My very personal view on tax avoidance

I’m not going to mince my words. I think that tax avoidance is morally wrong. I have no time for it. I do not advise on it – I never have and I never will.

Not the view of many tax advisors, I appreciate that. But with such a spotlight on it at the moment, I think I have a duty to be clear to my clients where I stand. Let me explain more.

The Duke of Westminster’s case (Inland Revenue Commissioners v Duke of Westminster [1936] 19 TC 490) is often cited as one of the leading cases concerning tax avoidance. One of the judges, Lord Tomlin, famously said “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax”.

Although this ruling was attractive for many seeking to avoid tax legally by creating complex structures, it has since been weakened by subsequent cases where the courts have looked at the overall effect. An example of the courts’ later more restrictive approach was the Ramsay principle where, if a transaction had pre-arranged artificial steps that served no commercial purpose other than to save tax, the proper approach was to tax the effect of the transaction as a whole.

Tax avoidance, of course, is legal (tax evasion is illegal). But where is the boundary between tax avoidance and (my words) legitimate tax planning? To me, it’s very clear. Tax avoidance is using the tax law to obtain a tax advantage that was never intended, and often involves contrived or artificial steps that serve no real commercial purpose. On the other hand, tax planning involves using tax reliefs for the purpose for which they were intended.

Tax law offers many valuable tax reliefs – R&D tax credits/Patent Box/VCT and EIS/SSE to name but a few. Then there are all the corporate reorganisation provisions designed to permit companies to reorganise their structures without undue tax hardship. There are charitable reliefs such as Gift Aid. There are CGT and IHT reliefs. All of these are intended reliefs, and it is my job to ensure that individuals and companies are aware of them, use them in the proper way, do not lose out on valuable benefits, and apply them correctly to the scenarios they face.

Tax legislation is complex. It has to be to try and stop abuse. But in doing this, it can also make intended reliefs hard to understand. That is what I’m here for: to understand, analyse, interpret, and apply tax law correctly, fairly, in the way it was intended.

I might not like everything in our current tax law. I may not agree with how all our taxes are spent (but I certainly do not want hypothecation as that can lead to anarchy). When I don’t like something I can (and do) make formal representations. I try and effect change. And ultimately, like everyone, I can choose where I put my X on the ballot paper.

And to end, an apposite quote from the Roman, Cornelius Tacitus in “Agricola” in AD 98. “The Britons themselves submit to the levy, the tribute and the other charges of Empire with cheerful readiness, provided that there is no abuse. That they bitterly resent; for they are broken in to obedience, not to slavery.”