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TW Ed hopes that the debate on tax policy may have progressed a little, thanks to Panorama.

I must admit that I watched last night’s Panorama – Tax, Lies and Videotape, expecting it to be trash – thanks in no small part to the BBC’s “hype” of the programme in the days running up to it - more on that later. (At this point I’d get out of the way, that the BBC seems now recovered from its own dalliances in saving itself oodles of NIC and other employer liabilities by engaging individuals through one-man companies). But I was pleasantly surprised: I do think that they have made a useful contribution to what we might broadly term ‘the public debate’ on tax. Not, however, on the question of what constitutes unacceptable tax avoidance.

One might say that the programme threw some much-needed light on the tension between trying to raise tax revenues however possible, and at the same time appearing sufficiently friendly to internationally mobile (and presumably wealthy) businesses and individuals as to encourage them to locate in the UK. Or at least stay here a bit longer.

Alternatively, one might say that it highlights the duplicity in government/Treasury tax policy – David Cameron saying “[big] businesses need to pay their fair share” while Treasury minister David Gauke admits that the government is working hard to make the UK a “competitive” place for large companies to do business. And of course when he says “competitive” he means “cheap”.  And of course the implication is that purely domestic taxpayers will suffer more tax as a consequence. I thought Panorama framed the point very well.

Avoiding the Obvious

However, one issue as regards which Panorama lived down to my initial expectations was the use of the phrase “tax avoidance” to suggest all manner of ills. Pretty much all of us ‘avoid’ tax. Some of us pay into a pension. Some of us make use of tax-approved childcare vouchers. Others make investments which enjoy capital growth rather than adding to income. Some others may get married. Some other others may choose to invest in a contrived, complex arrangement involving much paperwork which, if HMRC reads it, might result in their being taken to court and possibly the cleaners.

HMRC has managed to convince almost everyone that all tax avoidance is BAD, except when HMRC thinks it’s OK – in which case it presumably isn’t tax avoidance but some other, as yet unnamed thing. The real fun begins when HMRC decides that something which was OK is now bad, or that something which used to be bad is now in line with government aims to be “competitive”  – such as with Controlled Foreign Companies, or CFCs, which Panorama explained rather well in under a minute. Unfortunately, Panorama then went on to confuse itself and pretty much everyone else by casting broadly everything which followed as tax avoidance and therefore bad – even stuff which HMRC and the Treasury had recently decided was now OK.

Avoiding all Reason

It is difficult to see how Panorama can imply that their tax sleuth had “discovered” evidence of an “extraordinary tax avoidance strategy” being marketed at a tax conference in London, unless it is a different ex-HMRC officer called Richard Brooks who provided superb written evidence to the Treasury Select Committee in January 2011, discussing (see para 5) the same kind of arrangements that Panorama’s Richard Brooks found so shocking last night.  Perhaps he meant “discovered” in that unique sense available only to (ex)tax inspectors, and whose relationship with the normal use of the word “discovery” is as tenuous (and as controversial) as that between item price and final bill in the Bistromathic Drive. Assuming it is the same ex-HMRC officer, then I think Mr. Brooks should not really have claimed discovery, nor should he have called it avoidance, knowing the inference viewers might draw even though the arrangements in question are in fact perfectly acceptable to HMRC – now.

Avoiding the Debate?

To cap it all, we rounded off with the ubiquitous Rip van Hodge saying, “far from [the law] doing what government intended, we find it doing the absolute opposite...” I am not convinced Mrs. Hodge has any better grasp now of what the government intended than she did when the laws were being made. While I think the PAC does worthy work on behalf of the general public, Mrs. Hodge has a deft knack of being astonished and appalled at everyone else but not her own seeming ability to have snoozed through her first years of office, while many of the laws she now finds so objectionable were being read through Parliament.

What’s Good for the Goose...

I cannot help but chuckle at the idea of Panorama having secretly filmed David Heaton advising at that London conference on how to save tax – or, as he apparently put it at the time, how to keep money “out of the Chancellor’s grubby mitts”.

Now, I must confess to more than a little bias on this: I think him a most capable practitioner and, more to the point, an excellent speaker with the rare gift of being able to engage on terms and in a fashion accessible to tax experts and non-specialists. Certainly good enough to watch more than once.

I find myself somewhat amused by the BBC’s play at subterfuge in the exposé – secret filming and all – since I think David would have been perfectly happy to give the same presentation with a full BBC camera crew in plain sight. (Although I can see him wishing he’d plumped for a snazzier tie). Likewise with HMRC officers formally in attendance; he has never hidden his stance on tax planning – least of all from HMRC, as anyone attending their JUAP conference in Manchester early last year will recall.

And what of that stance? There is and will continue to be great debate over where is the line between acceptable and unacceptable ‘avoidance’.  I do not pretend to know an answer that will be satisfactory to all parties. But let’s consider HMRC’s published position from Tackling Tax Avoidance: Spotlights - Tax Planning to be Wary of which lists some key indicators of what crosses the line, in their opinion:

• It sounds too good to be true.
• Artificial or contrived arrangements are involved.
• It seems very complex given what you want to do.
• There are guaranteed returns with apparently no risk.
• There are secrecy or confidentiality agreements.
• Upfront fees are payable or the arrangement is on a no win/no fee basis.
• The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
• The scheme is said to be approved by HMRC (it does not follow that this is true).
• Taxation of income is delayed or tax deductions accelerated.
• Tax benefits are disproportionate to the commercial activity.
• Offshore companies or trusts are involved for no sound commercial reason.
• The involvement of professional trustees is claimed to guarantee that the arrangements succeed.
• A tax haven or banking secrecy country is involved without any sound commercial reason.
• Tax exempt entities, such as pension funds, are involved inappropriately.
• It contains exit arrangements designed to sidestep tax consequences.
• It involves money going in a circle back to where it started.
• Low risk loans to be paid off by future earnings are involved.
• The scheme promoter lends the funding needed.
• There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits.

Based on my own recollection of an earlier David Heaton lecture in its entirety, I am not in danger of having to take my shoes and socks off to count the number of ‘hits’ on that list. And as fellow editor Mark McLaughlin, who actually attended the lecture in question, put it, “David is renowned for his presentation style and most people will appreciate his sense of humour and the effort he puts into his lectures. From a technical perspective, I'd be interested to know the grounds on which HMRC might seek to challenge what David referred to as 'the Bump Plan' ”.

David has apparently resigned from his position as member of the General Anti-Abuse Rule advisory panel as a result of the press. In my opinion, that is to HMRC’s detriment, rather than his. Of course a professional tax adviser’s sympathies will tend to lie with the taxpayer rather than with HMRC. But neither HMRC nor the Treasury is always right, or fair – even with the cards stacked in their favour, havng the power to legislate. With the pressure on the Treasury and HMRC to raise as much revenue as possible, the involvement of some genuine pro-taxpayer expertise in HMRC/HMT decision-making is, I believe, essential.

The BBC has reported Treasury minister David Gauke as having said,

"Mr Heaton's statements are directly at odds with the government's approach to tackling tax avoidance, therefore it is right that Mr Heaton resigns from his position."

Which presumably makes this employee's office untenable, then.