HMRC Under Pressure?

Imagine, just for a moment, that you work for the Government. You are under pressure to improve the economy and come up with the antidote to its ailing problems. You know that despite what we all may hope for, the current system is overstretched. We are spending more than we earn. The options appear stark – spend less or earn more, ideally both. However as a Government you take the lead on encouraging enterprise – hoping that some new ideas and businesses last long enough to generate jobs and wealth. Tax is the only method of earning – unless you opt for making State owned assets available for private hire outright  ownership.

HMRC investigating 41,000 tax avoidance schemes

Now you learn that HMRC are investigating around 41,000 unresolved cases of possible tax evasion, currently regarded as tax avoidance strategies until a court finds in favour of the HMRC. By the way, this is worth £10bn. In the 2010/11 tax year alone, it is estimated that £5bn of the £32bn tax shortfall is due to tax avoidance schemes. Let me remind you that tax avoidance is legal, tax evasion is not. There is a blurring between the two where some very clever people design some clever investment products that attempt to exploit loopholes in tax avoidance rules, working on the assumption that this is not tax evasion. We have all heard of the higher profile celebrity cases.

Smoke and mirrors

You are a minister (or aid/adviser) seeking to produce the tool that seems to elude everyone else, you are probably thinking that this looks like a potential goldmine. The sums look good – just get HMRC to resolve the cases and collect £10bn. You know however, that the law makes tax avoidance legal.

Avoiding Allowed

You may have gathered that I am somewhat suspicious that the confusion between avoidance and evasion by members of Parliament and within the media. This seems to have taken a direction into guilty until proven innocent. Let me be clear – tax avoidance is use of the current rules, set down by Parliament in order to help individuals and businesses arrange their affairs in such a way as to minimise tax payments. This includes use of ISAs, pensions, capital gains tax allowances, the personal allowance and so on. We all have these tools at our disposal, covered by the same law.

Spot the difference

Certainly schemes that break the law need to be closed – or those that deliberately muck around with the rules to the point that you cannot determine black from white. This is tax evasion – the same as not declaring income. However it seems to me that in an attempt to appear tough and “on the side of the masses” there is currently a groundswell of rhetoric that if applied would drive a horse and carriage through the very laws that give us all our basic right to arrange our affairs as we like. So be wary of politicians and journalists that seem to blur the line between evasion and avoidance, they do so at our peril and at their self-promotion.