Does tax avoidance have a future?

23 August 2016

George Bull

There is a respectable argument that tax avoidance does not have a future. Indeed, some say that 'tax avoidance' is not a tenable long-term position for any individual or business. The argument goes something like this. 

When it comes to paying tax, you can divide the whole world into two parts.
 
First, those who pay the tax due from them. This compliance is the requirement of the law of the land and is what most taxpayers endeavour to do accurately and promptly.
 
Second, those who evade taxes. This is illegal and involves the deliberate understatement or non-disclosure of liabilities. It attracts financial penalties if caught, with the possibility of criminal prosecution too.
 
So what does 'tax avoidance' describe? In practice, tax avoidance represents the endeavours of taxpayers – businesses or individuals – to pay less tax than they initially thought they would have to. If HMRC, the tribunals or courts decide that their endeavours have succeeded, then this is not tax avoidance. Those businesses and individuals simply pay what has been judged to be the full amount due under the law of the land. If, however, those plans are judged to fail, then larger amounts of tax are payable. And under new HMRC proposals, those who promoted the tax avoidance scheme may also have to pay penalties.
 
But the point remains. Once tax arrangements have been disclosed and determined, there are only two sorts of response to the tax system. Payment in full of the tax due, or evasion of liabilities.
 
This reminds me of the Cheshire Cat in Lewis Carroll's novel 'Alice's Adventures in Wonderland'. The cat is a marvellous creature capable of intense silliness but also with a habit of raising profound philosophical points. In one part of the story, the cat disappears gradually until nothing is left but its grin. This prompts the famous observation from Alice that 'she has often seen a cat without a grin but never a grin without a cat'.
 
So it is with tax avoidance.

If you would like to discuss any of the points raised, please contact George Bull or your usual RSM contact.