TaxCorporate TaxInsider Business Club: no avoiding the issues

Insider Business Club: no avoiding the issues

As the lines between avoidance and evasion become blurred, our experts discuss the current situation

Where is the line between acceptable and unacceptable behaviour?

Mike Warburton, Senior tax partner at Grant Thornton

I always like the definition that Dennis Healy had on what the distinction is
between avoidance and evasion. He said that the difference was the thickness of
a prison wall and it struck me as a very clear definition.

One is illegal and one is legal and that is what it was like in the old days.

We now have this odd concept ­ and I find it an extremely strange concept ­ of
acceptable avoidance and unacceptable avoidance without any definition of what
that actually is. Nobody in government, as far as I am aware, has actually
defined what is acceptable.

It seems to me that what is acceptable to one person is unacceptable to
somebody else. Without any clear definition, people need to make their
individual judgments as to where they draw that line.

But it is not right for the government to muddy the water and come up with
some concept of acceptable and unacceptable without defining those terms.
I entirely agree that it is the complexity that has been the cause of a lot of
this and it was indeed Gordon Brown in 1994 ­ when in opposition ­ who wrote a
paper titled: ‘Tackling Tax Abuse.’

He said it was the complexity of the tax legislation that is the fertile
breeding ground of tax avoidance schemes and yet it is Brown who has introduced
more complex legislation than any other chancellor in history.

He may well say we have complex legislation, in order to account for all
these schemes that you people come up with, but in fact one defeats the other if
you are not careful.

Is, as the government has suggested, tax avoidance an ethical issue?

Chas Roy-Chowdhury, Head of taxation at ACCA

I think ethics and tax avoidance are very much skewed against the taxpayer.
We never seem to discuss ethics in terms of government. Is it ethical for the
government to allow a little old lady not to be able to use her nil rate band
for inheritance tax purposes when one spouse dies and she foregoes the use of
her husband’s nil rate band?

There seems to be a lot of ways that people are not taking up the deductions
they are entitled to because of the complexity of the system. There seems to be
no debate about the lack of ethics within government in allowing ordinary
taxpayers to get the deductions that they should be getting.

The tax system ought to be more transparent and ought to be simplified but
there is no political will to do so and look at ethics the other way round in
terms of the right amount of tax being received by the government. That is not
something which seems to be on the agenda other than in a soundbite sense from a
government that says everybody should pay their fair share.

What we need is a system that is transparent and clear, where people actually
understand what the system is about and they can access the allowances they are
entitled to, rather than create a system where we have to say: ‘This person has
avoided this much tax or that person has avoided that much tax and isn’t this
wrong, aren’t they being naughty boys and girls’.

What we need is clarity and simplific-ation and I think we need a degree of
commercial realisation by politicians as to exactly the difficulties they are
putting people into by creating such a complex tax regime. That doesn’t seem to
be dawning on anybody very fast.

If a simplified tax system is the way to tackle avoidance, why doesn’t it

John Culliane, Chartered Institute of Taxation president and Deloitte

I think that there are several reasons why we always seem to take the more
complicated route.

If you are the chancellor in any government and you have a bit of play with
your Budget arithmetic and let’s say, enough to cut income tax by a quarter of a
penny, you would probably think that that is not going to generate a very
attractive headline.

So it is much more appealing to try and think of some glamorous new relief
that targets benefits for this or that sector or this or that activity. That
leads to complexity.

There is nothing like the Law Commission when it comes to tax. There is
nobody charged with just looking at the way the whole thing has grown and
pruning back things just for the sake of good housekeeping and tidying it up.

Government is always short of parliamentary time in our system. So you have
got quite a lot of deep-seated factors, which go back long before the current
government, as to why we have a complicated system.

Historically, though, judges used to be very indulgent towards very
artificial tax avoidance. If the thing wasn’t within the letter of the law, they
would basically let the taxpayer off. For about the last 30 years, where they
have been able to discern any underlying principle at state behind the
legislation, they have been very prone to striking down tax schemes, so the
government has had plenty of opportunity to try and make the system more
principles based.
Instead of this, however, they have made it more detailed than ever.

Readers’ questions were put to our experts by editor in chief Damian Wild

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