The arrangement of one’s financial affairs to minimise tax liability within the law.
It’s awful isn’t it? People avoiding tax. They are scum, cheating the state of its rightful property. It might be legally OK, but it is morally wrong.
These are the kinds of things I have been hearing this week following the publishing of details of the dealing of Panama law firm Mossack Fonseca.
But I think people saying this kind of thing are wrong. And they’re wrong for two main reasons:
- Tax law is deliberately designed to encourage people to use reliefs and allowances to reduce their tax bill – which is tax avoidance.
- These outraged commentators condemn tax avoidance as a pursuit of the rich, but it is actually widespread and accepted – something that almost everyone does.
Are you outraged yet?
On that first point, here’s our tax code next to Hong Kong’s (yes, our is the big one):
That’s almost 21,000 pages, with 1,100 tax reliefs deliberately built in.
Other countries do it differently. They have shorter, simpler tax codes with fewer tax reliefs. That one from Hong Kong has fewer than 300 pages.
A simpler tax code would decrease avoidance, make enforcement easier, and mean fewer people would need the services of an accountant.
Because of the length and complexity of our tax code many of the most lucrative schemes are available only to large businesses and wealthy people – because they have enough money to make paying teams of accountants worthwhile.
But tax avoidance is not limited to the rich and famous, no mater what the BBC might like you to believe.
Common tax avoidance schemes
Guys, it’s all around you. Scummy people avoiding tax left, right and centre. They’re all at it.
Though of course by ‘they’ I mean ‘me’. And actually, I probably mean ‘you’ too.
You know how when you have a savings account, you pay tax on the interest you earn?
And you know how ISAs are tax-free savings accounts?
Yup. Tax avoidance.
In 2013, an estimated 20 million people in the UK had an ISA. Tax avoidance is at practically epidemic proportions.
You may recall the chancellor introducing the marriage allowance, which allows you to transfer up to £1,100 of your tax free allowance to your spouse if you earn less than £11k a year and your spouse earns between £11,001 and £43,000.
Not for rich people then. Just ordinary couples where one partner works less or earns less – for example, working fewer hours to care for children.
Scummy tax avoiders!
(If you wish to take this up, gov.uk has details)
You also get tax relief on pension contributions. If your pensions contributions are automatically deducted from your pay by your employer – for example in a workplace scheme – you may not have realised you’re getting 20% tax relief. For higher earners, relief can rise to 45% (in line with income tax thresholds).
If you make your own arrangements, you can claim the tax back when you put money into your pension – and many people do.
And all of that is no small fry: pensions tax relief currently ‘costs’ around £34 billion per year. (of course it doesn’t actually ‘cost’ the Treasury anything as it wasn’t the government’s money to begin with)
People avoiding tax when providing for their age old – terrible.
Uniform tax rebate
Every now and then I am mooching around on Facebook and an ad like this pops up:
Though to be fair, the ads I see are usually targeted at NHS workers.
MoneySavingExpert.com helpfully explains:
“If you wear a uniform at work, and have to wash, repair or replace it yourself, you may be able to reclaim £100s of tax for up to five years of expenses.”
Do you know what this is? It is tax avoidance, and it is a scourge. Especially when it is done by NHS nurses.
On your holidays
Have you been reading through this post and thinking “nope… nope… nope… doesn’t apply to me”?
I’m about to burst your bubble.
Have you ever been on holiday abroad? Traveled through an airport? Perhaps you picked up a bottle of perfume, a carton of cigarettes, or something else in that appealing ‘duty free’ area?
You do realise that ‘duty’ means ‘tax’, and ‘duty free’ means not paying tax that you would usually pay on that purchase? In this situation the tax you’re avoiding is VAT, applied at 20% to all non-essential items.
I’m afraid the news is even worse if you’ve ever brought a couple of bottles of wine back from France, or used your allowance for tobacco products bought from pretty much any other country in world.
You know all this stuff is cheaper because other countries don’t charge as much tax on booze and ciggies as we do? And that in buying it abroad you are – again – avoiding tax.
(Note: This does not apply to buying cigarettes off your mate who got them in France or Poland or where ever – that my friend is evasion and it is illegal.)
This is the killer.
One of the most common forms of tax avoidance is giving money to charity:
- Gift Aid: Pretty sure we’ve all done this. Usually when sponsoring a friend’s fun run for Cancer Research or whatever. Gift Aid is where the government gives the income tax you’ve already paid to the charity you are donating to.
- Other tax relief: Gift Aid is built out of the very old principle that money you give to charity is not taxed, e.g. you may usually pay 20% tax on £1,000, but if you give that £1,000 to charity you do not. Thus giving that £1,000 to charity deprives HMRC of £200 in tax.
Many businesses and individuals give money to charity and thus become filthy tax avoiders. Some people even do it when they’re dead, leaving money to charity and thus avoiding Inheritance Tax. Morally repugnant, isn’t it?
You may recall this coming up last year when Ed Miliband accused Lord Fink of avoiding tax, and Lord Fink had this to say:
“The only way I have ever sought to depress my Income Tax liability is by giving a lot of my income to charity.”
Such a philanthropist should not be welcome in decent society.
And lots more
There are far too many tax avoidance methods that people across the country use to list them all here. This blog contains just a short, illustrative list. And I hope it is illustrative, because this is not a ‘them’ versus ‘us’ issue.
Media reporting often makes out that tax avoidance is a pursuit of wealthy people only, and the furore around the ‘Panama Papers’ adds to that feeling.
But next time you give some money to charity and use Gift Aid, or buy some perfume at the airport, remember: this is tax avoidance and it is legal. And if management of your taxes within the law is morally wrong, we’re all sinners.
If you maintain that tax avoidance is morally wrong, why not condemn your friends and relatives as roundly and loudly as you do David Cameron’s dead father?