I doubt whether anyone can dispute the fact that government needs revenue to fund public services. If tax is avoided by businesses it reduces the funding available for public services. In addition, businesses that avoid tax give themselves an unfair advantage over competitors who do not.
Tax avoidance is infectious: businesses in a highly competitive sector that find their competitors avoiding tax have to embrace avoidance schemes if they are to compete. So a vicious circle is perpetuated.
The fiscal authorities have to invest resources into preventing tax avoidance – resources funded by taxpayers. Because resources are being devoted to fighting avoidance, revenue departments cannot give tax clearances with the speed which businesses require, as they have to ensure an avoidance scheme is not buried somewhere in the transaction. So another vicious circle that penalises the non-avoider as well as the avoider, is started.
Business advisers ought to consider these points. They also should consider that as the boundaries of avoidance become more defined by cases going through tribunals, the stakes are higher as there is a risk of crossing the line from avoidance to evasion and they are then operating at the fringes of the law.
The outlook for accountancy is not good, with little room for growth post-Enron. Mike Rake of KPMG is reported as saying accountancy firms should be open and transparent. Peddling tax avoidance schemes may look attractive for picking up fees but is it doing much for the industry’s reputation? In many cases the schemes they peddle are not robust – they don’t stand up to the detailed scrutiny.
So for all these reasons I believe accountants should do more to stamp out avoidance. I would like to see the Big Four and others come to an agreement with the tax authorities that they will stop inventing and peddling avoidance schemes. That way they can start to protect their own practices, their own reputation and the government’s revenue.
- Chris Tailby is director of tax practice at Customs & Excise.
Let me begin by stating the difference between tax avoidance and tax evasion. Tax avoidance involves using tax rules to one’s own legitimate advantage.Tax evasion is the illegal reduction of one’s tax liability, for example by understating income, over-claiming expenses, or by deliberately disguising the true nature of one’s transactions.
In many parts of Europe tax evasion is endemic. While the UK’s rates are lower than other European countries, they are still high, hence we have tax avoidance. Governments need to take on board that the more tax they try and get out of us the less willing we are to pay it.
We as accountants are very rarely out there peddling dubious, or otherwise, tax avoidance schemes. The real point is; where does the government feel the line is crossed between acceptable and unacceptable tax avoidance?
An accountant would have a lot to answer for if he worked for a client or in a business and he did not minimise its tax liability. Should he not seek to disclaim capital allowances in order to maximise in-year loss relief, should he not bring forward capital expenditure in order to optimise capital allowances?
Where in the sand is the line drawn? At what point are we unacceptable tax avoiders and where are we pillars of the establishment? In the complex world of tax, the overwhelming majority of businesses are trying to operate fully and squarely within the law.
They do not seek to do anything outrageously clever – all they want to do is get their tax calculations right and get on with trying to run their business. The problem is the government, through its revenue collection agencies, seems to see tax avoidance everywhere and each business has to waste a huge amount of time defending itself in the face of commercially ignorant Inland Revenue and Customs and Excise probes.
As an accountant, I say that the vast majority of us do our tax planning in a transparent, above-board fashion and there is little appetite or time for devising complex tax avoidance schemes. I wonder whether the latest government focus on tax avoidance is just a smoke screen in order to divert attention from the £8.4bn of tax increases due to come into effect from 6 April.
- Chas Roy-Chowdhury is head of tax at ACCA.
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