Contractors routinely take legitimate and compliant tax planning measures which, based on the recent debate on AccountancyAge, some would consider ‘immoral’ tax avoidance. But is focusing too heavily on the tax avoidance debate akin to ‘fiddling while Rome burns’, when in fact attention should be on the wider context?
Is tax avoidance an unacceptable exploitation of the tax system? is the AccountancyAge debate motion proposed by Richard Murphy, the passionate anti-avoidance campaigner who founded Tax Research UK. He believes tax avoidance to be “an attack on society, our neighbours and democracy itself”, and that “morality drives tax legislation, tax administration and the behaviour of taxpayers”.
Opposing him is BDO tax partner Stephen Herring, who believes: “We must prevent the UK from being viewed as a country where complying with tax laws is insufficient, as additional arbitrary, ill-considered and politically motivated hurdles must also be overcome.”
But the entire avoidance debate skirts around the edges of more fundamental issues. Our state machinery and the government that tends it is too bloated and wastes eye-watering sums of public money. Small government is more effective because it means putting the money in the hands of consumers and allowing the free market to spend it more productively. Big government means higher taxes, and the higher the tax bill, the greater the lengths taxpayers will go to in order to avoid it.
There’s also a problem with the very term ‘tax avoidance’; it’s a misnomer. There is simply tax planning, which involves using the existing tax legislation created by government and enforced, or not, by HMRC. If our legislators don’t like their own laws, then they should change them. There will always be opportunities to push the boundaries of tax legislation for tax planning purposes. Perhaps the General Anti-Abuse Regulations (GAAR) will go some way in tackling some of the more extreme incidences that we should all be concerned about.
Much is made of the ‘broader shoulders carrying the biggest burden’ argument for everyone to pay their ‘fair share’. The UK’s higher earners already do just that through income tax; the top 1% of earners, including many contractors, contribute almost a third of the Treasury’s income.
But here also we should look at the bigger picture rather than just focus on direct taxes. Individuals reducing their direct tax liabilities through legitimate tax planning still pay 20% VAT when they spend their extra cash.
Fiddling the finer details of tax avoidance to generate tiny increases in tax revenues misses the point. The UK state has grown much too large and requires lower spending, and not higher direct taxes, to put more control back into the hands of consumers.
By the way, AccountancyAge readers concluded at the end of the debate, by a very slim margin of 47% in favour of the motion and 53% against, that Herring was correct and the motion was not carried.