Monday, February 24, 2020

Tax Is Simple – Pay What’s Owed, Not A Penny More

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Tax avoidance is already the front line for politicians fighting for Election 2015 votes but a lot of what they are talking about is misleading.

The law is quite unambiguous about the difference between tax evasion and tax avoidance.

The cases that are the foundation for tax planning go back almost 100 years.

The most celebrated is Ayrshire Pullman Motor Services v Inland Revenue from 1929.

The judge, Lord Clyde was verbose and eloquent in his summing up, but here is a paraphrase of what he said: “No one has any obligation, moral or otherwise, to pay more tax than they should.

“A taxpayer can take any honest action they see fit to pay what they owe and not a penny more.”

Avoidance is not wrong

So, the law says providing a taxpayer is honest and works within the law, they do not have any duty to pay more tax than they should.

Unfortunately, the politicians have spun tax avoidance to mean tax evasion, which is a criminal offence involving deliberately understating income or providing false information to pay less tax than someone should.

As for Labour’s Ed Balls reminding everyone they should ask for a receipt from any tradesman working out their home, this is common sense.

Landlords, for instance, will pay cash to tradesmen and then find that they cannot claim the money as a business expense because they do not have proof of payment.

More importantly, any home owner without a receipt clearly detailing work carried out has no guarantee or recourse for claiming compensation if the job goes wrong.

Colossal earnings

The only person winning from a cash-only transaction is the tradesman who does not have to pay the money into a bank account or declare the income to the tax man.

The Tories and Lib Dems have taken great strides towards making the tax system fairer, but have fallen short of their major goal.

The real villains are financial firms such as HSBC which made money from helping wealthy customers evade tax and multinational corporations who shift services and cash around the world to avoid paying tax on their profits.

More fool too to the wealthy sports stars and celebrities who sheltered their earnings in film and commercial property partnerships to generate artificial losses to set off against their colossal earnings.

The rule is simple. If you earn the money then pay the tax that’s due, but not a penny more.

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