One of the reasons why having your chosen profession hit the front pages sometimes seems like a mixed blessing is that it brings home to you just how inaccurate and misleading a lot of journalism, even in the supposedly ‘quality’ media, is.
So why does it matter? There is a long overdue debate going on about the morality of tax avoidance activity, an activity which covers a very broad spectrum indeed. It starts, to my mind, at the non-controversial end with taxpayer activity that is positively encouraged by the tax system. I am thinking here of activity such as investment in riskier small companies (enterprise investment scheme, seed enterprise investment scheme and venture capital trusts), the issue of shares to employees (share incentive plans and enterprise management incentive schemes), the encouragement of mothers back into the workplace (childcare vouchers) and donation to charity (gift aid and charity share gift relief).
Having described this as the non-controversial end of tax planning, of course the Chancellor strayed firmly into this area when he proposed a cap on tax relief for charitable gifts, which probably explains why he got such short shrift and had to execute such a humiliating and slightly bizarrely worded U-turn; “sometimes the only thing worse than listening is not listening”, indeed!
We then move onto the ill-defined area of what the Consultative Document on a General Anti-Avoidance Rule described as “the centre ground of tax planning”. Personally, I take this phrase to mean taxpayer behaviour that is neither actively encouraged by the tax system nor clearly counter to the intentions of the tax system and designed to frustrate those intentions. The government chose to define this in the Document by exception as tax planning which does not require transactions whose only commercial purpose is to save tax’ or in shorthand artificial, or abusive, tax avoidance.
Yet David Gauke, Treasury minister, chose to attack those who use service companies as abusive tax avoiders, when I would have placed such people firmly in one of two camps, namely those who are genuinely independent of the organisation that their service company works for and those whose attempts to use a service company for tax advantage are frustrated by already existing legislation. I see neither of those camps as abusive tax avoiders, provided HMRC properly and efficiently uses the legislative weaponry already at its disposal.
I had thought I had a pretty clear idea of what the government meant by abusive tax avoidance, but Mr Gauke has made me think again, a course of action which I must indeed recommend to Mr Gauke himself.
So this is pretty complicated stuff, far from black and white, with subtle shades of grey where different types of tax mitigation and avoidance activity meet. Thus an informed public debate needs accurate reporting and a genuine attempt to understand and convey those subtleties. Not, unfortunately, what the modern media is best equipped to deliver.
Take last Tuesday’s Daily Telegraph, from which I quote:
“HMRC is planning an amnesty to encourage cash-in-hand builders and general tradesmen to pay their fair share of tax. Under the amnesty, workmen who admit they have avoided tax will face reduced penalties of £200 plus a fine equivalent to 10% of unpaid tax. Anyone refusing the “last chance” offer will face criminal prosecution if they are subsequently found not to have paid what they owe.”
This appears under the by-line of “Christopher Hope, Senior Political Correspondent” who sounds as if he ought to know what he is talking about. Sadly, there are three key factual errors in the four lines of text quoted above, which is a worrying ratio for a front page leading article.
- What HMRC are planning is not an amnesty, but the latest in a series of disclosure facilities, this time aimed at builders and tradesmen. An amnesty is a pardon which obliterates all legal remembrance of an offence; that is quite definitely not what will be on offer here. The last amnesty in the UK was in 1747 following the Jacobite Rising; UK governments do not ‘do’ amnesties, and nor does HM Revenue & Customs.
- The workers concerned will not have avoided tax, they will have evaded it, and thus behaved illegally as opposed to legally. Hilariously, the leader in the same edition of the paper says the following:
“His (David Gauke’s) remarks are part of a wider Government campaign to stigmatise those who, in Mr Gauke’s words, “artificially and aggressively reduce their tax bill”. Yet avoiding tax in this way is perfectly legal, while tax evasion is not. Ministers are intent on blurring the distinction between the two and are, as a consequence, now actively engaged in a “crackdown” on people who are obeying the law”
Perhaps this leader might be better addressed to the paper’s own Senior Political Correspondent, who appears not so much to be simply blurring the distinction as completely misunderstanding it .
- Anyone refusing this last chance offer will be very unfortunate indeed if they face criminal prosecution, given the small number of such prosecutions that HMRC brings on an annual basis. They only tend to prosecute in cases with one or more of the following features:
- A celebrity defendant (Lester Piggott, Ken Dodd, Harry Redknapp etc)
- A professional defendant (accountant, solicitor etc)
- Forgery, false invoicing etc.
- People who have previously and fraudulently signed certificates of full disclosure in HMRC enquiries (Lester Piggott again).
Thus a humble tradesman would be very unfortunate indeed to find himself on the end of an HMRC prosecution even if he did not avail himself of the disclosure facility. And actually this HMRC policy is very sensible, as they would much rather concentrate on recovering the unpaid tax, plus interest and a penalty, rather than devoting lots of resources, both human and financial, to bringing a criminal prosecution in which the presence of a jury makes the outcome extremely uncertain (back to Ken Dodd again!)
It does not help public understanding of the issues concerned with tax avoidance if senior correspondents in the ‘quality’ press, let alone politicians, offer such misleading comment on those issues. There is little point in undertaking this debate if it is not going to result in a clearer, more coherent, system for distinguishing between acceptable and unacceptable forms of tax planning, and thus anything that serves to confuse rather than clarify the issue is far from helpful.