Dear Pat

This issue goes to the heart of the malaise that afflicts contemporary thinking on the subject of taxation.

Until recently the distinction was quite clear – avoidance was not only legitimate, but almost a duty, certainly at the corporate level.

“Evasion”, by contrast, is criminal and involves deceit. For example, the sale of a house is exempt from gains tax if it is the owner’s main residence. But if the owner deceptively claims to live in it when that is not the case, he has illegally evaded the tax.

“Avoidance” simply means organising your financial affairs so as to take advantage of reliefs, allowances, exemptions already implanted in the tax statutes. For example, I have just sold some shares in order to settle the mortgage on this house. I sold the shares for more than I paid, yielding a profit. Because the tax codes decree that the first (say) £10,000 of capital gains in any fiscal year is exempt from tax, I sold half the shares just before the fiscal year-end (5th April) and the other half shortly after the year-end, thereby achieving a legitimate exemption from gains tax of £20,000.

As it happens, the shares were in Anita’s name in the first place – again, so that we could take advantage of her otherwise unused allowances when receiving dividend income on the shares.

These are perfect examples of clear, individual choices to make use of what is available in the tax codes. To ignore these obvious arrangements is to throw money away.

The same applies, of course, at the corporate level, including the use of low-tax jurisdictions (such as Eire or Luxembourg) for basing profitable subsidiaries in a group of companies.

That such practices are now condemned is a reflection of populist political knee-jerking at the level of crowd-pleasing, devoid of any rational content, that now passes for democratic rectitude. Such condemnation also ignores the fact that corporations such as Google, Starbucks and Amazon employ thousands of workers in the UK, and that the resulting payroll taxes (for which the employing company is legally liable) amount to millions of pounds every week. But because the illusion persists that the workers are paying those payroll taxes, their employers are targeted for special odium which conveniently elides avoidance and evasion.

Illusion within illusion – wherever one looks.

On 16 Apr 2015, at 18:01, Patrick Barron wrote:

Is legal tax avoidance extinct in the UK?

Apparently the answer is “yes”.

Pat Barron