course
And PWC were doing plain vanilla tax planning in Luxembourg
As was Chris Moyles
Etc
Etc
None of the tax regimes that I mentioned above involve Luxembourg. And Chris Moyles and others were badly advised: he is not a car dealer, and should never have pretended to be one.
It is far too easy to describe anything that results in less tax being paid as being a “loophole”. A loophole is a narrow gap or inconsistency in the law that results in an unexpected result, derived from its original use to describe a hole in a wall. I’m sure you have said yourself that it is not tax avoidance to use a tax relief in the manner in which it is intended. How can the patent box or capital allowances be a loophole?
Almost all reliefs can be abused
And distort
And be subject to claims that do not meet the required spec e.g. film tax reliefs
You wholly miss the point
I am somewhat sceptical about these people that say they are happy to pay the full 45% in tax. It looks to me like this may be just a case of good PR for them.
Whilst I suspect they may well be 45% tax payers they probably also make significant capital gains that are taxed at only 28%. I also suspect that a great deal of income is actually received by companies they own and unless they make full distributions of that income they will only pay 21%. Even if they do distribute it all I doubt they take it all as PAYE, in which case they will avoid the National Insurance other people pay on their earnings.
If this is correct then you conclude that their effective tax rate is a lot lower than that of many of the people that work for them.
All perfectly legal, but a little more transparency might help us to see whether or not these people engage in tax avoidance or are happy to pay the 45% rate in full, or only on such part of their income that they so choose.
I think there does have to be a point where cynicism is suspended
But we can disagree
I shall focus on the substance since I have dealt with the ad feminen attacks so many times already.
It is ironic that , though you accuse me of being over friendly with business, I am the one who is cynical of business motives and you swallow the PR lines . If you read what I say properly, even within the quotes in this article, you will understand that it is 100% consistent with wanting to do all that can be done to improve the law to remove incentives to reduce tax and indeed I say that even under current law ( including our much maligned GAAR, which is doing more than you give it credit for) many artificial schemes can and are being defeated.
Such a shame that you spend your time attacking people who want to improve tax law .
If that is really your aim all I can say is that it is a shame that you consistently disguise it so well,
I am far from alone in thinking so, with this quote being just another example of that.
The explanation is, in fact, in what you say: you want “to do all that can be done to improve the law to remove incentives to reduce tax”
I am aware that the latter is the aim of the Oxford Centre for Business Taxation. Chris Wales told me that a 15% CT rate was a goal at an early conference it held, and he was in a position to know.
The fact is that some of us are not so conditional. We want to improve tax law so that it can achieve the social goals that politicians of all parties that have formed majority governments since 1945 have set for it. We don’t set terms for making tax work. And that’s the gulf between is.
Improving the tax system to remove incentives people have to reduce the tax they pay – ie to reduce tax breaks, simplify the structure of taxes – seems to be an aim many tax reformers share and indeed the PAC agree it needs to be done. Rather odd to criticise me for that aim.
I said nothing about rates of tax so please don’t put words in my mouth.
The Oxford Centre for Business Tax has no collective view. I don’t speak for the Centre and nobody speaks for me.
Chris Wales is entitled to his views but he does not speak for the Centre. His views are entirely personal.
Noted
On another point…
Richard, that’s John Caudwell you are quoting in favour of your point of view. John Caudwell of Dextra Accessories, the Phones4u company with the Jersey EBTs, where the directors were paid salaries that did little more than use up their basic rate band and then hundreds of thousands of pounds in loans from the EBTs.
It is
And he also says that was a serious mistake
A repentant sinner Mike
How is it that Caudwell can cut through the BS, while a law professor and half the tax profession appear incapable of doing the same?
I don’t recall the man on the Clapham Omnibus being seconded to government to give his views and wishes on the design of ISAs and pensions.
On the other hand, I can’t imagine the R & D and Patent Box reliefs being designed without a significant wish list and substantial input from Big 4 Accountants and their clients.
Oh how silly of me to forget about the massive entitlement culture within “Big Business” that is currently wrecking our society…
Surely the constant traffic in staff between HMRC and the big 4 accountants have rendered any debate of tax evasion v avoidance pretty meaningless. It is now a distinction without a difference.