…on the Great Tax Avoidance Furore

Tax AvoidanceTax Avoidance hits the news again as yet another celebrity (in this case Gary Barlow of Take That) has been found using legal schemes to reduce his tax bill, and the full weight of the media and public opinion is being brought down upon him, with demands that he be striped of his OBE (thereby presumably making him Gary Arlw), pilloried and more.

Interestingly, even though 2 of his band-mates (Howard Donald and Mark Owen) who also availed themselves of the same scheme seem to have escaped most of the attacks and venom, which does rather suggest that there is a strong personal component driving a lot of it.

Of course, Gary and his chums are not the first (nor will they be the last) celebrities to have used Tax Avoidance schemes to legally reduce their tax liabilities. There’s been Jimmy Carr, Anne Robinson, Bono, David Bowie, Keith Richards, Mick Jagger, Charlie Watts, Terry Venables, Colin Jackson, the list goes on and on (with some notable exceptions such as J K Rowling of course).

Tax Avoidance, Tax Evasion : What’s the difference?

  • Tax Avoidance is defined as The process whereby an individual plans his or her finances so as to apply all exemptions and deductions provided by tax laws to reduce taxable income.
  • Tax Evasion is defined as The process whereby a person, through commission of Fraud, unlawfully pays less tax than the law mandates.

I must stress that throughout I am talking about Tax Avoidance (which is legal), as opposed to Tax Evasion (which is thoroughly illegal).

So What’s The Issue?

The issue at stake is that in each of these cases, the celebrities involved used legal means to reduce the amount of tax they were due to pay on their income. Many have called the schemes “morally wrong” which they may very well be; however the fact remains that even HM Revenue & Customs state that there was nothing illegal going on, although they are looking very closely at how they can shut the schemes down.

That is the vital point here – what these celebrities have done is completely legal. They have not broken the law.

As morally repugnant as one may find their actions, they are perfectly legal.

The Big Boys

Which brings us to the likes of Amazon, Google, Starbucks, Caffé Nero and more who, between them, have used legal schemes to be able to avoid paying millions of pounds of tax each year.

Interestingly, though, Costa Coffee do not exploit such loopholes, and once the story broke about Starbuck and Caffé Nero, with talks of consumer boycotts, Costa reported a massive increase in its coffee sales!  Seems that consumer pressure can have results, although whether these are sustained in the long run is another question (to which I’ve not been able to find figures one way or the other).

I Am A Tax Avoider

There. I’ve said it. I use legal means to educe the amount of tax I pay.

Before you demand I be placed in the stocks, however, I would also venture to suggest that you are also a tax avoider, as are most likely the majority of your friends.

  • Have you ever invested in an ISA? Tax Avoidance.
  • Do you have a SIPP or any other form of pension investment? Tax Avoidance.
  • Have you ever made sure you claimed for all of your tax allowances? Tax Avoidance.
  • Ever bought Premium Bonds? Tax Avoidance.
  • Set out the establishment of Trust Funds in your will? Tax Avoidance.
  • Made certain types of charitable donations? Tax Avoidance.
  • Have you ever bought something from Duty Free? Tax Avoidance.
  • Ever paid a builder or plumber etc in cash for a discount? Almost certainly Tax EVASION (a common trick, the work doesn’t go through the books, so they evade paying tax on the un-recorded income)

Every single one of those (except the last one) is a perfectly legal means of reducing the amount of tax which one pays. Perfectly legal ways of avoiding tax, and ones in which the vast majority of us use at various stages in our lives.

You see, most of us like the idea of paying less to the taxman if we can, which is fine as long as we do it legally.
And that is precisely what those tax avoiding celebrities and businesses are also doing, just on a larger scale.

“Ah, but that’s different – when I do it it’s only a small amount, when they do it it’s a huge amount” is an oft quoted position, which itself contains two problems.
Firstly, “It’s only me” still mounts up to a large amount when millions of us do it.
Secondly, the implication that there is a threshold below which tax avoidance is acceptable and above which it is not – nobody has been able to define what that limit should be (other than “more than I avoid”).

What’s To Be Done?

Many call for boycotts of the companies indulging in tax avoidance, or make demands that those companies voluntarily pay more tax, or call for punitive measures to be taken against the tax avoiding celebrities. Which, whilst perhaps making the individual feel good (especially if it is a chance to bash a company or celebrity they dislike), doesn’t actually resolve the underlying issue that what the tax avoiders are doing is legal.

And therein lies the answer.

If we are opposed to this sort of activity, then the answer is for Government to overhaul the tax laws to make such activity no longer legal. Yes, some unscrupulous individuals and businesses may continue to flout the new laws, but that’s where the legal process and potential prosecution with fines and/or jail time come in.

When this prospect is raised, sometimes the Government complains that it would be very difficult to change the legislation and draft up new watertight rules, and that it could make us less attractive to business. But you know what? That’s their job! To create effective efficient useful legislation, and if they don’t think they can do it, then they should quit and hand the job to someone who can.

Now, I’m not saying it would be easy, nor fast, but it would be the best long term solution.

And, according to government figures, could bring in an extra £120 billion annually.

Certainly, the current media-led mass-hysteria public lynchings are not the answer.

Of course, the cynical amongst us might observe that the Government (regardless of which party or parties are in power) does not have much incentive to address the issue, because many of their big supporters and even their own MPs make great use of tax avoidance schemes themselves, which perhaps explains why they are more than happy for a few celebrities and multinationals to take the heat so they can deflect public attention away from having to address the root cause.  Which is another major aspect of the whole issue – rather than demanding a proper solution to the whole tax avoidance situation sty its root level, namely legislation, far too many of us are content to allow ourselves to be manipulated by the media into a witch-hunt against those who follow the letter of the law, to hide the fact that so many of  the media and government are exploiting the self-same loop-holes to their benefit.

Such as that bastion dedicate to the exposure of tax avoiders, the Guardian whose own tax affairs make interesting reading.  As do the tax arrangements of the Murdoch empire, owners of The Sun, The Times and BSkyB; or those of many government ministers.

Hmm, there almost seems to be a pattern forming here!

And Finally

If one really does think that we should be paying more tax, one is of course completely free to write a cheque payable to HM Revenue & Customs and send it to them, I know they will be grateful (if somewhat surprised). Somehow I doubt anyone will, though – it’s always “the rich” who should pay more, where “rich” is pretty much always defined as “has more money than me”!