Tax avoidance is also an ethical issue

Thursday 22 November 2012

There is little evidence that Her Majesty's Revenue and Customs (HMRC) is getting anywhere in preventing the use of highly contrived tax avoidance schemes by a large number of taxpayers.

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That's the verdict of the National Audit Office (NAO), whose report includes staggering revelations.

HMRC has 41,000 open cases on tax avoidance schemes employed by businesses and individuals. Under its tax avoidance disclosure strategy, more than 100 new avoidance schemes have been revealed in each of the last four years. HMRC has initiated 93 changes to tax law to reduce avoidance, and argues most new schemes would be defeated if tested in the courts.

That optimistic interpretation might not be the one suggested by the failure of the department to prove its case against the Rangers oldco in the so-called "Big Tax case". Employee Benefit Trusts used to pay players and staff were ruled, narrowly, to be legal loans, at a First Tier Tax Tribunal. Tax avoidance is estimated to cost the UK's coffers anything from £32 billion to £120bn annually. The Government cites the lower figure, but outside observers believe it could be much higher. Both figures relate to individuals buying into schemes such as that formerly used by comedian Jimmy Carr and small, large or global businesses avoiding a range of liabilities, such as corporation tax.Many of the schemes, if tested, are found to be legal. Many are plainly so, and MPs conceded as much when grilling senior executives from the likes of Starbucks, Amazon and Google at Westminster's Public Accounts Committee last week. The question often raised is whether such arrangements are ethical. Morality is not a concept that troubles those charged with drawing up balance sheets. Politicians and businesses are increasingly aware that terms such as "legitimate tax avoidance", "tax efficiency" and "tax planning" are the focus of public anger. The latest public sector borrowing figures are likely to further polarise the issue. The Treasury continues to protest that the figures show Chancellor George Osborne's plans to bring spending under control are on track. We would be forgiven for drawing quite the opposite conclusion.More importantly, they prompt the question: what next?A mansion tax, popular with Mr Osborne's Liberal Democrat partners, has been ruled out. Taxing the pensions of the wealthy is the latest suggestion, a proposal which would save around £1.8bn a year by targeting better-off individuals. It is not enough when public sector borrowing has risen £2.7bn since October last year. The NAO report has pointed to the elephant in the room. Unless wealthy corporations can also be brought to heel, the inherent unfairness in the system will understandably undermine public support for other measures.

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Tax avoidance is also an ethical issue

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