Poll on attitudes to tax

[king_pellinor]

"Taxation" magazine is doing a survey to see if the public's attitude to tax avoidance/evasion/planning is what the Government thinks it is.  Can I ask people to have a quick go at it, to inform the debate a bit?  It's all anonymous.

http://bit.ly/TaxHowFar

Comments

[philmophlegm.livejournal.com]

Well ok then, I'll admit to being an evil tax avoider.

I have an ISA.
I have an occupational pension scheme.
One of my employers pays me dividends out of post-tax profits rather than salary out of pre-tax profits.
My other employer lets me have more holiday (which isn't taxed or NIed) instead of more salary (which is).
I include professional subscriptions on my tax return.
I tick the Gift Aid box.

I'm intrigued that now it's somehow morally reprehensible to not pay tax that you aren't actually obliged to. I note however, that it is perfectly acceptable (encouraged even) to obtain state benefits that you don't need. If tax avoidance like the measures I mentioned above is now appalling, then so should (in my own case) free medicines when I could afford to pay for them. (I don't even have to pay prescription charges.)

Other forms of tax avoidance seem to be acceptable. Cycling instead of driving for example. This avoids road fund licence, fuel duty and VAT - three whole taxes! So shouldn't cyclists come in for lots of tax avoidance criticism? People like me with high-performance, super-unleaded-guzzling sports cars should be praised by the anti-avoidance crowd. We're really doing our bit, unlike those immoral cyclists or walkers.

How about not flying? Or not watching television? Or not buying stuff? All activities which actively avoid tax far more efficiently and effectively than any Jersey-based trust.

I don't get it.

Unless the difference between acceptable tax planning and morally repugnant and aggressive tax avoidance is simply "Stuff that I do: acceptable tax planning; stuff that people that I'm jealous of or just don't like do: morally repugnant and agressive tax avoidance."

[king-pellinor.livejournal.com]

It's an irregular verb:

I take acceptable steps to mitigate my liability
You use legal planning of questionable morality
He's a filthy cheat

[wellinghall.livejournal.com]

Yep.

[bunn.livejournal.com]

I don't think that's what the survey is asking about though is it? Or, most of the questions aren't. Most of the questions (2,3,4,7,9, 10) seem to be about not paying tax that is supposed to be paid but you haven't actually had a demand for, and hoping you won't get found out.

Not getting found out is not 'avoidance' surely, or am I missing something?

[philmophlegm.livejournal.com]

Some of the questions seem to be asking about illegal tax evasion that you think you can get away with (perhaps because it would be hard for HMRC to spot or because "everyone does it") while others seem to be asking about legal tax avoidance that some people would think was somehow morally wrong. So I suspect the survey is actually trying to determine if people think that the first is ok while the second is bad or vice versa or both are fine or both are bad or if people are just inconsistent hypocrites.

[king-pellinor.livejournal.com]

The classic definitions are:

Evasion is not paying tax which is legally due, either by not reporting it properly (if at all) or by just not paying it.
Avoidance is doing something such that the tax attaching to the transactions is less than it might otherwise have been

Over the last few years the debate has shifted slightly, so HMRC and Government now talk about "acceptable" and "unacceptable" tax avoidance, and don't refer to "evasion" very much. The difference seems to be that unacceptable avoidance is avoiding tax which Parliament intended you to pay; acceptable avoidance isn't really something that HMRC talk about, but presumably it means taking advantage of specific reliefs that are available.

Acceptable avoidance seemed to be synonymous with "planning", but now that seems to have acquired connotations of dodginess too, so people have started to talk about "mitigation".

So now we have:

Evasion: Illegal. Not paying tax which is clearly due.
Avoidance: Legal but immoral. Not paying tax which HMRC/Government/UK Uncut think you ought to have paid, even though they can't make it stick in the courts.
Planning: Legal and a bit dodgy. Paying an expert for advice on how to arrange things so as to pay less tax than you might otherwise have done.
Mitigation: Legal and fine. Using reliefs and schemes explicitly set out by Parliament.

The distinctions are a bit blurred. Vodafone is being castigated for not paying tax which people think is due, for example, when they're actually just claiming capital allowances which are quite clearly intended by Parliament.

The problems seems to stem from two factors: people not understanding tax law as it is writ, and people not understanding Parliament's intentions.

To which we can add a third: people not understanding that the UK is part of a wider world, and that other countries have the right to tax people too. The ridiculous thing about Barclays paying 1% tax came from that.

[bunn.livejournal.com]

That was more or less my understanding, but I read the majority of questions as referring to evasion, with 4 of them referring to different kinds of avoidance - was I wrong?

I can see that things get blurry when you are talking about Barclays or Vodafone because they are humungous great multinational complex businesses doing insanely complicated things with huge piles of cash that mostly exists only in a computer's crazed imagination.

But these questions ask about little simple transactions of relatively small amounts, with individuals and owner managed businesses inside the UK. I don't really see how the two relate?

[king-pellinor.livejournal.com]

I read 6 of them as being evasion, one as being fairly aggressive tax planning, and three as being perfectly ordinary unobjectionable things to do. Of the evasions, one is something that is so minor as to not really worry much about.

Things very easily get blurry for UK individuals and OMBs. Today, for example, I've dealt with:

- I built a house for my son, who works for me, and would like to claim the VAT back. According to HMRC it can't be done through the DIY self-build scheme because it's business-related, but can't be put through the business because it's a private cost. The Inspector I spoke to did think that as new houses shouldn't have VAT on them I shouldn't miss out on both, but wasn't very helpful as to which one would apply.
- When I buy tickets to this event, am I entertaining a customer, advertising my business, or donating to charity? If I say it's a donation but HMRC say it's entertaining...?
- If my company pays the cost of my MBA course, is it paying a business cost, paying me a dividend, or giving me a benefit? If I say it's a legitimate business cost and HMRC disagree, am I evading tax, avoiding it, or just making a mistake?
- An employee has stolen from my business, and messed up the accounts so I can't tell what's been going on. They're related to me: is HMRC correct to say that I've actually benefited because a member of my family has now received tax-free cash, so if I claim a deduction for the loss then HMRC has lost out and that's Cheating The Revenue.

[adaese.livejournal.com]

Thanks for that, Pellinor. I'd been mentally bracketing them as "schemes set up by Parliament to encourage Worthy Actions, such as saving for retirement or giving to charity" = okay, and "schemes dreamed up as a way of getting around the rules" = not okay. To which I would add the rider that "if your scheme later leads to Parliament making tax law more complicated because they are trying to plug loopholes, you then have no right to complain that tax law is too complicated".

[kargicq.livejournal.com]

I'm with you, Adaese. I don't think it's as complicated as Philmophlegm implies. Ticking the gift aid box isn't morally dodgy because Parliament passed that legislation precisely so we could do that. Ditto ISAs and pensions. Setting up complicated "companies" in Jersey which only exist in order to buy your house and thus avoid stamp duty (or however these things work), OTOH, is dodgy, if Parliament intended people in your position to pay stamp duty. I agree there are some grey areas, but in general it doesn't seem that arcane a distinction to draw. - Neuromancer

[king-pellinor.livejournal.com]

Why do you italicise "companies"? They're perfectly legal entities, and surely having a company which only exists in order to invest in property isn't such an objectionable thing?

Incidentally, you can avoid stamp duty land tax perfectly well by using a UK company - though the new rules will change things a bit - there's no need to go to Jersey.

The problem with Parliament's intention is where to look for it, if you're allowed to look outside the legislation. With stamp duty land tax, the problem is that the legislation taxes a change in immediate ownership of property, whereas people are complaining that actually the idea was to tax changes in ultimate ownership.

That of course leads to a whole load of other problems, not least what happens when ICI shares change hands on the stock market - presumably the idea wasn't to tax those changes in ultimate ownership.

So what did Parliament intend? Immediate ownership, or ultimate? The legislation is clear that SDLT taxes changes in immediate ownership, and taxing ultimate ownership is horribly complicated and unfair - so it's arguably odd to say that Parliament meant to do the latter.

[kargicq.livejournal.com]

I italicised "companies" to indicate "entities set up purely to reduce the tax liabilities of their owners". To me a "proper" company is something which exists to achieve some purpose and/or make profit other than simply by reducing an existing tax liability.
I can't follow the arguments about ultimate and immediate ownership: sorry! You know I'm well outside my area of expertise here. All I perceive is: Ordinary people like me have to pay £££ in stamp duty whenever we move house. Rich people with cunning accountants can do something clever involving setting up a "company" which means they avoid paying this tax. I resent this :-). If I have got it totally wrong and in fact everyone pays stamp duty just like me, well that is great news and I will be happy to be assured of this fact. -N.

[king-pellinor.livejournal.com]

It's not all that complicated. All you do is set up a company to buy the house you want, and the company then rents it to you. When you decide to move, then instead of selling the house you sell the company that owns it. Stamp Duty on the shares is due at 0.5% of the value of the company, instead of Stamp Duty Land Tax at 4% (or more, now). If you lent the company the money to buy the house, then the company is worth very little so the 0.5% is on a very low amount - it becomes pretty much negligible.

It's like having your own little property-investment business, just that you are your company's tenant.

It doesn't happen that often in the UK because you lose out heavily on the Capital Gains Tax side (normally selling your house is exempt, but selling shares wouldn't be), but you may be in a position where CGT wouldn't kick in, for one reason or another - if it's a Jersey company and you're not UK-resident, for example. Or if you have several houses you're going to get CGT on most of them anyway, so you might as well save the SDLT.

You don't need to be rich or cunning, you just need to be in the right circumstances for certain things to apply - like not living in the UK, for example. There's a school of thought that says that non-UK people selling shares in non-UK companies shouldn't be liable to UK tax. Of course there's another that says that if UK land is changing hands then it doesn't matter where those hands are.

It's one of those areas where it's very hard to draw a sensible line. If you look through the company to say the shareholder is really selling property not shares, then firstly you're undermining company law generally, and secondly what happens if we have say ten shareholders in a company with a dozen houses being rented out to random tenants - should they pay SDLT if one sells his shares? What if it's a listed company that has a small property portfolio as well as it's main business - should we charge SDLT every time the shares get traded? It's a tricky one.

[kargicq.livejournal.com]

(Previously when I mentioned Jersey you said "Incidentally, you can avoid stamp duty land tax perfectly well by using a UK company - though the new rules will change things a bit - there's no need to go to Jersey" but now it sounds as if you do need to go to Jersey if you want to avoid the CGT.)

I accept that there are some grey areas and hard cases, as in everything, but mostly it just Doesn't Sound That Tricky to me. I buy my house, sell it, pay ££££ in SDLT. Rich person resident in Monaco buys house next door via company in Jersey, sells it, pays £000. That doesn't sound fair to me nor (I pretty much guarantee you) to 99% of the UK population.

Neuromancer

[king-pellinor.livejournal.com]

As I say, you don't necessarily want to avoid CGT. It's what makes this sort of thing so complicated - everyone's in a different situation.

When it comes to fairness, people can be a bit odd. How about person in UK buys holiday home in France, sells it, suddenly finds they've got a French tax liability or two? I know of quite a few people who think that's unfair - they're British, why are the French coming after them?

Or how about a person who has to move every few years because of his job and gets an SDLT charge every time on top of his moving bills, while his friend in the company's head office gets to stay in the same town for 20 years and pays nothing. To many people, paying SDLT at all is unfair.

[wellinghall.livejournal.com]

The problems seems to stem from two factors: people not understanding tax law as it is writ, and people not understanding Parliament's intentions.

Which can themselves be further sub-divided, I think:
- Parliament's intentions not being properly reflected in the legislation
- lawyers, judges and tax advisers having varying interpretations of the law, for whatever reason
- the law not being clearly expressed (which overlaps with, but is not the same as, the previous point)
- the law not taking into account every eventuality - either new tax planning / avoidance / evasion schemes, or just things that were not fully thought through.

[wellinghall.livejournal.com]

Don't eat out. If you want a take-away, get a pasty instead of fish'n'chips. Have chocolate chip cookies instead of chocolate coated biscuits. Drink bitters. Put money into a pension.

[beckyc.livejournal.com]

then so should (in my own case) free medicines when I could afford to pay for them. (I don't even have to pay prescription charges.)

I have similarly wondered what circumstances it was morally sound to get OTC meds on prescription and thus not have to pay extra for them given that I have enough prescription-only medicines that I have a prepayment certificate anyway.

Usually pragmatism wins out over morals (e.g. not wasting GP time with trivia = buy OTC vs going abroad = get a GP letter and prescription for everything that might be controlled in the countries I'm visiting or cause serious health problems if confiscated/lost)