With web giants such as Google, Amazon and Apple in the dock over their corporate tax affairs, Chartered Tax Advisor David Adams offers his view on the changing climate of taxation.
We are living in hard economical times and tax has become more than ever before a headline grabbing issue. Never have accountants been more newsworthy.
Taxpayers have always fallen into three categories, those outside the law, those who abide by the law and those who pay more taxation than they need by neglecting their affairs.
Governments use their powers to change tax rates to cover the cost of implementing services we all need, yet individuals instinctively dislike being taxed and generally regard the reduction of tax as an adversarial battle.
Taxation is one of the few areas of law where a person is guilty unless they prove their innocence. It means that, ironically, a dishonest man with good records is often better off than an honest man with poor records, as the former can defend himself while the latter usually has no tangible evidence to support his case.
Taxation legislation provides powerful redress for wrong doing in the form of interest penalties, naming and shaming evaders, and ultimately imprisonment – as Lester Piggott, the former jockey, knows too well.
Those who are outside the law often attempt to justify their actions on the grounds that the tax authorities themselves are immoral, arguing that taxes that are spent on wars and other immoral uses – in their view.
Increasingly the tide of public opinion is changing with a backlash against the evaders and even some legitimate tax planning arrangements within the law are now seen as unethical by the public – the controversial Starbucks’ arrangements offshore are a prime example of this.
The government has recently agreed many information gathering treaties with other countries, which is having a dramatic effect as stones are turned over and all manner of creepy crawlies emerge. These new tactics have also hauled the representatives of the main four firms of accountants before them to look into their activities.
New powers fight what the government describes as ‘aggressive tax avoidance’ arising from schemes such as an offshore fiddle to avoid tax on sub-contractor payments paid to a man in his 80’s in the Channel Islands.
Many accountancy firms – often referred to as ‘tax boutiques’ in the trade – specialise in facilitating this form of scheme, which, though legitimate, should officially be notified to HMRC, yet often aren’t. They advise their clients of their expected chances of success in reducing tax using these methods, implying there is some risk of failure. Inevitably, amid a howl of outrage, a plethora of claims are now being made against these same accountants as the taxman finally comes knocking on the door for what is usually a large sum of money.
Individuals and businesses are falling on their swords all around the country as the net closes in on them, yet many who know that they will eventually have to pay old tax arrears are in the meantime effectively using the government as an alternative to a bankers’ overdraft in the short term.
Since the game seems to be up on the fancy tax avoidance schemes, the obvious solution is quite simple; just don’t use them! They should always have been recognised as too good to be true. Do not enter more convoluted versions of the same schemes offered by the original overly optimistic advisors. If you are in a hole, stop digging.
The only sensible approach to corporate and personal taxation is to adopt only acceptable planning techniques which can be supported as having a good commercial business purpose and are based on true fact not wishful thinking fiction. In the new climate of taxation, only by complete integrity and transparency on the part of individuals and their accountants can anyone really be sure that their financial affairs are in order and secure for the future.
By David Adams (Chartered Tax Advisor)
Lindley Adams Ltd
Halifax
David is a Fellow of the Institute of Chartered Accountants in England and Wales and an associate of the Chartered Taxation Institute. He also lectures in taxation.
http://www.lindley-adams.co.uk/
