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Villains or victims?

6 September 2018

 

David Whiscombe ponders for BrassTax on a question of fairness.

So, it’s reported that people who might otherwise have expected to receive honours are being “blacklisted” if they’ve become mired in tax avoidance schemes in the past.

At first blush that might seem reasonable.  The man on the Clapham omnibus might well take the view (encouraged no doubt by HMRC) that if you’ve managed to wriggle out of paying your “fair share” – or even if you’ve tried and failed to do so – you can hardly expect to be welcomed as one of the great and good of society.

But it’s not quite that simple.

It’s easy to caricature participants in tax avoidance schemes as wealthy parasites freeloading on the back of Hard Working Families, actively seeking out schemes to feed their selfish desire to escape tax at all costs.  And if they are now getting their comeuppance, well – cry me a river.

Easy, but in our experience almost always wrong.

Of course, in recent years tax avoidance has become so high profile that it’s nowadays only the naïve or the wilfully blind who would enter into aggressive artificial tax avoidance arrangements.  But it wasn’t always thus.

In our experience the only fault of the typical “tax avoider” whose past is now coming back to haunt him is likely to have been excessive reliance upon trusted professional advisers.  Some of those advisers frankly did not themselves have sufficient expertise to make a proper assessment of the risks inherent in the schemes put forward to them by promoters; some allowed their judgement to be clouded by the enormous commissions being dangled before them by sharp-suited spivs; some simply ought to have known better.

There have in the past been plenty of completely legitimate government-sponsored tax shelters.  Generous relief for pension contributions, for example; immediate tax write-off of investments in commercial buildings in Enterprise Zones; incentives under the Enterprise Investment (and before that, Business Expansion) Scheme; full relief for investment in British films; and so on.  So, when in the past a trusted adviser has assured a client that a particular arrangement is mainstream, routine, that “everyone is doing it”, even that “HMRC are comfortable with this” – how could the client reasonably have been expected to smell a rat?

Even those few more clued-up taxpayers who were aware that their planning might be pushing the envelope could find, in those days, historic judicial approval of tax mitigation steps.  It was Lord Clyde, the Lord Justice General no less, who said in 1929:

The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Revenue.”

Sure, that’s unlikely to be the view of the courts today: but let’s not muddy the waters with fiscal revisionism.

Many people rue the day they ever got involved in aggressive tax schemes.  Some have paid a high price in worry, reputation and gold – sometimes even to the point of bankruptcy.  A few have successfully sued the advisers who put them into these schemes in the first place; but most have had to put the whole sorry saga down to experience and move on.

Don’t get us wrong – we’re not proposing to start a JustGiving page for Distressed Victims of Tax Avoidance.  Nor, as a firm that always warned clients to steer clear of aggressive tax schemes, are we being wise after the event.  But to vilify as a crook everyone who got sucked into the “tax sheltering” world of a decade or so ago just isn’t fair.

For more information on the practical tax advice we offer, please get in touch with your usual BKL contact or use our enquiry form.