A question of morality
Business Tax, General Tax, Tax Avoidance, Tax Policy
‘The time has come’ the Walrus said,
‘To talk of many things…’
(Lewis Carroll in ‘Through the Looking Glass’)
Why do most people stop at a red traffic light? Is it fear of punishment, self-preservation, because the law says you should (in other words, respect for the rules) or because society expects you to?
According to Bronislaw Malinowski, the Polish anthropologist, law is defined by its function. His view was that the function of law was to maintain social order. In ‘Crime and custom in savage society’ (1926), a work based on his study of the Trobriand Islanders of Papua New Guinea, Malinowski concluded that, even in what was regarded as a primitive society:
‘The rules of law stand out from the rest in that they are felt and regarded as the obligations of one person and the rightful claims of another.’
A paper published in the Journal of Public Economics in June 1992 reported that there is some evidence that individuals pay their taxes because they value the public goods and services their taxes finance. But that was 1992, and twenty years later, in an online poll of 2,026 adults carried out for Christian Aid, 37% of respondents said they would consider using a tax haven to reduce their tax bill if they knew how to. 54% of 25-34 year olds (compared to 25% of those aged 55-64) said they would consider doing so. So it seems that lack of knowledge may now be a reason why there isn’t more tax avoidance going on.
At the risk of stating the obvious, tax avoidance is not illegal. In other words, there’s no law against it in general terms, although there is a GAAR (general anti-abuse rule) which applies to counteract ‘abusive tax arrangements,’ and a fair few TAARs (targeted anti-avoidance rules), in the tax legislation.
To some, tax avoidance is unacceptable behaviour (particularly when someone else is doing it). To others, it is not. There is also the problem of defining tax avoidance. The FT Lexicon explains the differences between tax avoidance, tax evasion and tax planning as follows:
‘Tax avoidance is a practice of using legal means to pay the least amount of tax possible. This is different to tax evasion which is the practice of using illegal methods to avoid paying tax.
There is also a difference between avoidance and tax planning as paying minimal tax is not necessarily a sign of avoidance.
Tax avoidance is using the tax law to obtain a tax advantage that the government never intended. It frequently involves contrived, artificial transactions that serve no purpose other than to reduce tax liability. Tax planning involves using tax reliefs for the purpose for which they were intended.’
Elementary, my dear Watson.
HMRC have been engaging in a moral crusade under the banner the ‘right tax at the right time’ without explaining what the ‘right tax’ is (other than it being what HMRC think it is). Making tax a matter of morality, rather than law, may be a double-edged sword. It will give those who have a moral objection to some areas of government spending, such as foreign wars and nuclear weapons, grounds for seeking to hypothecate their tax payments. There will also need to be morally acceptable behaviour on both sides (taxpayer and tax collector) which may be a big ask.
Sweden has high personal taxes, but, in spite of that, the Swedish Tax Agency, is popular. A 2015 survey showed that it has the third best reputation of 27 major Swedish public bodies, scoring highly for its customer service and for ‘contributing positively to society.’
The UK’s tax gatherers do not evoke the same warm and fuzzy feelings in UK taxpayers. In November 2015 in a survey carried out on behalf of the National Audit Office one in five taxpayers who contacted HMRC rated the service they received as either poor or terrible.
In Nicholas Deluca v HMRC the Tribunal had the following to say about HMRC:
‘I am satisfied that HMRC had no justification for pursuing Mr Deluca for the tax and consequently putting him in a position of having to appeal … HMRC should have recognised at an early stage in the enquiry on whom (if they were correct) the tax liability would properly fall. Their action in pursuing him in effect driving him to incur the costs was unreasonable in the extreme’.
In Kestrel Guards Limited v HMRC the First-tier Tribunal was similarly critical:
‘In keeping records, and producing them to the Tribunal, that untruthfully show the taxpayer as having refused to pay its tax liability, HMRC is acting unfairly and probably unlawfully.’
In 2014 HMRC were criticised by the Public Accounts Committee for using the Regulation of Investigatory Powers Act 2000 (an anti-terrorism measure) to investigate one of its own employees (and also his wife) after he blew the whistle on an alleged sweetheart deal between HMRC and Goldman Sachs.
I could go on and on.
It seems that the taxman is now sticking handwritten Post-it notes on letters to tax avoiders in a bid to ‘nudge’ them into paying up. FT Money reports that the notes say something along the lines of: ‘please give me a call, if you would like to discuss,’ followed by a first name and telephone number.
By the way, the Swedish word for tax, ‘skatt’, has another meaning, treasure. Perhaps renaming tax ‘chocolate’ would increase the amount flowing into the Treasury’s coffers.
No, forget that, there’s no need. The Post-it notes should do it (provided someone at HMRC picks up the phone).
Tax lawyer specialising in business tax, SDLT and VAT
Tax is a legal issue and the onslaught of HMRC who drive a coach and horses through the law has and does still gradually undermined the rule of law.
I saw a letter to a potential litigant saying his name would be published as a tax avoider. He sought my advice and I said prosecute the writer for attempting to pervert the course of justice. Given the revenues refusal to state openly ever that tax avoidance is not illegal then the effect of such a threat is all the more greater.
The CPS would have discontniued this on the ground of public policy so he never pursued it. BUT it IS time citizens of this vile campaign fought back and had backing from their MP’s in so doing.
There is now a threat to lawyers for advising in certain circumstances on tax issues, even though a Barrister cannot refuse a brief save in certain circumstances. The reason? Legal privilege cannot be pierced save in giving advice to commit a criminal offence, so we stop it another way. That makes the giving of such advice analogous with helping a client commit a criminal offence – and so the point is made! -Want me to go on?
By the way both professional bodies have been deafeningly silent on the latest proposal!!!
Interesting article, Ann. In presentations I have done in the past I have occasionally mentioned the apparently very British view of taxation and compulsion, as described by the Roman, Cornelius Tacitus in ‘Agricola’ in A.D. 98
“The Britons themselves submit to the levy, the tribute and the other charges of Empire with cheerful readiness, provided that there is no abuse. That they bitterly resent; for they are broken in to obedience, not to slavery.”
Some things seem to never change…..
The UK does not have a general anti-avoidance rule but a General Anti-ABUSE Rule (GAAR) – a typo in the above article I’m sure, but an important one. During the process of legislating, the differences between the two and the importance of such a distinction were debated at length.
Yes Josh it was a typo and I have corrected it.
Thanks for spotting it.
I agree with everything you say, Ann. I have sought to answer some related questions and looked at some other cases which put HMRC in a very dubious light in my own blog article:
It’s abundantly clear that there are double standards here, and we should certainly be exposing them as much as we can.