Too Panoramic

A recent Panorama programme reported on some shortcomings of the tax system and the failure of HMRC to act on data available. The criticisms may have been valid, but like much media coverage of the tax avoidance problem, it treated all tax saving as equally distasteful and blamed both Government and accountants for helping people to pay less tax, more specifically helping rich people and large corporations to pay less tax at the expense of ‘the man in the street’ (the rest of us).
Given the opportunity, how many of us would not jump at the chance of paying less tax. How many people have ISAs? What are ISAs? – They are a valid means by which people can avoid paying tax. How many people are willing to pay a tradesman cash (to avoid the vat) or to do a job ‘for cash’?, both resulting in (illegal) tax evasion, a step beyond (legal) tax avoidance. No morality issue there then? It becomes a moral issue when someone else is doing it and when programmes like Panorama present a biased appraisal. It is, of course, difficult to present a full, balanced, picture in 30 minutes, which is a good reason not to do it.
We, as a small firm of accountants, are not dealing with manufactured avoidance schemes, but we are always looking at ways of interpreting tax rules to clients’ advantage. That has to be the very least that every tax-payer and business man expects of an accountant. Where is the moral issue?
Schemes concocted for the sole purpose of avoiding tax, with no commercial substance, are difficult to justify. It is this aspect of tax avoidance that needs controlling and for which the new GAAR should be used. Left to journalists, anyone with an ISA might be locked up.
If Governments want to encourage more investment in the country, or in a particular area of activity, to generate more employment (for the man in the street) why is it wrong to provide incentives through the tax system? Governments and H M Revenue and Customs do lots of things wrong, but that is not one of them. It is the abuse of those incentives where the problem lies – too many seem to escape for too long. There is an industry dedicated to exploiting loopholes, and no shortage of people willing to participate. This is not serviced exclusively by accountants – and there are comparatively few accountants involved in this aspect of avoidance.
The fact that a company pays little tax on its profit through the use of tax reliefs is not the problem. These companies will have provided jobs resulting in work and income for many employees, each contributing tax & National Insurance. The problem is in the manner of its reporting – often comparing tax paid with the company’s turnover, which never has any bearing on the tax liability of a business.
Combatting the extremes of tax avoidance will be better served if the reporting is better targeted and acknowledges a clearer distinction between the real abuse of the system and the legitimate work of accountants interpreting and advising on the tax laws to take advantage of the intended tax reliefs available.