Tax: plan, evade or avoid?
When does tax planning become tax avoidance? And when does tax avoidance become tax evasion? David Webb of accountants and tax advisers Bulley Davey helps us to navigate through the grey areas
As the Panama Papers database released details of 200,000 offshore account details recently and further pressure mounted on political leaders’ tax affairs, local accountants and tax advisers Bulley Davey urged individuals to seek guidance and not fall foul of the law.
The terms ‘tax evasion’, ‘tax avoidance’ and ‘tax planning’ are often used interchangeably but in fact refer to at least two distinct activities. Tax evasion is a deliberate act, such as not declaring income or falsely claiming expenses. Needless to say this is illegal! Tax avoidance and tax planning are, however, ways in which people organise their tax affairs to minimise their tax liabilities within existing laws, which aren’t illegal.
The debate forms around whether things that are currently legal, should remain so. David Webb, Director of Bulley Davey, gives us the lowdown:
‘What one person may call tax planning, another will call tax avoidance. It is normally viewed that tax avoidance is not morally acceptable, but tax planning is – perhaps because avoidance has closer connotations to evasion.
‘In the end it comes down to individual views as to what is acceptable and what is not – like gamesmanship in a football match. Some players are more theatrical when tackled by the opposition. This isn’t illegal but many feel as though it’s not the ‘right’ way to go about the game.
‘As accountants and tax advisers we must advise clients of what is available within the law, and leave them with the moral dilemma as to how far they want to push the boundaries, warning them when this pushing strays into illegal evasion.’
The issue of tax evasion and avoidance most recently boiled over after the release of the Panama Papers, which implicated a number of highprofile politicians and public figures, including Prime Minister David Cameron whose mother allegedly gifted him £200,000 – potentially avoiding £80,000 in inheritance tax. Mr Webb continues:
‘At what stage does the making of the gift change from being normal support for your children to becoming tax planning or avoidance? This is the moral question. Whether David Cameron’s mother was thinking that it was only fair to pass down some of her husband’s wealth to her children, or whether she was thinking of the inheritance tax that might be saved on her death, only she will know.
‘Nothing, however, is clear-cut. There are always grey areas and the more the government tinkers with the tax system to try to affect people’s behaviour, the more grey areas there will be, and the more people will push boundaries.
‘Everyone, quite rightly, has different views on what is acceptable. We at Bulley Davey do our best to keep clients informed of what relevant tax planning is available, the potential risks and rewards, and then use our knowledge from our personal relationship with you to try to help you decide what you feel is acceptable to you.
‘It may surprise some that accountants can actually get in trouble if we don’t provide clients with this information. Within the last couple of years a small firm of accountants was successfully sued for not advising their client of a potential tax loophole that many of us would agree was pushing the law very much as far is it could go.’
Bulley Davey 4 Cyrus Way, Cygnet Park, Hampton, Peterborough PE7 8HP. 01733 569494, www.bulleydavey.co.uk