Tax and Consent
In the UK because most of us are employees and subject to PAYE (Pay As You Earn – collected at source by our employer) we have little option but to pay our taxes. However it appears that some people and corporations view taxation as an optional inconvenience.
We think we have little choice but it is said that one of the problems affecting Greece is widespread avoidance of tax by all kinds of people.
… its fiscal woes are also due to a simple fact: tax evasion is the national pastime.
The New Yorker 20 July 2011 : Dodger Mania
Consent to be taxed is vital if we are to fund our society. Is that consent in danger in the UK?
As consent breaks down we tend to take a more obstreperous attitude, making sure that we take advantage of every advantage and loophole that we can find. Under PAYE there are not many options – the tax is taken at source by your employer.
But this government believes in self-employment – and you are therefore the employer! So you can decide how much tax you want to pay and then make the records fit. There are legal ways to do this (claiming all expenses and allowances), inventive ways to do this (modifying your business to minimise your tax liability), and illegal ways to do this (basically falsifying your books).
And as self-employment increases the opportunity is greater for the little guy to be an equal opportunities tax avoider – particularly if you can get paid cash-in-hand (so it can avoid the books entirely!). Well, why not, if a senior business executive can avoid paying tax, why shouldn’t we? To hell with social solidarity, what about equal opportunity!
And “vanilla avoidance”?
“Everyone avoids tax” – that was the view of a former Tory Treasurer …
Lord Fink admitted using what he called “vanilla measures” to reduce his tax.
BBC News Website 12 February 2015 ; Lord Fink used ‘vanilla measures’ to avoid tax
What about investing in ISAs (Individual Savings Accounts – Cash or shares)? Well first of course you need surplus income to invest, so it is skewed in favour of the richer members of society for a start. This is a form of avoidance that the Government encourages – whether they do so to “encourage saving” or as a “political bribe” is not entirely clear. But schemes to “shelter” your money from the tax man (it’s always “the tax man” never “society”) have to be welcome – even if the government as a consequence has to get money from a softer target (probably the payer of PAYE!).
From sheltering to keeping money away from the clutches of the revenue is a short step.
So what about using Deeds of Variation to reduce an inheritance tax liability? After all inheritance tax is definitely one of those taxes that the rich see as “optional” – all you need is an inventive accountant to set up trusts and other schemes. So why should the moderately wealthy pay this tax? Get the family together and agree a “deed of variation” to alter a will.
Alter someone’s “Last Will and Testament”! It’s quite legal as long as those who lose out agree and sign the deed. This is not a form of tax avoidance encouraged by the government – the deed of variation mechanism is designed to enable beneficiaries to change how inheritances are distributed – often to “right wrongs” or correct oversights – the tax benefits are a consequence that the government seems quite inclined to permit. (My late father was anxious that the hospice should receive something proportionate to the help they gave him – a deed of variation enabled this – and saved inheritance tax as bequests to charity are exempt).
So if the rich can avoid tax surely the rest of us should as well? The above examples are very “vanilla”, and there are so many more ways to avoid tax and a multitude of ways to evade tax. But the tax still has to be raised and inevitably it will be raised via those taxes which are hard to avoid.
Alternatively we lower the tax base – to the advantage of the best avoiders – and we cut the size of the state either through planned cuts or forced cuts, Greek style.
Personally I would rather the government worked to support and underpin our consent to be taxed. Governments (of all colours) always seem to talk about “plugging loopholes” and chasing down evaders – but there is precious little action. The “other side” is too skilful.
Should we therefore hold out much hope for the (Liberal Democrat) Chief Secretary to the Treasury’s plan to go after this “other side”?
Danny Alexander’s new plan to make it a crime for banks and accountants to look the other way while their clients knowingly evade tax may appear to be a populist reaction – very late in the life of this coalition. The public may feel it’s better late than never though.
They see benefit fraudsters (rightly) brought before the courts and small firms harangued by the tax man for modest VAT bills while giant firms and high net worth individuals know it’s unlikely they’ll be prosecuted for not paying all their taxes.
Making the professional advisers pay the same fine as their clients will also send a chill down the spine of many of the big four accountants and all of the banks.
Danny Alexander concedes it might be a big ask to get a new law through Parliament making inaction in the face of tax evasion a crime but the Lib Dems will try. He says there’s a much better chance of bolting on the financial penalties side of his proposal to next month’s Budget though. And he may even get cross-party support.
BBC News Website, Joe Lynam 12 February 2015 : Danny Alexander calls for corporate tax evasion crackdown
Somehow, I don’t think I will hold my breath.