Ever since the financial crisis, people and corporations who try to minimise their tax have been in the public eye, and the scrutiny only intensified with the publication of the so-called Panama Papers last year, which showed how offshore tax regimes were being used by the “rich and powerful” to arrange their tax affairs. Today, the UK government has reacted by introducing a new law to tackle tax avoidance. Tax avoidance, as opposed to tax evasion which is a crime, is the arrangement of one’s financial affairs within the confines of the law to minimise tax payable. That sounds like reasonable behaviour, but as it turns out not everyone thinks so.
The UK tax code is more than 17,000 pages long, an astonishing set of rules which of course it is more than difficult for average citizens or even corporations to read, let alone understand. Hence then need for professional advisors, who can tell us how we should set ourselves up to minimise the amount looted by the government. It is those advisors who the government is hoping to rein in with the new rules. From today, accountants and lawyers who help put plans for tax avoidance arrangements in place could be forced to pay a fine of up to 100% of the tax that was underpaid, up to a maximum of £3,000, if the scheme is subsequently found by the courts not to work. In other words, you will be liable for punishment if you interpret the law in a way that is detrimental to the government and let the courts decide if you are right. “People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay,” said Jane Ellison, financial secretary to the Treasury, apparently not interested in whether we live in a society where the citizens are protected from the government by law. Surely even people who believe in the omnipresence of government should agree that it is up to lawmakers to write laws which are simple and unambiguous, and if they fail the government must accept that citizens will sometimes interpret the words in a way which is different from lawmakers’ intentions.
Financial advisors and accountants have already issued warnings that the new rules are open to very wide interpretation, but of course that is the intention. The government is hoping to stamp out any dissidents, be they a big corporation or a thrifty pensioner. Everyone should arrange their affairs such that the state gets the share they want, and if the rules are open to interpretation, well, then let’s make it risky business to offer advice on how to read them. A professor at City University, Richard Murphy, told the BBC that he doesn’t expect the rules ever to be used, but that many tax avoidance schemes will simply no longer be offered by financial advisors with the threat of a hefty fine hanging over them. With no one willing to openly interpret the tax code differently from what the government intents, the field is clear for ever more complicated and invasive tax rules which will never be challenged in the courts. Lawyers and professional advisors get stuff wrong all the time, that is why we have the courts – to settle disputes. But when it comes to the tax code the government wants to prevent the people from disputing in the first place. So much for living under the rule of law.
This is an update of a previous article published on 23 August 2016.