In 1936 Lord Tomlin stated that "Every man is entitled ... to order his affairs so as that the tax ... is less than it otherwise would be". In the light of more recent political comments we are told there is a moral duty to pay the "right tax", and that taking part in aggressive tax planning or paying a tradesman in cash in return for a discount is morally wrong. With the Autumn Statement from the Chancellor on 5th December, we may find out whether this is a fundamental shift in the political landscape, or a passing reaction to a news story.
The Government are consulting on the widening of rules that force promoters of tax schemes to disclose their ideas and the names of clients who undertake them. The UK already requires that the details of many schemes must be passed to the Revenue who will then issue a reference number. It is worth noting that this number means that the Revenue are aware of the scheme, not that they approve of it.
But if you enter into abusive arrangements now then you should also be prepared to be pursued by the media, and possibly pilloried for doing so. But what is abusive tax avoidance?
By way of example it is legitimate to take out an ISA, said Treasury minister David Gauke, but potentially abusive for an employer to pay a worker through a personal company. Yet even David Gauke admitted it can be extremely difficult to tell the difference between wholly proper commercial arrangements and potentially improper tax planning. If you are deciding whether to set up business as a sole trader or a company, is it really immoral to consider which route is more tax efficient?
Tax planning involves getting appropriate advice from a competent adviser on how best to order your affairs and minimise your tax bill. The world is a complicated place, and it is impossible to provide clear rules for every set of circumstances. As a result tax legislation can often be opaque or contradictory. There are frequently grey areas where tax consequences are unclear, or opportunities exist to mitigate a tax charge. Within this framework there is a scale of planning that can be done.
At one end lies artificial structures that exploit loopholes, which normally come with a significant health warning and are likely to be fought by the Revenue.
At the other end there is sensible advice to be taken so that you can arrange your affairs in a way that takes advantage of available reliefs and exemptions and avoids pitfalls that might trap the unwary.
It is prudent and proper to take advice if you are concerned about how tax might affect you. Good tax advisers inform their clients not just about commercial and technical implications, but also about the risks involved in any planning. If political will follows the current statements, it seems advisers will need to consider more carefully the moral viewpoint of the Revenue and Courts. This promises to make for some interesting discussions to come.