Tax Avoidance

Although an issue I have mixed views on – it does annoy me quite a lot.

The recent scandal with comedian Jimmy Carr transfering millions of his money to a company abroad in order to receive most of the money back as a loan on which he has to pay no income tax, has made the relatively eternal issue resurface. As well as this K2 scheme, there are many other ways that people can avoid tax, including tax reliefs and other schemes. George Osbourne hopes that GAAR (General Anti-Abuse Rule) will attempt to tackle this but most realise similar schemes will then by concocted to adapt to this.

Now there is a difference between tax avoidance and tax evasion. Tax avoidance = using all means to exploit the tax regime legally for personal advantage. Tax evasion = the same thing but by illegal means.

Since tax avoidance is legal, the issue is a moral one. Some say that paying any more tax than you absolutely have to is a gift to the government, and it is every citizen’s right to avoid doing so. However the blatant fact is the poor are paying a greater rate of tax than the rich. This is because they can afford the financial advisors to assist them in these schemes and activity with off-shore companies etc… that ordinary people simply cannot. Jimmy Carr was revealed to be paying only 1% income tax and the top earners paying a rate of only 10%. This is costing the exchequer £25bn every year, probably much more than the “benefit scroungers” that so many have been complaining about.

Bill Bragg put it well yesterday: “Who was it who said “taxes are the price we pay for a civilised society”? Jimmy Carr is just the tip of a massive iceberg that includes individuals and corporations who cost us much more each year than ‘benefit scroungers’. You’d think making millions every year would be reward enough, but no – so many high earners do everything they can to avoid making their contribution, often while complaining how uncivilised society has become.

Having said all of this, the focus really should be redirected. It is the tax system created by politicians that has allowed people to avoid making their tax contributions. After all, Jimmy Carr disclosed the scheme to HMRC.

The conclusion is that we need to reform the system rather than dishing out moral criticisms – and simplicity is key.

Funny side-note:

“In the United States, thieves are required to report their stolen money as income when they file for taxes, but they usually do not do so, because doing so would serve as a confession of theft. For this reason, suspected thieves are sometimes charged with tax evasion when there is insufficient evidence to try them for theft. “