JCI Member’s Corner with Adam Fernandes

April Fools Day is long gone, and with it came the start of a new fiscal year. Are we going to open the door with a smile when the tax man comes knocking?!

April is probably one of the busiest times for accountants. Adam Fernandes from accountancy UHY WKH Partnership highlights issues and concerns regarding taxes and making the most out of your money.

Taxing Times

What’s fair when it comes to tax?

There is much debate in the national press and the broadcast media about tax avoidance and tax evasion, and HM Revenue & Customs (HMRC) is always keen to trumpet its victories against avoiders and evaders. But are the headlines we see giving a true picture of the situation and are HMRC’s wins the exception rather than the rule?

Firstly, let’s consider the difference between tax evasion, which is outside of the law, and tax avoidance, which is within an interpretation of the law. Evasion covers those deliberate acts by taxpayers to understate profits or other taxable transactions by making false returns, or omitting to make returns at all, to HMRC. Such activity is a criminal offence, although HMRC does not prosecute all offenders, taking the pragmatic approach of collecting the cash, rather than making an example of wrong-doers.

Avoidance relies on differing interpretations of the law by HMRC and taxpayers, or, more usually, their advisors. The UK’s tax law is complex and so is open to debate as to what aspects actually mean or were intended to mean when passed by Parliament. Avoidance is usually an interpretation with which HMRC does not agree.

There are tensions within the tax system caused by the position that differing types of profits and gains are taxed at different rates. Is there any sense in an employee paying more in national insurance contributions than a self-employed person, when both could be carrying out similar work? Or somebody, who acquires a house, refurbishes it, then sells it, paying a different rate of tax from a landlord, who, having let a house for a few years, makes a gain when he sells it? Each taxpayer surely has the right within the constraints of the law to plan his affairs in such a way as to minimise his tax charge. If Parliament wanted to make a level playing field, it should start by eradicating the humps and lumps caused by the tax law that it makes.

So, is it fair that HMRC should set about confusing evasion with avoidance? Sure, HMRC would like a compliant taxpayer group, all paying tax at source on a frequent basis and it would prefer that all individuals were paid via PAYE, but that’s just for ease of administration, as most of the work in that set up is carried out by employers. It’s unacceptable for the better off in society to pay tax at a lower rate than the less well off, but is it right for the well off to pay at a much higher rate than those further down the earnings scale?

The high earners have more room for manoeuvre than low earners and the ability to pay for the services of those who are able to help them manoeuvre. With the motivation to pay less tax and the means by which to achieve this, it’s no surprise that many do this, legally, without resorting to evasion. As HMRC’s hands are tied by the laws made by Parliament and all of the time it is being urged on by politicians and the press to collect more tax, there is perhaps little surprise in its tactics of tarring with the same brush all efforts to pay other than the maximum amount of tax.

If you like to continue this debate or air your views on this matter, feel free to tweet me @AdamBFernandes. Alternatively if you’d like some ideas on how you could avoid paying the maximum amount of tax e-mail me on a.fernandes@uhy-wkh.com.

Adam Fernandes

a.fernandes@uhy-wkh.com

Twitter: @AdamBFernandes