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James Bailey comments on HMRC's proposed new, controversial powers. 

Introduction

In more primitive times, certain offenders were made to stand restrained in a wooden frame for a period of hours, while the populace jeered and threw rotten vegetables (and worse!) at them. The punishment was meant to shame the wrongdoer, though on some occasions things went too far and they were seriously injured or killed, while on other occasions the populace displayed their sympathy and support (typically for political prisoners) by standing in respectful silence and declining to join in the spectacle.

The 2009 Budget contains proposals to revive the concept of the pillory for “serious tax defaulters”, by publishing their names, addresses, type of business, and the amount of tax they evaded, on HMRC’s website for a period of 12 months. [ See Publishing The Names of Deliberate Tax Defaulters - Ed. ]

Serious Tax Default

“Serious” tax default is defined as involving £25,000 tax or more, and there will be an exemption for those who come to HMRC voluntarily and disclose their wrongdoing, and for those who come clean as soon as their tax affairs are investigated.

Some very real concerns have already been raised about this scheme, such as the way it will punish the innocent by, for example, exposing the children of these “tax defaulters” to bullying at school, but what interests me is the mindset such a policy reveals.

Tax Evasion

Attitudes to tax evasion, as to most wrongdoing, vary widely and reek of hypocrisy. In my career, the two extremes I have encountered both involved people who had been caught by what was then the “Enquiry Branch” of the Inland Revenue. In both cases, my job was to write a report for them to present to HMRC setting out the exact details of the evasion that had occurred, and quantifying the tax and interest to be paid, and to negotiate the best deal I could for them on the financial penalties they would pay.

One of them was deeply ashamed of what he had done – he actually asked me if I thought he should resign from the Rotary Club! I was able to reassure him that to my certain knowledge, some of his fellow Rotarians had done much worse in the way of tax evasion than he had!

The other was a classic case of the “loveable rogue”. He was very wealthy, but nevertheless he had set up a complicated scheme of evasion that had netted him a tidy sum in undeclared income. I asked him why he had done it, as he already had more money than he would ever spend. He asked me if I had ever gone “scrumping” when I was a kid – “scrumping” is local slang for stealing apples from an orchard. I said that of course I had, and he grinned at me and said “and didn’t those apples taste good, eh?” I had to admit he was right – about the apples, that is, not of course about tax evasion!

I should make it clear I do not condone tax evasion. It is dishonest, and it is unfair to the rest of us because the tax has to come from somewhere. I do have a problem, however, with the way the current government is trying to whip up a moral panic about it. I am even more concerned about the way they are trying to blur the distinction between tax evasion and tax avoidance.

Tax Avoidance is NOT Tax Evasion!

Tax evasion is illegal, and basically involves telling lies to escape from paying tax that you should be paying. Tax avoidance is legal, and involves exploiting the rules to reduce the tax you would otherwise pay. There is a clear distinction between the two. The Chancellor Dennis Healey famously described it as “the thickness of a prison wall”.

There is a deliberate policy by HM Revenue and Customs to make tax avoidance morally unacceptable, and it is here that I start to worry. By all means let them introduce their pillory for “tax defaulters”, but when people start to talk about “unacceptable” tax avoidance, I hear the alarm bells start to ring.

“There is no equity in tax” said the judge during a famous tax case, by which he meant that tax can only be imposed on the basis of (another judicial quote) “the clear words of the statute”. The government may not tax us on the basis of a rough estimate of what it thinks we ought to pay; they must write and publish rules which we can then obey. If the rules say something is taxable, then we must pay up; if they do not, even if it is probably the case that they were supposed to include whatever we were doing, we do not owe a penny.

Has The Taxpayer's Charter Been Subverted?

In their recent drafts of a new “Taxpayer’s Charter”, HMRC have tried to introduce a sort of moral blackmail into the equation, saying that their job is to collect money for hospitals and schools. They could also say that their job is to collect money for pointless wars and for MPs’ outrageously inflated expense claims, but for some reason these items of state expenditure are not mentioned.

In any event, the “hospitals and schools” statement is untrue. It is the job of the government to raise money for these good purposes, and for the bad ones as well. They do this by passing laws saying how much tax we should pay, and HMRC’s job is to enforce those laws, not to think about what the money they collect will be spent on.

When I was a Tax Inspector in the 1980s, there was a “Tax Strike” movement of gentle liberal intellectuals who refused to pay “war taxes”. Basically, they withheld a proportion of their income tax which they reckoned the government would have spent on nuclear weapons and other nasty toys. I was astonished at the time at how we were instructed not to pursue them for their unpaid tax – the whole thing was dealt with at a higher level and with kid gloves on, presumably to try to avoid negative publicity.

We do not have the right to refuse to pay tax simply because we do not like what the government may spend it on. But the government does not have the right to tell us it is “wrong” to read the law carefully in order to pay them as little tax as possible.

The above article is taken from Tax Insider (May 2009), TaxationWeb's own publication specifically for our Taxpayer visitors. 'Tax Insider' is a monthly magazine containing numerous tax tips, articles, questions and answers from leading tax experts, aimed at helping taxpayers to save and reduce tax liabilities.    

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