Taxing morals

Denis Healey, former (Labour) Chancellor of the Exchequer, is quoted as saying:
Every man is entitled if he can to order his affairs so as 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 this 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.

It has been agreed in law that anyone can so arrange their affairs to pay as little tax as possible. Morality has never been, until now, an issue – even for Denis Healey. Is the change in attitude a result of politicians being deprived of their own little scams? Or that HMRC have recognised their inadequacy in tackling the tax avoidance industry and are creating an atmosphere in which a general anti-avoidance rule will be accepted?

Why is the Institute of Chartered Accounts in England & Wales (ICAEW) jumping on the bandwagon and taking the moral high ground – and suggesting we all do the same? It’s nothing to do with us (accountants). It is not our job to take account of the ‘public interest’ or make moral judgements (except as normal members of society). Where would that end? There are so many shades of grey and everyone has an opinion (and people can be very moral in judging other people’s actions) which is likely to change depending on how the ‘facts’ are presented. Newspapers, and politicians for that matter, don’t care much for facts when it’s headlines they are after. We (accountants) are already compelled by law to advise the authorities if we have reason to believe anyone is gaining advantage from breaking the law – any law. It’s done under the perfectly reasonable banner of money laundering (intended to combat drug dealing and terrorism), which makes it seem acceptable – but it is not a far cry from a society of mistrust, ‘walls have ears’, ‘careful what you say’. Anne Franks would likely recognise the problem. The authorities are struggling to maintain control – this isn’t restricted to tax collection – and they are turning increasingly to fear tactics with increased penalties for anything that goes wrong. And go wrong they certainly will when the systems are so complex. Now the moral menace.

Society likes fairness. In fact it relies on it, otherwise resentment sets in – and resentment can be destructive. Our tax and benefit systems are so complex, at least in part, because they try to be fair. Fairness is the intention, but the complexity often leads to the opposite result. It provides loopholes through which some find a way to distort the original intention and gain an advantage. Not very sporting, certainly, but –
‘……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.’

It is not the ingenuity that should be stopped. Ingenuity is to be applauded. It is the loopholes that should be stopped. This is where the authorities, HMRC in particular, want to introduce a general anti avoidance rule (GAAR) (or Give Another Advantage to the Revenue) to combat anyone trying to pay less tax than – what? Sounds easy when your affairs are simple, but the complex rules contained in the law are not there to cater for simple situations. A general rule that says ‘thou shalt not avoid, evade, or otherwise pay less tax than you should’ sounds perfectly plausible but it may create many more problems than it solves. It would create uncertainty. One of the ‘rules’ underlying tax legislation is that taxes should be certain. Not just certain that they should be paid, but certain in the amount to be paid. It’s difficult enough already without a layer of moral judgement to contend with.