20 NOVEMBER 2012
TAX AVOIDANCE - IMMORAL OR CULTURAL?
Last week I began a debate about Conceptual Art. That has attracted some attention but I have yet to receive a satisfactory reply as to exactly what it is and my challenge to the artistic community is still out there. In my next blog on the matter I intend to examine what art itself is and whether Conceptual Art ‘fits’ into this definition. So don’t go away, we’re not done yet.
Meanwhile I want to try and tackle the thorny subject of tax avoidance. This has been on my mind for a while (see below) but the opportunity to raise the issue slipped by and it no longer seemed topical. But with last week’s exposure by the Public Accounts Committee of the practices of some of our biggest multinational companies, the time seems ripe to return to it.
So, Starbucks, Google and Amazon all have a huge presence in the UK and in our national life but make very little contribution toward the upkeep of our country. Should this surprise us? Probably not. And I say that in a practical rather than a cynical way. These companies employ the very best accountants and advisers and use them to maximise the returns for their shareholders. It’s called capitalism and it’s the system that has provided us with the benefits of a modern economy, consumer choice and the increases in the standard of living we have become used to over the last couple of centuries. In fact, paying minimal amounts of tax strikes me as either the sign of a failing company (which they clearly are not) or a very well run one. They have correctly identified the place where the minimum amount of tax is payable and organised themselves to make their profits accordingly. And dare I say it, but if it were me I’d be doing exactly the same.
It’s not illegal. Tax avoidance means arranging your affairs in a manner that enables you to minimise your tax within the law. But is it immoral? The Chair of the Public Accounts Committee, Margaret Hodge, certainly thinks so. ‘We’re not accusing you of being illegal, we’re accusing you of being immoral.’ And it’s this that takes me back to the incident some months ago when the comedian Jimmy Carr was found to have used an off-shore tax haven to shelter some of his earnings. On this occasion it was The Prime Minister no less who branded his actions ‘immoral’. These remarks infuriated me. Let me tell you why.
In a previous life, I was a Financial Consultant. I gave it up to become a full-time author when I found that the first thing I did on receiving my weekly copy of Money Marketing was to look for the Sudoku. I had lost interest. But for twenty long and incredibly hard years I spent considerable amounts of my time advising my clients on how they could reduce their tax bills. Here are just a few examples.
1. If you’re self-employed and your partner doesn’t use all their Income Tax allowance, employ them in your business and pay them a wage.
2. The first place you should look to put investment money is in an ISA. It ‘avoids’ paying Capital Gains Tax.
3. If your estate is likely to be subject to Inheritance Tax, you may be able to ‘avoid’ some of it through the use of Will Trusts.
The point is, my industry (not to mention my clients) expected me to do this – I would have been censured and accused of giving ‘bad advice’ had I not done so. Someone like me probably did the same for Jimmy Carr. And yet, according to David Cameron, that was ‘immoral’ - and so, by implication, am I.
I resent that. Who is David Cameron, or Margaret Hodge for that matter, to tell me I am ‘immoral’? No politician can tell me that, it’s matter between me and my conscience. And you can’t mean to tell me that the very same people who brand these multinational companies, and the Jimmy Carrs of this world, ‘immoral’ are not also seeking to minimise their tax bills – ‘let he who is without sin, cast the first stone’.
I will be getting my next tax bill in January. Naturally, I will be paying it on time and in full - but I’ve made sure it’s as little as possible. Tax evasion is illegal – but tax avoidance is a national pastime, everyone’s at it. But can you blame them? Why should an individual who seeks to reduce their tax bill be any less ‘immoral’ than these multinational companies? It’s part of our culture and it’s as natural for us to do so as it is to ask for a pay rise. As I said, we benefit from a capitalist economy where self-interest is the driving force, so no wonder tax avoidance is endemic.
There are, of course, those who will think differently and it seems to me that these fall into one of two categories. Firstly, those who pay no tax at all. My Dear Lady Wife told me of a conversation she recently overheard in a crowded railway carriage. The participants were all students and with one exception (and I bet he slept alone that night) they swore blind that they would all want to pay as much tax as possible to assist our down-trodden economy. I suspect that none of them were liable to pay tax at all and that when they do reach that exalted position, along with the mortgage (if they can get one) and having to support two young children, it will be a commitment they’ll conveniently forget.
The other category is comprised of those rich enough to make the statement without it hurting too much. And the fact that they do so will make them appear all the less greedy and guilty, just like the noble families of old who gave to The Church in the expectation of a better afterlife. Self-interest at work, yet again.
This whole issue reeks of hypocrisy. In my copy of the ‘pink’ paper that made comment on the Jimmy Carr affair from the perspective of the Financial Services industry, there was a definite degree on contrition on the matter - should we really be advising on these schemes? And yet, on the very next page was a leading article headed ‘Ten Top Tips for Mitigating Your Clients’ Inheritance Tax Bills’. As I say, it’s cultural and avoiding tax is built into our national psyche .
The Government itself is no less hypocritical. Let me illustrate the point through Cash ISAs. I suspect many members of the Government will have Cash ISAs. Millions of people throughout the country have Cash ISAs. I have a Cash ISA and so does my Dear Lady Wife. A Cash ISA is a means of ‘avoiding’ paying Income Tax on the interest on deposit-based savings (such as it is at present). It’s a Government backed scheme to stimulate people to save. In other words, it encourages the very same ‘immorality’ that they accuse us of having in the first place. What could be more hypocritical than that?
This consistent labelling of people as ‘immoral’ sounds to me like a concerted scheme. And my suspicion is that it’s not motivated by principle but rather the Government’s need to boost its tax revenues. Unable or unwilling to legislate, the authorities have embarked on a programme of naming and shaming as a means of encouraging us to pay more tax. Appalled as we might be at how big companies and rich individuals pay so little in tax, I can’t imagine such a scheme will have any effect. Avoiding tax is part of our nature and you can’t change our culture overnight. And calling us ‘immoral’ as a way of trying to do it is offensive and deeply hypocritical.
So, raise our taxes if you must and the law-abiding majority of us will pay them - but please don’t insult us in the meanwhile. Come off it, Mr Cameron – you’ll have to do better than that!