Some of the dsebate at the Revenue Bar Association last night focussed on the difficulty of defining tax avoidance. I offered a definition in the debate which was:
An arrangement that is intended to reduce or eliminate a liability to one or more taxes in a way that could not have been anticipated by any reasonable legislator and whether or not the law in question specifically relates to tax or not
Some found this broadly acceptable.
But can I be clear that this means that paying money into an ISA and getting pension tax relief can never be tax avoidance in that case? I say this because an MP suggested these may be tax avoidance in my presence the other day, and that is wrong because the law deliberately intended that those reliefs be provided and so no tax can have been avoided.
Those tax reliefs may, and may not, be a waste of government money, but they are not tax avoidance. The two are not the same.
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My question is: if the test is the conduct of ‘the reasonable legislator’, can we regard delay in closing a well-known and commonplace loophole (eg trusts for IHT, one-person businesses operating under a limited company when they behave like an employee) as acquiescence by delay?
It would be the case in just about every other walk of life where you are assessing ‘a reasonable person’.
It has always puzzled me that you get a difficult case before the courts crying out for legislators to ‘fill the gaps’ and let their intentions known (not just in tax law) – but they often do nothing as if they are unaware the case has happened.
What about inter-spousal transfers of assets?
Seems to me that’s intended by the legislation with no caveats.
It is – with come conditions
The settlements legislation does exist for a reason
… and the legislation intends that only UK individual residents are subject to tax on UK dividends? So that’s Phillip Green and wife in the clear under your definition.
Also, if this rule is followed and you do what your local taxing authority intends but the EU say it’s state aid down the road, then the likes of Apple haven’t avoided any tax either, as they have met your definition.
I have already dealt with that
It is interesting to compare and contrast those with so much that they can afford advisers to tell them how to squirrel it away and gain yet more from dodging the taxman with the report from the Money Advice Service showing 16 million citizens with less than £100 in savings.
http://www.bbc.co.uk/news/business-37504449
Parallel Universes is the only explanation I can think of.
I agree
What’s your view on individuals who can pay different rates of tax based on whether they trade as a Ltd or as a sole trader? This seems to me like more of a grey area – both valid structures, significantly different tax liabilities.
Is one more right than the other? Was the legislator’s intent here to allow people to choose which ever structure gives the smallest tax liability (as with regular savings vs ISA)?
I suspect you have blogged about this, but I couldn’t find one the other day when this came up in a conversation.
I have long argued for reform
http://www.taxresearch.org.uk/Blog/2007/08/09/arctic-systems-moving-small-business-taxation-on-in-the-uk/
At the risk of being provocative:
“But can I be clear that this means that paying money into an ISA and getting pension tax relief can never be tax avoidance in that case?”
I agree with this statement. Extending: I don’t believe in ISAs and pensions because I think the returns are poor and/or many pension funds are badly managed. Thus I invest & manage my money directly (mostly publicly quoted shares). But I get no tax relief. To me this sounds unfair (this is not an argument to abolish ISAs or indeed pensions – but in favour of perhaps some more flexibility in the way one provides for ones age….. and the way in which this is taxed. I don’t have the figures to hand – but I believe that the proportion of the Uk pop holding shares has declined. Pity.
I think much of this relief is wasted: it is simply a subsidy to financial services who have captured it for their gain
Mike Parr: Self-managed ISAs and SIPPs are available, in which you can buy publicly quoted shares of your own choosing. You don’t have to choose between going self-select and benefiting from tax relief. Perhaps you need to do a bit more research into what options you have.
Thanks for your reply. Apart from buying or selling charges my stockborker charges a miniscule amount for my share holdings. By contrast the companies that “manage” “self managed ISAs” (example:) charge 0.2% up to a max of £200/year – for what exactly? As Richard said: “a subsidy to financial services who have captured it for their gain”.
I have a very low opinion of the UK financial services “sector” – who seem to me, to be set up with the express aim of extracting the max out of “customers” whilst doing the absolute minimum.
I have to agree that, in aggregate, a large part of these tax reliefs are probably captured by the financial services sector. And for pensions, the solution is to go back to SERPS, which is vastly more efficient by cutting the finance sector out of the process altogether (that would be in place of auto-enrolment pensions, and in return for withdrawing a lot of the tax relief available for anybody who does choose to pay into private pensions).
However, as individuals working within the current system, we have various options to minimize how much finance creams off. For most people, the best option is generally to avoid (expensive) actively-managed funds, instead using passive funds (a.k.a. trackers), which have become much cheaper in recent years – the management fees could even work out cheaper than the buying and selling charges you pay when you buy individual shares.
If you are buying individual shares, you can find self-select ISAs with a similar pricing model to what you’re paying with no tax wrapper – i.e. very little apart from the buying/selling charges. SIPPs are a bit more expensive, it’s true.
“in a way that could not have been anticipated by any reasonable legislator”
Did you mean ‘would’ or ‘was’, rather than ‘could’? Otherwise only schemes so blatant that they involve something utterly unimaginable at the time of legislating would be avoidance.
How much simpler this would be if we could just say what we mean: don’t do what the you-know-whos do. But still, keep up the good fight, we’ll finally solve this problem one day.
So, Richard, can you give an example of a multi-national company engaging in an arrangement that could not have been anticipated by the legislators? As far as I can see MNCs engage in arrangements that barely even test the arrangements. These days they sit square and snug inside them. So you are accepting that currently there is little if any tax avoidance by MNCs?
Or can you give examples. Actual examples? With names and actions and amounts involved?
I won’t because if I know I cannot repeat
But I am assured it happens regularly by many with reason to know
And I have evbery reason to believe them
So, what is it when I (insert_verb_here) paying income tax by my income being below the tax threshold, paying tobacco tax by not buying tobacco, paying alcohol tax by not buying alcohol?
By the normal rules of English I _avoid_ paying income tax/tobacco tax/alcohol tax.
The normal rules of English have failed here, as in so many technical areas
You make a demand that makes no sense
In which case no answer is required
Oh,for goodness sake… you’re not avoiding an outcome by not performing an action, unless an action is required to avoid that outcome.
To be clear – VAT on tobacco is not an issue unless one buys tobacco. One doesn’t avoid VAT by not buying tobacco… rather one creates a VAT charge by buying it. Surely that’s obvious?
Yesterday, I avoided arrest and public ridicule by not painting my face blue and dancing naked atop the fourth plinth in Trafalgar Square, singing Hallelujah. I also avoided a Bank levy charge by not being a bank. Today I intend to avoid a charge to tax on the remittance to the UK of funds to myself as a Non Domicile, which I intend to achieve by not being a Non Domicile and not remitting funds I don’t have to the UK.
If the above sounds a little ridiculous, please remember that you started it 🙂
Well it amused me
So thank you
I think that the Treasury benefits by people on average incomes taking out ISAs. How? Because with a share ISA tax is still taken. Unlike tax taken outside an ISA wrapper, people cannot use that tax as Gift Aid. Have I got it wrong?
Crikey
That will impact 15 people a year I should think
But why a basic rate taxpayer would want shares in an ISA now is hard to imagine