How the fuck can you fine people for tax avoidance?

Punitive new penalties will be imposed by a future Labour government on companies and individuals that embark on aggressive and abusive tax avoidance, Ed Balls has announced, as the party mounted a fightback after a difficult week.

Tax avoidance is, by definition, legal. If it is illegal it becomes, by definition, tax evasion.

You can only fine people for things that are illegal.

If it really is tax *avoidance* that they are going to try to fine people for then it will fail at the first court it comes to.


31 thoughts on “How the fuck can you fine people for tax avoidance?”

  1. Well. Ed can try out his idea using La Hodge as a guinea pig, then test his theory with the rest of the Shadow Front Bench. I look forward to reading the results.

  2. It’s Labour getting tough. Just last
    night Ed got tough with Nigel. He didn’t seem nearly so tough when Nigel responded though.

  3. What stinks is that this is penalising people for challenging the government’s view of what the law says. Any other field of law and the Guardian would be up in arms about our civil liberties being destroyed.

  4. So Much for Subtlety

    I don’t want to give these idiots ideas, but they could introduce an auditing fee. They could charge each tax payer for the glorious privilege of someone reading their statements.

    If you have a simple tax statement, no problem. But if you have engaged in a highly complex tax minimisation scheme, they will need a lot of tax officials reading it over many hours, perhaps several times, and so the poor tax payer will face a massive bill.

    But as I said, forget I said anything. Don’t want to give the sh!ts any ideas. After all, I know someone who had to pay for her own strip search.

  5. they have a nasty little device which I think is called “agressive” tax avoidance. Its a simple device by which they can say after the event that they don’t like something and thus make it retrospectively illegal.

  6. Well, hate to to say it, while I don’t agree with abother Balls up of an idea, the point is that ‘aggresive’ avoidance could be deemed negligent and so attract a penalty. It’s already happening. The firm I used to work for had a client who took part on a fairly artificial scheme (not promoted by my firm) which was backed (as they always are) by council’s opinion but when the scheme was found by the tax tribunals not to work HMRC issued a penalty on the grounds that our client was a ‘sophisticated businessman’ and so should have realised that the scheme was artificial and wouldn’t work and so was negligent. Quite how flogging electrical goods (as our client did) makes you an expert in tax law capable of seeing through a scheme endorsed by a tax barrister wasn’t explained by HMRC or the Tribunal who upheld 50% of the penalty.

    So the idea isn’t actually new, it’s already possible and happens.

  7. What they mean is “attempt” aggressive and abusive tax avoidance. The penalty doesn’t kick in if you succeed, only if you fail.

    There already are penalties for getting your tax wrong, but the problem is that the regime focuses on taxpayers, who can then say that as their accountant told them it was OK they haven’t been careless, much less deliberately misrepresented the position. One might argue that the advisors have misrepresented the position, but they aren’t the ones subject to penalties.

    I think there should be penalties in this area, although I’m not sure whether they should be levied on the taxpayer or on the promoter. The deterrent effect of levying them on the taxpayer would be good, except that I fear that the taxpayer would only find out about the risk from the advisor, and they might misunderstand the position as thus presented. On the other hand, if there are several firms involved in a scheme it might be hard to decide which is the culpable promoter.

    It may be best to penalise the taxpayer and let him sue his advisors for restitution if they hadn’t warned him adequately.

  8. Andrew C

    But if the scheme or your client’s use of the scheme was deemed illegitimate by HMRC and, particularly, on appeal by the Tribunal then penalties apply whether or not your client was “sophisticated”. HMRC might include in the cover letter to the penalty notice some bromide about “sophistication” but there is no doubt that undeclaring your income liable to tax invites a penalty, avoidance scheme or not. You might argue about its severity but that a penalty applies is, I reckon, incontrovertible.


    I don’t think Lady Hodge is guilty of tax avoidance. However, she is a clear beneficiary of tax avoidance by her late father who created the trust by which Lady Hodge’s family business stayed under family control and avoided IHT (or was it estate duty) on his death. To avoid allegations of hypocrisy Lady Hodge should repay (with interest of course) the IHT avoided by her father on her legacy (ie her beneficial interest in the family trust). Oddly, although I have heard times without number Lady Hodge being interviewed on the BBC about those naughty tax avoiders, I have never heard mention of her own continuing benefit at taxpayers’ expense due to her father’s exercise in avoidance.

  9. These are the people (MPs) who ‘forget’ that they are not allowed to claim taxes, such as Council Tax, on expenses. They get to pay the owed amount and that’s that.

    Different rules for them.

  10. Perhaps a corresponding penalty for civil servants and ministers to encourage them to create simple tax laws written in plain English might have better results. We are, after all, just trying to collect the intended amount of tax, aren’t we?

  11. Umbongo

    we disagree. I believe that underdeclaring your income does NOT authomatically render you liable to penalties. You sign the tax return as being “to the best of your knowledge and belief” and penalties arise if you act in a careless or deliberate manner. You seem certain of your position. You should perhaps tell HMRC that they are wrong as they seem to think the same as me. (see HMRC Compliance Handbook para 81070 et seq). I suspect that HMRC, like me, are influenced by FA 2007 Sch 24 – in particular para 1(3) and para 3 but I (and I’m sure HMRC) would be grateful if you could point out what it is we’ve been missing.

  12. This is just grandstanding for the unwashed, in an effort to win votes. They might close the odd loophole, but there will be no substantive anti-avoidance campaign.

  13. Umbongo

    Just for completeness’ sake here is HMRC’s view. As I say, it seems to agree with mine but I’m always willing to learn. Point being, was my client ‘careless’ when he relied on a scheme which a tax barrister said was legit? HMRC claimed he was and the Tribunal agreed, albeit saying he was less careless than HMRC claimed but the point is there’s nothing ‘incontrovertible’ about it. Had my client been deemed pig ignorant it’s possible the penalty would have been over-turned as the Tribunal in their judgment made play on the ‘sophisticated businessman’ point in deeming his actions careless.

    “Not every inaccuracy will incur a penalty. A penalty is not due if a person takes reasonable care to complete a document correctly, even if it later turns out to be wrong.” CH81070

  14. Andrew C: An alternative view is that a reasonably careful person would take independent advice before getting into a complex tax position – the assurances of the promoter are not necessarily reliable, as they have a vested interest in persuading you that things are OK.

    So if you don’t take independent advice, you are arguably careless or reckless. If you take it and get told that the scheme is likely to fail but go ahead anyway, that is probably reckless.

    Only if you take independent advice which says the scheme has a good chance of success would I argue that you are not careless and shouldn’t be penalised.

  15. > Pellinor

    “I think there should be penalties in this area”

    For what, exactly?

    Assume we start with avoidance being legal, and evasion being illegal.

    And If Balls in fact meant evasion, then fine.

    Are there additional legal definitions of “aggressive” and “abusive”, specifically when it comes to tax avoidance, for this purpose? And, if there is, do you have a link at all?

    > BwaB

    “Perhaps a corresponding penalty for civil servants and ministers to encourage them to create simple tax laws written in plain English might have better results. We are, after all, just trying to collect the intended amount of tax, aren’t we?”


    Isn’t that what the Conservatives promised, before the 2010 election (ie simplification)? Yet another “FAIL”.

  16. Pellinor

    An interesting view but not one shared by HMRC or the Tax Tribunal as they didn’t raise the point.

    Cross-border EU transactions are notoriously VAT complex/. Are you saying anyone who didn’t seek advice from two independent sources would in your view be careless?

    Incidently, the law here doesn’t refer to ‘reckless’. Sorry if that seems pedantic but tax is all about law so we should stick to what the law says.

  17. PF: talking about “legal” and “illegal” transactions is slightly misleading: what we have is transactions that do, or do not, have the tax implications the taxpayer thought when completing the relevant tax return.

    The General Anti-Abuse Rule says that treating certain transactions as though they had certain effects is abuse of the relevant legislation, and therefore that those effects do not in fact occur.

    “Abuse” is therefore the act of claiming that transaction A has effect X rather than effect Y, where X is more favourable than Y and relies on an interpretation of the law that is considered abusive (as defined in the GAAR). As the GAAR applies to that transaction, effect Y actually eventuates.

    Claiming that A has effect X when in fact it does – because the GAAR is not triggered – may be avoidance, but is ipso facto not abuse.

    What I think should carry a penalty is the claim that A has effect X, if it turns out that this is incorrect, and if the reason it is incorrect is that the GAAR has kicked in.

    I don’t think avoidance should carry a penalty.

    I don’t think that having a different interpretation of the legislation from HMRC, where that interpretation is reasonable (even if it turns out to be wrong) should carry a penalty – HMRC are too harsh there, in my view.

    I do think that there is a case for saying that some interpretations are not reasonable, and that adopting an unreasonable position is something that merits sanctions. The GAAR defines “unreasonable” in this context, and I think it a sensible step to impose sanctions on the unreasonable.

  18. “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

    Judge Learned Hand 1934

  19. Andrew C: I disagree with HMRC on a lot of things 🙂

    I think that in many cases one source is independent. If you say “I want to do X, what are the tax implications?”, for example.

    But if someone comes to you and says “You should do X because the tax implications are thus and so”, you should get someone else to check up on that. My rates are very reasonable… 😉

  20. Gamecock

    Judge Learned Hand was an American. Do you think he read law reports from this side of the Atlantic?

    ‘No man in this country is under the least obligation, moral or otherwise, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his store’

    (Lord Clyde 1929.


    I can’t agree with your interpretation of how tax advice should work. Some clients may well pose the question as you state but most are going to say “I want to do X, what’s the most tax efficient way?” A sleight nuance but it still it still means the tax advisor is putting the ideas forward (as they surely should) as most clients are simply not aware of their choices or the implications.

    Take the growth in hybrid corporate/LLP structures, is there a single client who has suddenly approached their advisor to say they are thinking about sticking an LLP in amongst their group of companies and transferring senior managemnt to it and what are the tax implications?

    What happens instead is that the idea has been taken out to clients by advisors who in many cases have acted for them for many years. You’re really saying that the client would be careles to accept the advice of an advisor they’d used for ages simply because the advisor had taken an idea to them?

    I agree it would be great for the tax advisory sector if everyone took two lots of advice but would you expand that top other professions?

    My doctor tells me to take a pill and I wouldn’t be able to sue if something went wrong because I’d been careless in not seeking a second opinion?

    A building designed by an arcitect falls down but I’d be careless in not getting the plans reviewed by a rival firm?

  21. Andrew C: Fair points. You should *consider* getting a second opinion – it comes down to how much you trust the person offering you the advice, in the end.

    For example, I would say the degree of trust it’s reasonable to have in an advisor you’ve known for years, who is suggesting a way to reduce a tax bill slightly, is probably going to be different from that which it would be reasonable to place in an advisor you’ve just met, who is offering to create a loss out of thin air.

  22. Pellinor

    Actually, I wasn’t talking about transactions (being legal or illegal); I was focusing generically on avoidance and evasion.

    But that helps hugely, and thanks.

    However… whatever happened to simplification..!?

    This is just extra regulation, bureaucracy and cost for both business and individuals.

  23. Pellinor et al

    A question: just how much effect is the GAAR having? By this I mean has HMRC in fact found it a useful tool, employing it where no other provision or argument would work? I ask because, as I see it, unless it does impact on compliance yield in a reasonably significant way then penalties and worthy discussion around them are tokenism. I suggested on another blog they gave Labour’s core vote a warm and snuggly feeling and not much else. Snide phrase maybe, but am I wrong?

  24. We don’t know yet – it’s too early days to see any effect come through tax positions actually taken. Anecdotal evidence suggests people are steering clear of it, but then those who aren’t probably wouldn’t be talking about it.

  25. Pellinor
    November 14, 2014 at 2:31 pm

    New legislation trumps old case law.


    So one arranges his affairs to comply to the new law; the principle doesn’t change.

  26. Pellinor

    I will nail my colours to the mast and declare myself not to be a fan of the GAAR. I am not a fan in principle of Law built bit around wide statements of principle. If they are general then they are open to endless debate/ litigation around purpose or intention of the act. If they narrowed down they hey are more effective but also , well, narrow.
    I am much more in favour of specific and targeted measures; Para 13/S441 is a case in point.

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