Legal doesn’t always equate to acceptable you know

The comedian Jimmy Carr is finding out to his cost that just because something is legal, it’s not necessarily acceptable. Hopefully Gary Barlow CBE and the others involved in the latest tax avoidance scheme to hit the headlines will get their comeuppance too.

If you’ve had your head buried in the sand or you’ve just been too interested in kids/football/anything of vague interest to know what I’m talking about, the Times decided stray into the world of investigative journalism recently, after being on the receiving end of it over phone tapping for the last what seems like forever. They found, surprise surprise, a lot of rich people pay very little in tax.

Unfortunately there now seems to be a backlash against the backlash. Poor Jimmy, they say, he did nothing illegal and What about the likes of Vodafone, avoiding it’s £6bn tax bill, they also say.

Why should one form of artificial tax avoidance not be investigated because an entirely unrelated case hasn’t been looked into properly? That’s like saying Wayne Rooneys fat. Or something. Even if Vodafones lost tax equates to something like 3,484 “Jimmys”, it doesn’t mean that people abusing the system shouldn’t be held accountable.

Lets make it clear, we have a concept in the UK tax laws that states a UK domiciled person should pay UK tax on their worldwide income (less reliefs for tax already suffered overseas). That is the overriding principle that tax legislation seeks to enforce.

If you think it’s acceptable to:

  • resign from your job; 
  • set up a trust in an offshore tax haven;
  • be employed by that offshore trust;
  • which in turn gets “your” job with your old employer;
  • and then “lends” you money (which you’ll never repay) from the income it receives for you doing exactly the same job you’ve always done on their behalf;
  • whilst writing off the “bad loans” it’s made to you (you’ll never repay them remember) against whatever tiny tax bill the trust will be liable for.
Then you’re barking mad.
Tax reliefs are there for bona fide business reasons. Tax relief on loans gone bad help alleviate the losses a business makes when someone who owes it money goes bust or can’t pay the loan back for whatever reason.
They were never intended as a clever way for the rich to avoid paying taxes that should be incurred under PAYE at best or via a more tax efficient dividend from a UK based company at worst. There’s a whole world of difference between tax efficiency and tax avoidance in my book.
A loophole in drafted legislation is just that, a loophole. HMRC close them regularly and then they become illegal. The way the process tends to work is the government come up with a policy, then the legislators are tasked with the job of drafting legislation that enacts the policy. Sometimes the legislation isn’t as tight as it should be and there are unforeseen consequences. Like millionaires lending their own money to themselves so they don’t have to pay tax.
Until the loophole is closed it’s not technically illegal but it’s not really acceptable is it?