Avoidance warnings are backfiring

BARELY A DAY PASSES without Margaret Hodge, Chair of the Public Accounts Committee and Guardian of the Nation’s Morals, lambasting some organisation somewhere for not paying “the right amount of tax“. Invariably it is the large multi-nationals that are caught in the crosshairs of her crusade. But any person or organisation foolish enough to arrange its affairs to minimise its tax liabilities is potentially at risk.

Most commentators who have a rudimentary knowledge of international tax systems agree that the correct way to tackle the problem is via a multilateral approach to tighten the legislation. Most of the organisations that are allegedly guilty of the most egregious examples of avoidance are following the letter of the law. Thus it is embarrassing at best to witness the Honourable Member crying “but it’s not fair” when the very Parliament of which she is a member has the power to change things.

So why has this approach been adopted?

My view is that this is part of a concerted campaign to tackle avoidance on two separate fronts. There is no doubt that legislation will be tightened. But this will take time.

In the meantime, there are attempts to embarrass taxpayers into coming into line by awarding pariah status in a blaze of publicity to those who don’t.

But could this backfire?

I was recently consulted by a lady who I have no doubt has led a life free of criminal endeavour. She was about to sell a second property and it was quite clear from the facts presented to me that full Capital Gains Tax would be due on the profit. I told her as much,

“But that’s not fair”, she cried. “If Google, Starbucks and Amazon don’t have to pay their tax, why should I?”

And herein lies the danger. These multi-nationals are viewed by many as “the enemy” and this is a result of the relentless campaign by Hodge and others to tarnish them, so as to serve as a warning. But so successful has this campaign been that it has actually reached a tipping point whereby people are now so outraged by their so-called “unacceptable avoidance” that they feel that they have a right to follow the same path, at the same time blurring the distinction between avoidance and evasion (another Government tactic).

The result?

The aforementioned lady will not be declaring the gain. Despite my urging her to do so, she is now set on an illegal path of tax evasion which would not even have crossed her mind without the prompting of Hodge and various news organisations who have jumped on the bandwagon.

Andy White is a tax partner at accountancy firm Carter Backer Winter (CBW)