The Fading Distinction Between Tax Avoidance and Tax Evasion

[WordIsBond]

There is a world of difference between using a tax advantage that has been specifically designed, versus a loophole that, while currently legal, they will eventually close.

That's assuming the loophole wasn't specifically designed.

Eventually they are going to close the "loophole" that lets contractors shield their income from NIC and from the same level of income taxes that most workers have to pay. One man's "tax advantage, specifically designed" to encourage entrepreneurship and risk taking, is another man's "loophole" that they will eventually close.

They are also working on closing the "loophole" of large pension contributions. Top it up while you can, I guess. If you know a lower limit is coming in next year, is it wrong to top up your pension by this year's limit? Only in cloud-cuckoo land.

The "morality" of tax avoidance is too often determined by whether you are a person or an industry that the politicians or the press like or dislike, rather than by whether there is really any substance to the argument.

[Zero Liability]

Precisely.

[expat]

https://mises.org/library/legal-tax-...nce-extinct-uk

I did warn about this fading distinction on here some time ago. When I found on HMRC's website that they had set up an "anti-avoidance unit" to close the "tax gap" in government income by making sure that taxpayers pay the tax "that parliament intended", it was clear that avoidance was going to be treated the same as evasion. The wrongdoing was to lie in not paying what the government wanted you to pay, rather than in breaking the law.

[LisaContractorUmbrella]

I've had a thought about this.

Is there any good reason why we couldn't tax lightly on turnover, rather than profit?

For example, why are businesses allowed to discount expenses when calculating tax (yeah I know, hear me out! )

An individual doesn't get to offset the cost of their rent against their income, so why can a business?

How about a much lower, progressive tax on turnover? If you spend more than you take then tough tits, you're out. But big earners would pay more and there'd be no way around it.

How on earth would that work Companies that have a high turnover and low profit due to cost of sales would be put out of business over-night

[flamel]

I did warn about this fading distinction on here some time ago. When I found on HMRC's website that they had set up an "anti-avoidance unit" to close the "tax gap" in government income by making sure that taxpayers pay the tax "that parliament intended", it was clear that avoidance was going to be treated the same as evasion. The wrongdoing was to lie in not paying what the government wanted you to pay, rather than in breaking the law.

The key here is that when parliament makes laws they have "unintended consequences". In other words, they don't always know what they intend. Tax breaks for the UK film industry is a good example of unintended consequences.

The danger in using retrospective tax laws is that they will create further unintended consequences. The current policy is a Cyprus style sham to grab cash.

They could solve some of their problems by:
Creating a realistic settlement policy for past tax cases (i.e. accept a percentage of what they think is due as this will cost far less in the long run and free up resources everywhere.)
Implement a more effective and equitable "close company" tax policy for small Ltd companies
Use the free resources to go after the entities that would actually make a difference to the tax gap (e.g. Google Amazon etc).

[DotasScandal]

The key here is that when parliament makes laws they have "unintended consequences". In other words, they don't always know what they intend. Tax breaks for the UK film industry is a good example of unintended consequences.
The danger in using retrospective tax laws is that they will create further unintended consequences. The current policy is a Cyprus style sham to grab cash.

Precisely. And that all comes from having a political class consisting largely of elements 1/ incapable or uninterested in planning beyond the next election 2/ not thinking twice about throwing a number of people under the bus to advance their careers. In other words, sociopaths dangerous on many levels.
Unintended consequences go hand in hand with knee-jerk, politically-driven legislation.
The current policy is a textbook example of scapegoating a category (us poor bastards, getting sacrificed to appease the wrath of the crowds) for the sins of another (corporate tax avoiders, against which nothing is ever done, for reasons we all know).
This fact must be exposed relentlessly.

[Jack Kada]

I've had a thought about this.

Is there any good reason why we couldn't tax lightly on turnover, rather than profit?

For example, why are businesses allowed to discount expenses when calculating tax (yeah I know, hear me out! )

An individual doesn't get to offset the cost of their rent against their income, so why can a business?

How about a much lower, progressive tax on turnover? If you spend more than you take then tough tits, you're out. But big earners would pay more and there'd be no way around it.

I can think of a way around this quite easily.... Open multiple companies rather then one in an effort to lower your overall tax position.

Whatever rules are introduced there will be people who spend their intelligence trying to work around them. Its not as easy as introducing more rules for accountants to follow.

Part of the solution is to heavily penalise tax evasion so that it becomes too much of a risk for people to do.

Imagine if the penalty was losing a finger if you got nabbed being a tax cheat... That should sort it all out overnight

[normalbloke]

I can think of a way around this quite easily.... Open multiple companies rather then one in an effort to lower your overall tax position.

Whatever rules are introduced there will be people who spend their intelligence trying to work around them. Its not as easy as introducing more rules for accountants to follow.

Part of the solution is to heavily penalise tax evasion so that it becomes too much of a risk for people to do.

Imagine if the penalty was losing a finger if you got nabbed being a tax cheat... That should sort it all out overnight

Evasion or avoidance? Evasion already has custodial sentences. And define 'tax cheat'. Is that people guilty of avoidance or evasion in your world?

[MicrosoftBob]

that old chestnut.

There is a world of difference between using a tax advantage that has been specifically designed, versus a loophole that, while currently legal, they will eventually close.

That old chestnut

If it's legal, it is isn't a loophole

It's legal, even if they retrospectively make it illegal, it is still legal until the point in time they break taxpayers human rights with retrospective legislation

[Ticktock]

That old chestnut

If it's legal, it is isn't a loophole

It's legal, even if they retrospectively make it illegal, it is still legal until the point in time they break taxpayers human rights with retrospective legislation

That old chestnut.

If it's within the letter and the spirit of the law it's legal.
If it's within one, and outside the other then it is up for question as to whether it's actually legal.

Loopholes are generally within the letter, but outside the spirit of the law. Things like ISAs are within both the letter and spirit of the law.

EDIT: This isn't a comment on retrospective laws, BTW. Simply that your assesrtion that loopholes are legal is bunk - they are of questionable legality. Generally that question is answered either in court, creating precedent, or by sending back to parliament to legislate.