My name is Emily and sometimes I avoid tax

Tax avoidance

Noun

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):

tax code

(Source: TPA)

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.

ISAs

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.

Marriage allowance

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)

Pensions

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:

uniform

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.)

Charitable donations

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?

5 Comments

  1. Is there not a difference between (1) everyday things like ISAs and gift aid, and (2) highly contrived schemes such as ones that use complex structures of companies, partnerships and trusts, or that make tax losses appear when there has been no economic loss? There is no prospect of drawing a sharp boundary between the two, and there may also be a large middle ground. But it is still possible to recognize that some things are clearly OK, while some other things, even though legal, are ethically dubious and show a lack of civic virtue.

    The UK’s general anti-abuse rule (Finance Act 2013, sections 206 onwards) represents one attempt to identify at least some of the things that are clearly not on. It looks like a pretty decent attempt, and one that is arguably quite generous to the tax avoiders, since it only attacks arrangements that cannot reasonably be regarded as reasonable (the double reasonableness test).

  2. Oliver H says:

    The premise of that article is completely undermined by HMRC’s own definitions of tax planning and tax avoidance.
    To quote HMRC

    “There are many legitimate ways in which you can
    save tax, for example by saving in a tax-free ISA, making donations to charity
    through Gift Aid, claiming capital allowances on assets used in your business
    or paying into a pension scheme. But there is a big difference between using tax
    reliefs and allowances in the way in which they are intended to be used, and
    trying to bend the rules to avoid tax. ”
    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372502/Tempted_by_Tax_Avoidance.pdf

    ISAs and pension relief are clearly not tax avoidance – they are schemes and allowances provided by the government to achieve a certain aim. e.g – to encourage savings.

    I.e the government, the treasury and HMRC do not expect you to pay income tax on your pension contributions and to have a certain amount of savings in a tax free environment. They will consider this when they do the sums for the budget, just as they don’t expect you to pay tax on your income tax allowance.

    That is clearly not the same as wiring your money to the Cayman Islands, wrap it in three layers of secret companies and use it to anonymously buy London property.

  3. Ann Park says:

    We live in 2016 and a reduction in tax due to circumstance is part and parcel of our system . It’s basically those that know how can appeal for a reduction and those who can afford it can employ an accountant to help in that area. I.E. know the ropes approaching the tax office is obviously the best first step and getting the best advice possible. It is encouraged in our country to excel at your job or career and benefit both yourself and family and the rest of us plus other nations. However Mr Taxman has his job to do and since the Magna Carta we all contribute towards the task. SIMPLE.

  4. I’m afraid this article is a complete load of twaddle, ISAs are a mechanism to encourage people to save money. They are being used as the government intended. This is not the same as the artificial schemes used by corporations and wealthy individuals to avoid paying corporation tax and income tax. Completely ludicrous! If this is the best you can offer in the defence of tax avoidance than you’ve already lost.

  5. Daniele Perissi says:

    Are you serious? I know that probably you don’t have a basic understanding of interpreting law and regulations, but if you don’t, probably the best thing is to just stay silent. You would avoid making a fool of yourself.
    The difference between using the law for what is intended (its object and purpose) and bending the law to achieve something that is contrary to its object and purpose (cause there is no economic substance behind the arrangement) is a simple difference any judge or other independent body interpreting the law regularly does.
    If you don’t understand this, attend a course instead of writing a blog.

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