I am sure everyone in the industry worth their salt knows the difference between tax avoidance and tax evasion: one is legal and the other is definitely illegal.
Tax evasion is what the jockey Lester Piggott got done for years ago, and as result lost his knighthood, while tax avoidance is what every good adviser spends their time trying to do on behalf of their clients.
The subject is beginning to rear its head again, partially as a result of the Government’s review aimed at simplifying the tax system in this country, but more importantly because the Inland Revenue, or HMRC as we must now call it, is looking at maximising revenue by collecting more tax.
The worrying thing is HMRC seem to be taking a different view of what constitutes evasion and what is legitimate avoidance.
Sir Philip Green found himself almost dragged into the row the other week when it was announced the coalition had asked him to take a look at reducing waste in Government departments and procurement. Now, he seems like the sort of bloke who knows what he is doing, but inevitably some politicians were a bit unhappy, probably because he will find out more about their gravy train.
They claim it’s a bit rich someone of his wealth does not pay more personal tax, yet is going to give them advice on efficiency.
Running a business or government efficiently actually has nothing to do with taxation and, as Sir Philip quite rightly points out, his companies have continued to grow in the face of the recession and he is employing more and more people. He uses all the legitimate tax planning techniques you would expect, including maximising his wife’s status.
What is better for the economy – that he pays a bit more personal tax or his companies keep employing more people, who in turn pay tax?Do not get me wrong, I would love to be a pound behind Sir Philip – and if my daughters did not spend so much in his shops I might have a chance – but frankly the country needs entrepreneurs like him.
More worrying than how much tax he pays are some of interpretations the HMRC seems to be putting on its own rules. These call into question whether or not some of the traditional tax-planning structures and routes advisers have been using are still safe.
I have heard of one worrying case where a legitimate investment has been used but the Revenue is saying the investment was only made for tax avoidance purposes. It is questioning whether the investment was made for tax or investment reasons.
The answer to their own question so far has been: “It was for tax reasons, so you owe us about £20k in unpaid tax.”
No-one likes a bill for 20 grand from the taxman at the best of times, least of all long after the end of the bonus season. But it marks a worrying trend if HMRC is going to starting pursuing individuals for modest amounts when they are only using what looks like a legitimate tax avoidance scheme.
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at lawrencegosling@sky.com
