Called to account
The Commons Public Accounts Committee has campaigned to highlight tax avoidance by big businesses who don't 'pay their fair share'. Sadly, the PAC's approach is very blunt and sometimes misguided. Headlines and soundbites may unfairly tarnish people who are doing nothing wrong. For example, the PAC chair, Margaret Hodge MP, criticised the Duchy of Cornwall (the main source of income of the Prince of Wales) for not paying corporation tax. It's not a company, so it doesn't pay that tax. You may be a royalist or a republican, but the Prince pays income tax as he should, just as Mrs Hodge does on her salary.
Meanwhile, HM Revenue & Customs are also countering tax avoidance and tax evasion. Let's be very clear about the difference, which the MPs sometimes blur: avoidance uses the law, usually in a way that wasn't intended by the people who wrote it, to reduce tax. Tax evasion involves dishonesty, for example by simply declaring less income than the true figure.
Anyone caught evading taxes will be charged penalties and may be prosecuted. HMRC are constantly running campaigns to encourage evaders to put their affairs in order, and to seek out those who fail to do so.
Those who use artificial avoidance schemes have to be prepared to tell the truth to HMRC, and may find themselves arguing in court about whether the arrangements work. These arguments may take years – this summer saw decisions against the taxpayer in relation to schemes implemented in 2002 and in 2005. HMRC would rather not spend their time in court, so they have recently published a warning to discourage people from trying it on: 'Tempted by tax avoidance?' explains what they are likely to object to, and tells you why you shouldn't get involved in the first place.
If the PAC, the press and HMRC leave you wondering what tax planning is acceptable – whether you should pay corporation tax even though you are not a company – we'll be happy to give you a calm and objective explanation of what works and what doesn't, and what might end up in years of legal wrangling. That's something worth avoiding!