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Biscuits and tax avoidance
Frogmarch 2002 - Whitby
tobyaw
Chocolate biscuits attract VAT; biscuits without chocolate are zero-rated for VAT. By choosing to buy non-chocolatey biscuits I deny the treasury its 20%: I am engaging in a practice called tax avoidance, the use of legal means to reduce my tax burden.

UK Uncut campaigns against tax avoidance. Am I being morally dubious when I buy a packet of pink wafers, rather than a Kit Kat or a Blue Riband?

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You should by Jaffa Cakes instead - all the chocolate, none of the VAT!

It doesn't get away from the fact that I'm denying the government tax revenue by choosing to buy zero-rated victuals.

I don't think you're being morally dubious. The worst that could be said is that you're not actively choosing to be virtuous by contributing money to the common weal through taxation, though of course you might be virtuous in other ways that balance or even considerably outweigh this.

I think what people object to is not the principle per se but issues of scale and fairness that surround it. Businesses or rich people investing amounts beyond the means of a normal individual in order to find ways to avoid paying even greater sums in tax is distasteful; not because it's wrong in an absolute sense, but because it's only possible with the aid of resources that most don't have.

This is genuinely unfair, because the business or rich individual can end up paying less in proportion than the normal person, when that's not the intention of the law.

Unfortunately that justifiable sense of unfairness is very hard to disentangle from less justifiable envy, making it an emotive topic for those at the rough end of the system and unfortunately easily dismissed by those who aren't.

There is genuine unfairness in the taxation system, and I think the only equitable solution would be a significant simplification of the rules, removing special cases and flattening the whole system. Ordinary people should be able to have a full understanding of their tax liabilities, and should be able to make financial decisions without disadvantaging themselves through lack of professional advice.

As a significant amount of the UK’s tax revenue comes from progressive taxes like income tax and corporation tax, I think it is no surprise that those paying in the highest tax brackets have the greatest incentive to engage in tax avoidance.

I think it's pretty clear what UK Uncut is campaigning about, and it's not your choice of biscuits. Unless you've got some clever, multi-million pound wheeze involving offshore hobnobs, non-domiciled jaffa cakes and jammy dodgers registered in Monaco for tax purposes, that is.

As I understand it, a distinction is usually made between tax evasion (actively illegal practices like intentionally submitting falsified accounts), tax avoidance (clever offshore, non-domiciled jiggery-pokery and loophole-exploitation like what Lord Ashcroft and Philip Green do), and tax mitigation (ordinary tax-optimisation stuff such as claiming reasonable things as deductible expenses, like what the rest of us do).

Tax evasion is illegal and morally dubious; tax avoidance is technically legal, although clearly against the spirit of the law, and hence morally dubious; tax mitigation is legal and morally ok because it's clearly within the intention of the law.

Your biscuit example obviously falls into the third of these categories (as does my claiming my London Mathematical Society membership as an allowable professional expense), Ashcroft and Green's shenanigans clearly fall into the second category (because, really, if you've got to the point where you're registering everything in your Monaco-based wife's name then it's pretty obvious you've stepped over some sort of line), and Al Capone's behaviour was definitely in the first category.

My choice of biscuits may not have wider significance. But individual consumer choices can have a major impact on tax revenues. For example, many people in the UK are happy to buy their DVDs, CDs and computer games from retailers like Amazon and Play, who supply the product via the Channel Islands in order to avoid paying VAT. That business would disappear if individuals choice not to engage in tax avoidance.

I think you’re being a bit precious with your definitions of tax avoidance and tax mitigation; until recently they have been synonyms, and if anything the modern difference in usage is through tax advisers preferring the term “tax mitigation” because it hasn’t — yet — had the bad press of “tax avoidance”.

Tax avoidance is not always against the spirit of the law! People use trusts to avoid inheritance tax; universities and schools become charities; international companies move assets between jurisdictions and change their incorporated structures; I choose not to buy chocolate biscuits. They are all sensible, legal, and justifiable measures to take to reduce one’s tax burden.

I think you’re being a bit precious with your definitions of tax avoidance and tax mitigation
They're not actually my definitions, although they're ones which are increasingly common. (Language changes, as does widespread public opinion on all manner of issues.)

I'll agree that Amazon and Play are behaving with a certain level of dodginess in having their DVD/CD retail subsidiaries registered in the Channel Islands, and I admit to some amount of inconsistency (or even hypocrisy) in my willingness to buy the occasional cheap DVD and CD from them.

But it's at least partly a matter of scale. Sir Philip Green (who, let's not forget, is one of David Cameron's appointed advisors on economic matters) is avoiding £285 million in tax by registering everything in his non-domiciled wife's name. This is in an entirely different league to the usual sort of tax-mitigation mechanisms that the rest of us have open to us.

Tax avoidance is not always against the spirit of the law!
No, of course not. Universities and schools having charitable status - this is a good thing, because the existence of universities and schools is clearly to the benefit of society as a whole, so it seems entirely reasonable that they be given some sort of financial incentive or assistance to keep operating. Applying for charitable status is, after all, quite a complex procedure, and one of the main criteria is "does this organisation provide some sort of public benefit?"

Me claiming my LMS membership fees as an allowable deduction - I'd argue that this is also within that spirit. I work in education - I put quite a lot of effort into helping students understand mathematics, and the professional benefit I get from being in the LMS (which helps me be a better mathematician) is certainly worth the c.£10 a year in waived tax that the Treasury would otherwise have got.

Setting up trusts to avoid inheritance tax - well, sometimes that's a good thing, and sometimes it's a bad thing. My general feeling on inheritance tax is that if you're well off enough to have to pay it, then perhaps you can afford to contribute a little bit more to society. But I recognise that this is a bit of a generalisation, and that there might well be circumstances where this isn't feasible or desirable.

International companies shifting assets between jurisdictions, rearranging their corporate structure, and so forth - I'm not sure that's as morally justifiable as you seem to think. Just because its legal doesn't mean that it should be done.

You choosing not to buy chocolate biscuits is up to you, and I'd class that on the "entirely reasonable and above-board" end of the spectrum.

International companies shifting assets between jurisdictions, rearranging their corporate structure, and so forth - I'm not sure that's as morally justifiable as you seem to think. Just because its legal doesn't mean that it should be done.

I'm not sure that there is a moral aspect to this at all. Companies - just like individuals - will make practical, cost-effective decisions based on their current circumstances and the opportunities offered to them.

Countries, including the UK and Ireland, regularly alter their tax regimes - and sometimes offer significant grants and incentives - to support inward investment, to 'poach' companies from other jurisdictions, and to support certain industries.

For companies to take advantage of these opportunities... well, I think morals are totally irrelevant.

Depends on whether you view a company purely as a money-making machine or as being a part of society. If it's the latter, then they can be seen as having responsibilities to the community that go beyond the letter of the law, just as individuals do.

For example, there's no Good Samaritan law in the UK, but there's still a societal expectation that we'll help others. The easiest way for companies to be seen to discharge their societal responsibilities is to pay taxes without quibbling. If they're seen to be avoiding every tax they can, people start to view them with distrust.

Depends on whether you view a company purely as a money-making machine or as being a part of society...

I'm not sure that either of those are true!

A company exists for the purpose outlined in its constitution. That purpose may be to do business and return profits to shareholders, but that does not mean that all companies are money-making machines.

Some companies are incorporated as nonprofit-making. In these cases there would still be an incentive to be tax efficient in the delivery of their purpose, even though they aren't a "money-making machine".

For a company to pay more tax than it is legally obliged to would be dereliction of duty by its directors.

Countries, including the UK and Ireland, regularly alter their tax regimes - and sometimes offer significant grants and incentives - to support inward investment, ... and to support certain industries.

Exactly. It seems pretty reasonable to assume that UK tax law is set up to encourage corporations to behave in a particular way while they operate within the UK. So if they're only paying corporation tax on the money they make through their UK operations, then that's fine.

But if they're taking advantage of elaborate loopholes to siphon most of that money out through a Luxembourg-based subsidiary company, thus minimising their tax bill in the UK, then I'd say that's not really playing the game as it was intended to be played.

For companies to take advantage of these opportunities... well, I think morals are totally irrelevant.
I'm extremely uncomfortable with the suggestion that morals are not relevant: where real-world matters are concerned, I'd say that morals are supremely relevant, and a lot of the worst atrocities throughout history can be traced to instances where people decided that they could dispense with those tedious moralistic concerns.

I think morals have to be irrelevant.

Morals may be personal, based on social grouping, or shared by a community. But only when they become accepted by the whole society do they become enshrined in law.

Going back to the original post, the two chocolate biscuits I mentioned are owned by Nestle. Some people have a strong moral objection to buying Nestle products. I don't share that objection. I'm happy for others to make their choices not to buy Nestle products, but I object to people telling me what to do.

Some people have moral objections to legal industries or activities. Morals are often in conflict, change over time, and can be led by media campaigns.

I am doubtful about the practical issues of asking people - or companies - to accept a moral proposition without enshrining it in law.

I’m not sure that Ashcroft’s tax situation could be described as “shenanigans”. As I understand it, he earns income in both the UK and in Belize. With his home and business interests in Belize, it surely made sense for him to be non-domiciled for tax purposes — to pay tax in the UK on his UK income, and tax in Belize on his Belize income.

The alternative would be for him to pay UK tax on all of his income, which would presumably deprive Belize of whatever tax it current takes from him (and as a by-product, presumably to weaken his commitment to his business interests there).

In Ashcroft’s case, with genuine long-standing international connections, I don’t see any problem with his non-dom status. I know relatively little about Philip Green’s affairs, so won’t comment.

I’m not sure that Ashcroft’s tax situation could be described as “shenanigans”
I'm really not sure what else to call them. He pays almost no tax on his phenomenal income, either here or in Belize. If you really can't see the difference between the way he and Green behave, and the way the rest of us do (you and your biscuits, me and my c.£10 savings on LMS membership fees) then I don't know what else to say, other than to reiterate that it's not you or me that UK Uncut have a problem with, it's the greedy billionaires like Ashcroft and Green.

I don't think there is any suggestion that he isn't paying tax in the UK on income earned in the UK. And really, isn't it up to Belize what they choose to tax him on income there? I don't see a problem. I suspect a lot of the antagonism against him is driven by political opponents who want to create a target.

You label him a 'greedy' billionaire, when he works within the law, gives significant sums - and his time - to political causes, founds and supports charities, and - refreshingly - does not seem to crave media attention.

If one were to apply 'greedy' to the rich, I'd target self-publicising media types. Particularly those on the BBC payroll.

You label him a 'greedy' billionaire
I do. I respect the fact that he started off from pretty modest beginnings and has done very well for himself through a lot of hard work. And I certainly don't have any objection to absurdly rich people as such, just absurdly rich people who seem to be going out of their way to avoid paying their fair share towards society as a whole.

I think one of the things that particularly rankles in his case is that he has such influence over the political and legislative process for someone who claims not really to be resident in the UK: he's a peer of the realm, deputy chairman of the Conservative party, and he's good friends with a fair amount of the current Cabinet. In a very real sense he has considerably more influence over what happens in this country than you or I do, and yet he pays proportionately far less tax. How is that appropriate?

gives significant sums - and his time - to political causes
This goes back to a point in your post about the student protests the other month. Why is it fine for someone like Lord Ashcroft to obtain political influence via his vast wealth, but it's not ok for a large group of other people to collectively try to influence public policy by peaceful protest? (Leaving aside the tiny, tiny minority of idiots who went off the rails and started smashing windows etc.) In the previous discussion, I think you also denounced all lobbyists as evil, but apart from the large donations to Tory coffers, I'm not really seeing any substantive difference between what they do and what Ashcroft does.

Yes, he founds and supports charities, but I'd be surprised if that support is comparable with the financial benefit he'd provide to society if he was domiciled in the UK for tax purposes.

If one were to apply 'greedy' to the rich, I'd target self-publicising media types. Particularly those on the BBC payroll.
Did you have anyone particular in mind? I'll agree that there are certainly a few big-name stars employed by the BBC who are maybe paid a bit too much, but then again, if we're going to insist that the BBC submits to market forces, this is what's going to happen. And I'm assuming that the BBC wouldn't have offered to pay these people so much if they weren't confident they were going to turn a net profit (in the form of merchandise, overseas tv sales, etc).

Did you have anyone particular in mind?

I’m preparing myself for my usual negative reaction to Comic Relief. The idea of the BBC giving a platform to rich television presenters, some of whom are paid obnoxiously high salaries out of the license fee, exhorting the vastly poorer populace to give money to their pet charities… it rankles.

On the other hand, Comic Relief is a good cause - it does and/or funds a lot of very good work to help people in need throughout the world. And I wonder if those celebrities (whose obnoxiousness, in many cases, I cheerfully and entirely agree with you about) weren't involved, would as much money be raised?

You don't have to contribute if you don't want to. You don't even have to watch it - I didn't. It's not as if there aren't a million other television channels out there. (Or, in fact, large numbers of really good books one could be reading instead.)

As with the BBC in general, I find it difficult to believe that the Comic Relief and Children in Need appeals would employ these people (and in some cases even pay them - which does make me rather uncomfortable) if it didn't make economic sense to do so.

And let's not forget that for all the Murdoch-driven, anti-BBC rhetoric we hear these days, the Corporation is actually a pretty decent net contributor to the British economy, generating £8.1bn from the £3.6bn licence fee money it receives. That's a 125% return. We shouldn't be cutting it, we should be investing even more taxpayers' money in it - it's far better than any managed investment fund you'll ever find, and it produces a fair amount of high-quality cultural output in the process (also a lot of drivel, but commercially successful drivel at least).

It was an interesting report about the BBC’s contribution to the economy, although Deloitte’s finding that 69% of the BBC’s gross economic contribution is in London doesn’t really help the rest of the country.

Is the increase in value based on international sales of middle-brow entertainment? Are Strictly Come Dancing, Doctor Who, and Top Gear the models for BBC programmes, as they have significant international sales?

"tax avoidance is technically legal, although clearly against the spirit of the law, and hence morally dubious; tax mitigation is legal and morally ok because it's clearly within the intention of the law."

An interesting distinction - how are you drawing a line between what you think Parliament intended to write in the law and what they actually did write? Where such a distinction genuinely arises, they can and do amend the law accordingly - I suspect that in reality, the letter of the law as written is a lot closer to the real intent than you seem to think. You complain of Ashcroft's non-dom tax status, but that is no accident: Parliament considered the arrangement and specifically provided for it, which surely puts it in your "mitigation" category rather than "avoidance"? Likewise, the Government specifically and deliberately authorised the VAT-free importation of small goods from the Channel Islands, because the costs of trying to collect £1 in VAT on a CD in the mail would render it self-defeating.

No. UK Uncut's agenda is very different. They're not going after you unless you also are avoiding paying millions in taxes. Y'know, those millions you have hidden away, buried in your garden. ;)

Well, I might eat a lot of biscuits…

Probably not a million of them in one week, though. :)

Just a matter of scale?

Is there really any difference between changing a £1 purchase to avoid paying an extra 20p in tax and a £1m business deal to avoid paying an extra £200k, though? Why is it OK to avoid hundreds of pounds in tax, but not millions?

It's hard to escape the conclusion there is at best a double-standard at work when they turn a blind eye to GMG avoiding tens of millions of pounds in tax, though - and do they also protest when companies actually take money from the government, which is surely a step beyond simply not giving them money? Will they be out picketing windfarms, which also take millions out of the Treasury?

Re: Just a matter of scale?

Perhaps you might write to them directly to see what information you are able to obtain.

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