The term first appeared in the 1970s and has survived long enough to merit inclusion in the Oxford English Dictionary, which defines it thus: "The arrangement of one's financial affairs so as to avoid or minimise tax liability in such a way that it is not clear whether this constitutes lawful avoidance of tax or illegal tax evasion."
As it happens, the K2 tax scheme used by Jimmy Carr to dodge paying tax was entirely legal and disclosed to Her Majesty's Revenue and Customs. That does not mean that it was right. A practice that is technically legal is not necessarily morally defensible.
The comedian is a hypocrite. He is happy to raise a laugh by satirising the greed of fat cat bankers, while using cunning schemes to pay far less tax than those who have paid (out of their taxed income) to see him. His first instinct was to brave it out. "I pay what I have to pay and not a penny more," he declared. He recanted only after it became clear that his reputation was on the line. If he is as sorry as he says he is, he would pay the tax he avoided.
The Government's response also smacks of hypocrisy. Why did the Prime Minister lash out at Carr but ignore the shady devices used by large organisations and the super-rich, including a number of Tory donors, to drastically slim down their tax bills? This issue is not about tax exiles, who choose to live in countries with lower tax rates than the UK's. It is about those who continue to live in Britain and use its public services but contrive not to pay their fair share towards the cost.
This is particularly irksome to those who have neither the means nor inclination to avoid paying their taxes, especially at a time when every penny is needed to reduce the structural deficit and pay for schools, hospitals, libraries, parks and the like.
Like every government before it, the Coalition pledged to crack down hard on tax dodgers. Yet two years after coming to power, Chancellor George Osborne revealed in his Budget speech that he was shocked to discover that some of the wealthiest people in the country pay virtually no income tax. His response was to reduce the top rate of tax in the naive belief that someone who has avoided income tax set at 50% would be happy to write cheques to HMRC if the top rate was cut to 45%.
It is all very well to declare an intention to pass a general anti-avoidance law but, as the term avoision implies, there is a blurred line between avoidance and evasion. And what constitutes "aggressive avoidance"? Would it include sheltering one's family from inheritance tax, for example?
If the Government was serious about cracking down on shady schemes, why has it imposed deep cuts on HMRC? Rather than soundbites condemning Carr, the Government should work on closing the loopholes that allow these egregious schemes to thrive and pursuing those who exploit them. As accountants can be relied on to come up with ever-more ingenious schemes to minimise their clients' tax liabilities, this needs to be a dynamic process.
We have only to look at the Greek economy to see what happens to countries where tax avoision is endemic. That is why the UK Government should devote the same zeal to chasing tax dodgers as it does to cutting public expenditure.
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