Is There Anything Wrong With Tax Avoidance?

Ben Franklin once said:

“Nothing is certain except for death and taxes.”

I would amend that quote to add at the end: ‘….and that people will try to avoid them both’

Before I start this discussion I’m going to leap into a comment:

Tax avoidance may be immoral or at best ethically suspect but it is entirely legal and those who have done it, under the law, have done nothing wrong. Its seems to me therefore absolutely laughable that MP’s can take the moral high ground and shame individuals for carrying out such an act ‘depriving the British public’  of money that could be used for vital services.  Not too long ago a large majority of these MP’s fraudulently took public money for themselves in the form of expenses. That WAS illegal. The phrase ‘those in glass houses’ seams a little too tame somehow.

In some ways the government is blurring the line between tax evasion, which is entirely illegal, and tax avoidance, which is entirely legal. But as the’ benefit scrounger’ cause, which they all leapt on, has lost its edge, tax avoidance is the new moral cause to eliminate. It does seem a bit like a mad scramble to condemn anyone who has more money than the average person, in a desperate effort to connect with the British public in these times of recession.

JImmy Carr – the unfortunate poster boy for tax avoidance

Jimmy Carr therefore became the unfortunate poster boy for tax avoidance. I notice that Mr Cameron didn’t mention Conservative supporter and donor  Sir (pending) Gary of Barlow in his condemnation. ‘Take That became a little like ‘Keep Everything’. Former Lib Dem Treasury spokesman Lord Oakeshott told The Observer: ‘If only Jimmy Carr had given £50 to the Tories, Cameron would have had to pull his condemnation’. It also made me wonder if any current MP’s and Lords are using a similar Jersey-based K2 scheme to pay income tax rates as low as 1%. I’m thinking at least a few of them are living in a ‘glass house’…..or mansion…..with a possible glass moat.

Singling a person out has become a  sorry trend among all the political parties in an effort to carry favour with the public mood. It is a cynical PR  ploy that should be beneath them all, as unless it is an act carried out solely by one person  they should not condemn an individual in public for an act carried out by many. A recent case in point would be Mr Diamond of Barclays Bank, concerning the interest rate rigging scandal.  Many people and many banks were involved in this  but the only name politicians want to attach to it is Mr Diamond, who will now be forever linked to it. Another important point is hasn’t our Prime Minister got more important things to worry about than a comic using the British  tax system in a legal way? If Jimmy Carr avoided a few billion in tax, which we could claim back, then by all means name him to the public and  go get it. But the truth is he hasn’t , unless his Christmas DVD does phenomenally well this year.

Taking a brief look at the statistics, HM Revenue and Customs reveal that in 2010/11, 80% of people with incomes between £500,000 and £10m had an average income tax rate of at least 40%. The actual rate they should be paying is 50% tax of earnings over £150,000. The figures also showed 6% of those earning more than £10m paid less than 10% in tax.

But one point that is being missed here perhaps  is that it’s the rich who pay the majority of income tax already. Indeed one could argue that a wealthy individual pays more than enough tax for himself many times over, so why shouldn’t they avoid some of it? The treasury released figures last year showing the top 1% of earners paid nearly 25% of all income tax and 75% was paid by just 25% of the population.

Jimmy Carr, who satirised “fat cat” bankers  protected £3.3m a year from tax by putting his money through the K2 scheme.  A scheme which is now  under investigation by HMRC. But why wasn’t it before? The government can’t chastise someone in public if a person legally uses the UK’s financial system for their own benefit. The government should have stopped this a long time ago and I suspect they have known that it exists for great number of years.  If the government wants to publicly announce when individuals do something morally ambiguous, they’ll be forever naming themselves on TV.

Any  accountant will tell you, there’s a big difference between tax evasion and tax avoidance. One could put you in prison for seven years, the other is a  perfectly legal use of loopholes by anyone who can afford a financial advisor. I’m sure after Jimmy Carr’s ‘outing’ a lot of other wealthy celebrities and businessmen were frantically calling theirs.

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About Chris Pickard

After gaining a degree in Business Studies and IT, Chris Pickard started work for a large organisation, in the areas of web development and E-Commerce. A few years later he moved into Business Consultancy, working across the organisation in a variety of roles from project management to departmental reviews. Outside of work at this time he gained an MBA qualification from Kent Business School. After gaining further promotions to senior project management in charge of several E-Commerce teams, he resigned to take a career break. He spent a year travelling the world - including China, Egypt, Mexico, Kenya, Tanzania, USA and Australia - and funded his travel through personal trading and investing. After having many life changing experiences, he decided not to return to the company and now he's in the process of setting up his own company - My Guru - to explore a multitude of business ideas.
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