Tax and morals: is tax avoidance immoral?

Over a good number of years HMRC have blurred the line between tax avoidance and tax evasion to such an extent that they have virtually become one and the same in the eyes of the Revenue.

The ill informed Public Accounts committee, chaired by 'Tax Prat of the Year' (a title bestowed by Taxation editor Mike Truman), Margaret Hodge and the media continually whip up public hysteria as they carry on their McCarthy style witch hunt, believing that tax avoidance lurks around every corner and that companies should voluntary pay tax even when the law does not require them to do so. What utter nonsense and folly. Who, in their right minds, wants to pay more tax than they  are legally obliged to and why should they be harangued into doing so?

In the case of Ayrshire Pullman Motor Services and Ritchie v Inland Revenue Commissioners (1929) Lord Clyde said: “No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel in to his stores............The Inland Revenue is not slow to take every advantage which is open to it under the taxing statutes for depleting the taxpayer’s pocket. And the taxpayer is in like manner, entitled to be astute to prevent, so far as he honestly can the depletion of his means by the Revenue.” 

Then, In the case of IRC v Duke of Westminster, 1936, Judge Tomlin famously stated, “ Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax” Many tax practitioners and accountants have lived by this ruling and advised their clients according to its dictum.

Nowadays however there are two types of tax avoidance, acceptable and non-acceptable. HMRC tell us that the latter is 'bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter –but not the spirit – of the law. Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended.'

Chancellor George Osborne has gone one step further in the attempt to reset the moral co-ordinates by describing aggressive tax avoidance as “morally repugnant”.

Some of your clients may well pose you the question as to why they cannot take advantage of some tax avoidance scheme they have heard about on the basis that it is legal, others are using it and it means paying less tax. How do you advise them in this situation? Do you take the view that as long as the scheme operates within the parameters of the law and the client is prepared to properly declare the scheme, defend it when attacked by HMRC and during any appeal that winds up at Tribunal and the courts, and pay the tax if the scheme fails, then this is your client's choice?

Many promoters of tax avoidance schemes do not publish sufficient marketing literature for you to provide your client with a well informed opinion and for you to do so anyway would mean charging your client a substantial fee because of the time it takes to understand and unravel these contrived arrangements. Very few clients are prepared to pay such a fee and may well point you to the fact that the scheme is fully backed by tax counsel so why should they need to pay you for a second opinion.

Many schemes push and test the limits of the law and just because counsel lends their approval to a scheme is not a cast iron guarantee that it will succeed. In the majority of cases therefore, by participating in a tax avoidance scheme, your client is likely to face a direct challenge from HMRC. No accountant wants their clients to be unnecessarily exposed to such HMRC scrutiny and will therefore have a duty of care to the client to warn them of the potential consequences of entering into a promoted tax avoidance scheme.

HMRC are committed to stamping out tax avoidance and last week's Budget introduced a number of measures, none more so the General Anti-Abuse Rule (GAAR).

All you can do is give your client best advice. Whether or not they choose to accept it is another matter but at least your conscience is clear and your P.I policy undamaged.