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Idiot proposals are idiot

So what is tax avoidance? There is at present no precise definition. What it definitely is not is claiming a tax relief or allowance that is definitely provided for in law, presuming that the circumstances for making the claim, also prescribed in law, are met. So, for example, claiming tax relief on a pension contribution within permitted limits is an action undoubtedly intended to reduce a tax bill, but the law specifically permits that the reduction takes place so it cannot be claimed that this is tax avoidance. Anything that is definitely legal cannot be undertaken as if it was an abuse of the law.

Well, quite. Therefore there is no definition of tax avoidance other than whatever Spud thinks you shouldn’t be doing. Which ain’t a basis for a law.

If it’s against the law it’s tax evasion already.

If it’s not against the law then it’s not against the law. QED.

As a result, tax avoidance is the activity that takes place within the grey space between being tax compliant, where a person specifically seeks to comply with tax law, and tax evasion, where they specifically seek to break that law.

No, it isn’t and it cannot be.

Someone takes an action which has the effect of reducing the amount of tax they have to pay. This is examined and becomes either tax compliance, in which it is legal to do so, or tax evasion in which it is not. There is, in fact, no such state as tax avoidance which can be punished.

And for those worried that injustice might result, the taxpayer would always be able to offer the defence that the apparently unnecessary step was commercially required. But the onus of proof would be on them,

Reversing the basic structure of English law to please the Lord High Tax Denouncer. Fuck off, matey.

36 thoughts on “Idiot proposals are idiot”

  1. HMRC have a fairly clear definition of tax avoidance:

    Tax avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended.

    It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.

    They go on to demand that you tell them if you are engaged in tax avoidance, with the threat of heavy financial penalties for failing to disclose use of tax avoidance schemes.

  2. I’m damn sure I’ve seen the potato describe ISAs as tax avoidance in one of his rants. But that was a different day.

  3. Bloke in North Dorset

    That definition seems reasonable, right up to the last sentence, at which point it becomes woolly, unless parliament is going to start defining tje spirit of every clause in every law.

  4. It involves operating within the letter, but not the spirit, of the law.

    If the letter and the spirit of the law do not align, then that’s your problem, you useless fucktards.

  5. While I completely echo the sentiments in the last sentence Tim.Isn’t it easier to summarize thus?

    1. Murphy is a totalitarian whose claims to be a ‘democrat’ are about as plausible as someone from the GDR
    2. His grandiose plans require vast sums of money which he hopes to confiscate through either taxation or failing that outright theft
    3. He is as close to the embodiment of pure evil as any person extant on the internet whose website is generally accessible

    Once you understand these three things you understand the man.

  6. There is no “space”, grey or otherwise, between being tax compliant, where a person specifically seeks to comply with tax law, and tax evasion, where they specifically seek to break that law.

    Tax advantages that Parliament never intended like health disadvantages that Parliament never intended are both examples of government overreach.

  7. Suppose some enters a tax scheme to attempt to reduce tax. This scheme according to the courts dosn’t work. Is this tax evasion and if so why (under current rules) a penalty not charged?
    As you would say Timmy QED.

  8. We had one the other day. Please lend £30m to someone to buy a building and they’ll lend lease it to you and you lease it back to them less some rights. This means the buyer doesn’t pay stamp duty (we do and charge for it in the loan rate). BUT the buyer isn’t being lent money to pay tax (a no-no as you’ve no security).

    We passed on the opportunity. It was artificial therefore potentially non-compliant but it was perfectly legal, until someone in HMRC starts asking questions.

  9. (HMRC) demand that you tell them if you are engaged in tax avoidance

    Dammit! I’ve forgotten to tell HMRC that I avoid alcohol taxes by not drinking, tobacco taxes by not smoking, and airport taxes by not going abroad. However, they helpfully told me I avoided income tax by not having enough income, and sent me a refund. I assure you that avoiding income tax was entirely unintentional.

  10. jgh,
    I suggest you avail yourself of the link above and disclose all your tax evasion schemes to HMRC, one-by-one. Drown them in their own paperwork.

  11. Except there is a precise definition of tax avoidance – taking legal measures to minimize your tax bill.

    Whether that means working less to avoid being bumped up into a higher bracket or claiming a relief by law.

  12. It’s like the “pieces of flair” conversation from Office Space:

    “But I paid all of my required taxes”

    “Well, that’s the bare minimum, mmkay? Look at Brian over there. He’s donating extra money to the government out of the goodness of his heart. You do want to have a good heart, don’t you?”

  13. The problem with that ‘grey area’ is that it doesn’t pay any attention at all to the great range of reasons why you might be neither doing something which is definitely to be encouraged, nor seeking to get out of tax you know is due.

    All the perfectly day to day questions that come up when you practice as a tax advisor, in fact.

    – I want to give my employees some vouchers. Is that taxable?
    – I’ve had some work done on my rental property. Can I claim a deduction for it as a repair, or do I have to disallow it as capital?
    – I’m giving shares in my company to several employees, one of whom is my son, who’s getting more than the other people are. Does he have to pay tax on them? Do I have to? How many of them? How much?
    – I’m selling my company for a mix of cash and loan notes. That’s all a capital gain, isn’t it? NO question of being taxed as income?

    Or, to take the very example Murphy gives:

    – I’m going to have my company pay £100k into my wife’s pension pot. That’s within her annual allowances, including brought forward amounts, so the company is entitled to tax relief for it and there’s no tax on either me or her. It cannot possibly be avoidance, as relief for company pension contributions is set out clearly in the legislation, so HMRC cannot possibly challenge that treatment. What do you mean ‘they can’?

  14. Sam Jones

    My favourite paragraph from the Libel post:

    There are, of course, political creeds that endorse the silencing of the press, opposition, and all comment on those in power. None of them are attractive. All are anti-democratic . None respect the fact that the media is an essential component of a free society.,

    Says the man who bars dissent on his blog or any other comment piece and who has blocked 20,000 people on Twitter. I’m sure if he were to ever gain elective office he would be the biggest proponent of ‘free speech’ ever known.

  15. I enjoyed the link above where spud was done for libel. Especially the news that he represented himself. Is there anything that this polymath can’t fail at?

  16. ‘And for those worried that injustice might result, the taxpayer would always be able to offer the defence that the apparently unnecessary step was commercially required. But the onus of proof would be on them’

    The team within HMRC responsible to giving clearance that proposed transactions are for bona fide commercial reasons, and so not tax avoidance, are notoriously terrible at this. It’s very common to get replies from them basically saying ‘I don’t see why you need to do this, so I can’t be sure it’s not tax avoidance’. Having never run a whelk stall, they are impossible to persuade of things like ‘the bank won’t lend unless we do it’, or ‘we need to protect the assets against trading downturns’.

    The old team were much better: they’d only object if they saw something objectionable. The new team (brought in because the old guard retired rather than move to a centralised hub) do it the other way round: they only approve if they think they understand everything.

    This doesn’t inspire confidence in Murphy’s blithe assertion that those who aren’t trying to avoid tax will be OK…

  17. @pellinor – “The old team were much better: they’d only object if they saw something objectionable. The new team… do it the other way round”

    I see you’re having the same issues I am. I’d used the line “excess cash above working capital needs and other valuable assets which might be acquired in the future can be held in the holding company” in clearance letters for decades without comment. One of the new lot wanted to know what “valuable assets” I was referring to. Howthefuckdoiknow? They MIGHT be acquired. In the FUTURE. And what difference does it make what they are?

  18. Some of you may recognise me as a fairly frequent commenter here at Tim’s gaff. Do any of you know a really good advisor for pensions tax Lifetime Allowance? My pensions picture is a little complex and I think I may have a problem – I need to know exactly what to do from someone who is an expert and not trying to sell me something. Anybody have a good experience here to share?

  19. I’d actually recommend Andrew C, the commentator immediately above you……I’ve passed your email on to him.

  20. One bright spot. With the new ownership on Twitter I no longer get Murph being pushed into my feed as a “you might be interested in this as we know you are in favour of free markets and a small state and need persuading otherwise”.

  21. @Boddicker, yes the libel case is interesting. I’m amazed he didn’t settle before court. My guess is he thought he could brazen it out and only consulted a lawyer at the last moment, at which point he was told to throw in the towel, and turned up in court only to apologise.

    The libellous blog was written in the name of his LLP but its accounts have never shown any damages or costs. I’d love to know how much it cost him!

  22. No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.

    Lord Clyde – Ayrshire Pullman Motor Services v Inland Revenue [1929]

    Says it all and I do my utmost to do my duty in this regard. The less they have, the less they get to piss up the wall.

  23. Ooo, good point BniC. I avoided paying Hong Kong taxes through the simple expedient of ceasing to reside there.

  24. BniC – be thankful that you are not an American citizen, the evil bastards of the IRS would pursue you to the ends of the Earth. Unless you pay them to renounce your citizenship.

  25. The exercise as to why ICAEW refuses to investigate Murphy for his libel – a crystal clear breach of the ICAEW Code of Ethics (re professional conduct) – is left to the reader. And he also should have reported himself to ICAEW the instant he settled in court: failing to do so is itself a different breach of the ICAEW Code of Ethics.

  26. The confusion between tax avoidance and evasion is largely because parliament makes such crappy laws. Laws should be clear, concise, effective. Instead they are ambiguous and rely on judges and other lawyers to divine the “spirit” of them, like necromancers.

    Just wait until the Online Harms and Gender Recognition get Royal Assent. Even more opportunities for grifters of every stripe.

  27. @Patrick

    “Thanks Tim. Andrew C please do get in touch.”

    Hello Patrick, I sent an email last night @18:11 to the email address Tim gave me. Hopefully you’ve received it.

  28. @Longrider. I also like the quotes from the American Judge Hand

    “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.”

    Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

    “Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”

    Commissioner v. Newman, 159 F2d 848 (1947)

    I think we can all agree Murphy is a bit of a cant.

  29. Andrew C – I’m also pretty easy to find on Linkedin with first name and last name if my email is playing up. 🙂

  30. @Longrider
    I am told by a tax barrister of my acquaintance, with some regret that Lord Clyde’s excellent dicta no longer carry much weight in the courts.

    The watershed change of direction was a case called Ramsay in 1982. Here is quote that tells you all you need to know about what the courts think of the approach to tax avoidance in earlier case law (per Lord Diplock in Burmah Oil Ltd v IRC):

    ‘It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax-avoidance schemes to assume, that Ramsay’s case did not mark a significant change in the approach adopted by this House in its judicial role… The difference is in approach. It does not necessitate the over-ruling of any earlier decisions of this House; but it does involve recognising that Lord Tomlin’s oft-quoted dictum in Commissioners of Inland Revenue v. Duke of Westminster [1936] AC 1 at page 19, “Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be”, tells us little or nothing as to what methods of F ordering one’s affairs will be recognised by the courts as effective to lessen the tax that would attach to them if business transactions were conducted in a straight-forward way.’

    In recent times the courts have been particularly hostile to tax avoidance. Ramsay is just one of a number of routes to thwarting tax planning. “Purposive construction” of the statute and fudging the facts are other methodologies used.

    It may be that your view of the world (and that of Lord Clyne’s) will find favour again, but (for what it’s worth) it no longer captures the real approach taken by the courts to tax avoidance.

  31. It is particularly hypocritical of tax advocates to criticise tax avoidance given that they never criticise the equivalent in the opposite direction – where your true actions are taxed as if you did something else because it brings in more tax. For example, if you give away something less than severn years before you die, it becomes taxable through inheritance tax. Or shares dealings whose capital gain is treated by section 104 as if they didn’t happen.

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