Richard Lupson-Darnell has done some smart analysis of George Osborne’s speech on his blog, saying:
In his speech to the Conservative Party conference yesterday, George Osborne said this:
“Nor will we tolerate tax evasion. It is unacceptable at the best of times; it too is morally indefensible in times like these. And this party will not stand for it.”
Hmm. These words echo those of Danny Alexander, Chief Secretary to the Treasury, who in his speech to the Lib Dem conference last month said “Just like the benefit cheat, they take resources from those who need them most. Tax avoidance and evasion are unacceptable in the best of times but in today’s circumstances it is morally indefensible.”
Spot the difference? Danny doesn’t like avoidance and evasion whereas George simply doesn’t like evasion.
Now the Revenue are beginning to see avoidance and evasion in the same light and morally I agree with that. But I would like to know whether George is embracing that wider definition or whether his words were chosen every so carefully so as not to upset some of his friends and his party.
What’s the answer George?
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On its own, Osborne’s point is meaningless. Of course they wouldn’t tolerate tax evasion, it’s a criminal act by definition, anymore than they would tolerate mugging old ladies in the street to rob them of their pension money. (But is he going to provide HMRC with the resources to catch tax evaders?)
It only makes sense if he couples it with an intolerance of tax avoidance as you rightly say. So it’s back to the question, why didn’t Osborne say so?
perhaps he was simply stating that breaking the law is unacceptable.
I wonder what the bloggers evidence is for stating that HMRC are seeing evasion and avoidance in the same light.
The two are not the same and never will be unless avoidance is made a criminal offence.
@Justin
The evidence is them fact the HMRC have clearly moved to this position – both being treated as unacceptable and therefore open to attack
Justin,
By definition, avoidance cannot be a criminal offence.
@Harry Lyons
And usually most people have no idea what side of the fine line between evasion and avoidance they’re on
Didn’t Dave Hartnett make some remark that he expected to wipe out avoidance in a couple of years or something?
Quoting a quote from accountingweb “HMRC’s strategy is to design out opportunities for avoidance as far as possible; to detect avoidance early; and to respond it to it quickly – by advising ministers on changing the law or by investigation and if necessary litigation”. That looks like they see the two in the same light.
The issue distinction between avoidance and evasion has become blurred through the writings and utterings of those who decided to introduce a third category to the debate called “mitigation” and then moved so called acceptable avoidance into this category while leaving “unacceptable avoidance” in the avoidance category. This was probably motivated by a selective reading of the Willoughby judgement.
Until there is a universal acceptance and proper understanding of the 3 categories, the debate will always be subjective.
@Justin
That’s a good point Justin. I think previously things like making an election on your second residence, disclaiming capital allowances, allocating the proceeds from a sale of business between P&M/L&B/stock, do you sell the shares or assets of a company, would have been classed as tax avoidance but now these are probably regarded as tax “mitigation” or “planning” – indeed that’s how accountants and tax advisers now tend to sell them.
The govt sometimes uses taxation to incentivise certain behaviour, e.g. personal saving or business investment. Is this what is meant by “acceptable avoidance”? Personally I think the term is meaningless. In fact tax incentives are generally misguided because of the law of unintended consequences. People don’t need incentives to save. Those that have surplus to requirements hardly need an incentive and those that haven’t can’t. Also tax incentives to business to invest are the wrong tool. Good local public investment is generally the only necessary condition.
Annual land value tax replacing taxes on labour and capital would be a stimulus for businesses to move to where jobs are scarce and provide the finance for the local investment.
When I give internal seminars on tax to my colleagues, I split it as below (have to keep it simple as they are lawyers). I point out that there are grey boundaries – particularly between 3+4, 4+5, and 5+6 and that over time what fell into one category can move into another due to changes in court decisions, public awareness, sentiment, politics, morals etc.
I don’t think it is helpful for politicians and tax officials all of whom should know better (G Brown in particular stand up) deliberately to confuse the public by mkaing public statement that suggest or inply that avoidance and evasion are exactly the same thing (morally they may be – legally they are not) and I also don’t think it is helpful for references to be made (by the same people) to glib statements about payment being required of the “right amount of tax”.
1. Tax compliance – always legal and always acceptable to HMRC (you do nothing to save tax)
2. Tax mitigation – you do something to save tax and it is always legal and acceptable to HMRC (put money in an ISA)
3. Acceptable tax avoidance – you do something to save tax which is always legal and (usually) acceptable to HMRC, but it cannot be guaranteed (husband transfers some of his shares to his wife capital gains tax free and she then sells them to use her own annual CGT exemption)
4. Unacceptable tax avoidance – you do something to save tax which is always legal and always susceptible to challenge by HMRC (this is the area of the artificial scheme)
5. Tax evasion – always illegal and always subject to HMRC challenge, prosecution
6. Tax fraud/theft etc – always illegal
@roger rabbit
I buy that
Fair summary
But given that this is true there is a reasonable basis to determine within reasonable parameters ‘the right amount of tax’
@Richard Murphy
The grey area extends between the “you know its dodgy but it complies with an interpretation of the law”, and “susceptible to challenge by HMRC”. The problem with the latter is that HMRC are prone to changing their mind. The problem with the former is that it is only a Court that is able to make the distinction.
Its easy to make a judgement from a soap box on “the right amount of tax”, but in the real world its not that simple.
The best way to tackle tax evasion is to employ more inspectors at HMRC. The best way to tackle tax avoidance is to simplify the tax code drastically so that the loopholes which provide opportunities for “immoral” tax avoidance disappear. Carol Wilcox could make some very sensible suggestions on how to do that. If HMG are really serious about tackling either evasion or avoidance they need to do one or both. We’ve heard the words. Now let’s see some actions.
@Richard Murphy
I also buy Rogger Rabbit’s summary.
In my view, as a Chartered Tax Adviser, the “right amount of tax” has always been a range, rather than an absolute, which embraces the first 3 levels Roger Rabbit describes. My job as an adviser is, given a certain set of circumstances, to enble my client to have the chance to pay the lowest “right amount of tax”.
So for example, if a client sets up a business, the attributes of which mean that it would qualify under the Enterprise Investment Scheme, but I didn’t inform him of that, on selling his shares, the CGT he might pay is not necessarily wrong but its not the lowest it could have been. Whether I should be sued in that case is a seperate matter!
@Richard, St Albans
I agree with you
And you completely answer
@alastair
It is a range. So what. In a grey world most things are in a range – and we can all live with that
@Adam Smith Fan
I agree
Abolish VCTs, EIS, ISAs, linmit pension releif to basic rate, limit all on more than £100,000 to £5,000 max allowances, abolish gift aid but allow charities to reclaim tax on all donations (subject to proof of real charitable activity and UK source of donation), remove tax relief on interest for more than 70% of value on buy to let, radically alter small company tax to a ‘look through basis’ with basic rate withholding for all foreign interests, make trusts look through (discretionary on settlor or max personal rate unless distributed)and we’re beginning to motor to reform
I read an interesting article by JK Rowling earlier this year, a single mother who raised her child thanks to benefit payments and who went to fame we’re all familiar with. She said the choice her accountant posed was “do you want to organise your money around your life or your life around your money.” Needless to say she chose the former.
Full UK taxpayer, has contributed what must be tens of millions in tax revenue alone, never mind the ancillary revenue generated around the UK and indeed the world thanks to the mega-business Harry Potter has become.
Or she could have jetted off to an island hideaway/tax-haven principality (delete as appropriate).
@Richard Murphy
Can I add bring spread betting within the tax system to your list as well to reflect the commercial reality of the activity? Why else would it be regulated by the FSA rather than the Gambling Commission?
@SFL
Hats off to JKR’s accountant. As a starting point to advising on tax, that’s about as good as I’ve heard. And if everyone in the City took the former view that would be a start.
And then there is the bespoke corporate tax mitigation/avoidance provided by lawyers and accountants which generally lies somewhere between 3 and 4, more complex than the widely known strategies but (usually) not an off the shelf product as sold by IFA’s.
@Deeply Depressed
Please do
@Alex
Nonsense
You’re just excusing abuse – it is your stock-in-trade
[…] 6, 2010 by Richard My post about George Osborne’s comments on tax evasion was kindly reproduced on his blog by Richard Murphy. One of the many comments made there was from one of his readers, […]