Let’s get one thing straight. Despite what’s being touted around by government ministers through the media right now, tax evasion and tax avoidance are two distinct things:
- Evasion: Stashing cash earned via questionable business deals in offshore accounts so as to avoid paying what is owed to HMRC, or deliberately defrauding tax collection agencies, is tax evasion. That is illegal, and quite rightly so.
- Avoidance: Investing a substantial percentage of gross income into a private pension plan or saving cash in an Individual Savings Account (ISA) up to the personal allowance each year is tax avoidance. That is perfectly legal, and, again, quite rightly so.
However, according to Chief Secretary to the Treasury Danny Alexander, during his speech at the Liberal Democrat Party Conference, HMRC is to be handed a war chest of £900m to hunt down ‘morally indefensible’ taxpayers. At one fell swoop, he has effectively criminalised tax avoidance.
And who are these new criminals? Well, if you’re a contractor who invests cash in an ISA or invests into a contractor pension, then according the government you are one of these ‘morally indefensible’, tax-avoiding criminals.
Alexander’s words present us with two interesting conundrums. Firstly, nearly everyone I know – including aged aunts, doctors, nurses, ministers of religion, police officers and my MP – are tax avoiders and therefore ‘morally indefensible. That’s because nearly everyone I know has some form of pension, investment or saving product that utilises totally legal forms of tax avoidance to mitigate the tax burden and therefore increase the return on the investment -- things like ISAs, pensions and building society accounts.
I even know children who, according to Alexander, have embarked on a career of criminality because their parents have been savvy enough to complete the paperwork so their savings interest does not have tax deducted at source. Clearly, bank and building society managers are now to be further demonised as the modern ‘Fagins’, placing minors on the path to white collar juvenile delinquency.
Another conundrum from this strange attack on taxpayers by the government is that, last time I looked, we in the UK operated the vestiges of a parliamentary democracy and followed due process in the creation of laws. I naively thought that, with a new government, the previous administration’s habit of imposing unwanted legislation with little consultation was over. I stand corrected, thanks to Alexander’s words. Out with the old, and in with the, erm, old?
There are around 4.8m small businesses in the UK, like contractors, shopkeepers and trades people contributing over 51% of UK’s ‘turnover’ and employing more than 50% of the private sector workforce. Is Alexander’s message that they are now expected to take the risks of being in business and not enjoy any tax breaks in return?
And the rich, who are actually very few and tend to be the very entrepreneurs whose speculation and risk-taking creates value in the private sector leading to jobs, growth and tax revenues, are to be so relentlessly pursued for higher taxes and made ashamed of their success that they up sticks for more favourable tax regimes?
Had we not left behind the demonisation of those good at what they do, and being paid accordingly, in May this year? Is the government now saying “investing in skills, working hard, being financially prudent, taking business risks, being a success is morally indefensible and we need to crack down on those that do it?”
The UK electorate voted to oust the nanny state, alongside other morally indefensible features of government, in May 2010. The current government should respect voters for that choice, leave legitimate tax efficiency alone and stick to pursuing those criminals who evade tax.