I see tax shenanigans by wealthy people and companies are in the headlines again.
This is always an interesting one for those of us in that world (tax, not wealth unfortunately).
For many years, the UK’s position on tax and the obligation or otherwise to pay it was neatly summed up by Lord Clyde in a famous (in tax terms) court case from 1929:
“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”
In other words, the Revenue (HMRC these days) are entitled to use their powers to tax us, but we are equally entitled to use legal means to minimise that tax.
That legal mitigation approach is termed tax avoidance. It is clearly distinct from illegal stuff, which we call tax evasion. The problem we have these days is that the distinction has been blurred by journalists and politicians (in particular).
For the avoidance of doubt: tax evasion is illegal. Tax avoidance is within the letter of the law (but possibly not the spirit).
This is the crux of the issue – there is mass confusion between what is illegal, what is “immoral” but legal and what is both “moral” and legal. To muddy the waters even more, the last few governments have resorted to introducing the concept of “fairness” into their thinking around tax.
Moral? Fair? What do those mean? Is it “fairer” for someone earning £250,000 a year to pay £98,000 in income tax and national insurance whilst someone on £25,000 pays £3,500? Does the richer one use more of the NHS (probably doesn’t use it at all)? Send more children to State schools (ditto)? Wear out more roads?
I’m not expressing an opinion as to fairness – I’m just highlighting what a minefield we can get into when we introduce subjective, nebulous concepts into a consideration of taxation.
Whilst there are undoubtedly some dodgy and probably illegal activities being exposed by this latest release of documents, the vast majority of the revelations are no more than the long-term result of over-complicated taxation systems and the endless loopholes they generate.
And who creates the over-complicated taxation systems? The same politicians who then moan about tax avoidance!
Like it or not, it’s the same with the likes of Apple, Google, Starbucks, etc. What they are doing is legal, just extremely annoying.
It is changing though. The tax landscape today is very different to the one existing when I started nearly 30 years ago. I suspect the big boys know the good times are coming to an end…..
Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.