'Should MoneySavingExpert encourage tax avoidance?' blog discussion

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Former_MSE_Helen
Former_MSE_Helen Posts: 2,382 Forumite
This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




Please click 'post reply' to discuss below.
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  • Somerset
    Somerset Posts: 3,633 Forumite
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    Yes, why shouldn't MSE allow contributor's to discuss tax avoidance ?

    It's ( in your and some people's eye's ) the dirty side of MSE. But it's as 'moral' as allowing price glitches (!!!!-up's)/switch your account for the 'bung' then switch again etc. Why is it acceptable to be good for a person/bad for a company but not good for a person/bad for the tax coffer's ? Pretty hypocritical.

    You either comply with tax legislation or you don't. The first is right, the second is wrong. Morality doesn't come in to it.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    I do not agree with what looks like manipulation of definitions to try to draw a line between various types of tax avoidance, from ISAs through pensions and locating yourself or your investments in low tax locations, all provided they are done fully within the law of the relevant jurisdictions.

    Here are the top three results from using a UK=-based Google search for the phrase "define tax avoidance" without quotes:

    "the minimization of tax liability by lawful methods". wordnetweb.princeton.edu/perl/webwn

    "The use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal. Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate". https://www.investopedia.com/terms/t/tax_avoidance.asp

    "Tackling tax avoidance: ... Tax avoidance is bending the rules of the tax system to
    gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. ... Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended" http://www.hmrc.gov.uk/about/briefings/briefing-avoidance.pdf

    The law also provides that a broad range of tax avoidance methods must be disclosed to HMRC within five days of them being set up, and HMRC is capable of and has acted to prevent the use of avoidance methods that it thinks are not appropriate, by means such as getting the law changed.

    That notify and let HMRC and politicians act if desired method seems like an eminently sensible way to operate things, so individuals can attempt to optimise their finances while HMRC and politicians can say that certain things aren't what was really intended and shouldn't be done.

    The key fact about all forms of tax avoidance is that they are completely lawful and it is entirely possible for politicians to modify the law to eliminate them if they wish to do so. If they wish they can do so by giving HMRC a pre-emptive "you may not do this for x months" while we review it, much as the FCA now has or soon will have that power delegated to it by Parliament.

    Some methods can and should perhaps be changed from legal to illegal but while that is not the case, individuals and businesses should be encouraged to minimise their tax bills so their money can be used for other productive purposes. Like paying out money to the people who own those companies in their ISAs and pensions. The money saved doesn't vanish, it goes to the people who own those companies. Us.

    The solution here is not manipulating words, it's adjusting any laws that need adjusting.

    Lets perhaps try to work out what you consider to be tax avoidance that should be encouraged and tax avoidance that should be discouraged, ignoring for the moment the ruling of lord Tomlin in IRC v Duke of Westminster that "Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax":

    1. An individual setting up a company so that they can lend to consumers and deduct bad debt from their interest earnings, something they cannot do as an individual.
    2. An individual using pension contributions to take their taxable pay down to a level where they are eligible for Working Tax Credits, then claiming those credits.
    3. An individual selling their labour as a business rather than using an employment agency that has them as a PAYE employee even while they switch between companies regularly.
    4. An individual using a pension tax free lump sum to pay their mortgage capital.
    5. An individual recycling pension income into more pension contributions.
    6. An individual recycling a pension lump sum, within the limits for this activity specified by HMRC, including structuring the timing and amounts so that any recycling is within the rules rather than outside them.
    7. An individual uses a scheme covered by HMRC's "Disclosure of tax avoidance schemes" requirements, more than six months after HMRC has been notified about the scheme and has not informed the operators or individuals that they dislike it.
    8. As 7 but within a few days of the notification, before HMRC has had months to decide whether they do or don't agree and get the law changed if they disagree.
    9. A sole trader selling only their own personal labour setting themselves up as a company and paying their income by dividends instead of income tax. Consider different cases for brick layer, TV personality and footballer if you find this useful in determining who should or should not be allowed to do this.
    10. A person taking out a mortgage secured on their own home to purchase a BTL property and deducting the interest on the mortgage from rental income.

    Most of those have pretty clear lawful definitions but some are subject to criticism of various types. Are there any that MSE dislikes enough not to want here?

    Google and Amazon are able to avoid tax for a pretty simple reason: that's what the laws are written to allow them to do, as international companies. Whether the laws should allow that is perhaps a more interesting question. If the customer is here, perhaps that's also where that tax should be due? It is clearly conceivable to do so, for in the US there are moves to require internet firms to pay the sales tax rate charged on in-state sales in the states to which their customers are having goods shipped.

    As a purely practical matter, it's inevitable that the individual Martin Lewis will be pitched more options for tax avoidance than I or most participants here. That's because most individuals don't have sufficiently high incomes, wealth or working patterns to benefit from things that are less often used.

    As you may gather, I'm very much in favour of a "tell HMRC and let them sort it out" approach, so that everyone can end up knowing whether what they are doing is or is not going to be lawful avoidance or unlawful. And of completely eliminating the undesirable avoidance category.

    A note here about the individual Martin Lewis: my personal view from the very limited insight I have into your own financial circumstances suggests that at least much of them should not be subject to criticism, though some may fall within the potentially controversial category and be included within one or more of the cases I've mentioned above that are subject to criticism at times. Since I also have the view that you should not have to comment on your own tax affairs if you don't want to, please do refrain from commenting on any that might apply to you if you wish. This discussion isn't about your personal tax affairs and should not morph into such discussion. Indeed, while I would prefer it if it was not done, please also take this as an invitation for the Forum Team to modify the contents of my list to facilitate this protection of the privacy of your personal tax affairs if you wish.
  • Wywth
    Wywth Posts: 5,079 Forumite
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    Yet recently I’ve even been shocked to see some on Twitter and Facebook point the finger at MSE for encouraging people to save into ISAs.

    Ignore them Martin. :)

    Surely you've heard of Britain's 'build them up to knock them down' celebrity culture ?

    You need a thick skin in the business you're in, especially if you plan to continue using the likes of twitter and facebook as well.

    Follow the advice Michael Mates gave to Asil Nadir ;)
  • Rafter
    Rafter Posts: 3,850 Forumite
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    Here here. Totally agree with the MSE position on this one.

    Ultimately companies and individuals who use agressive (but legal) tax avoidance mean that the rest of us end up paying more tax or getting less public services.

    Moneysaving is something completely different: usually the transfer of wealth from companies to individuals allowing them to spend more or save more.

    Given companies generally seem to pay less marginal tax (and avoid tax more effectively) than individuals this is ironically probably a good thing for the government coffers!

    It all boils down to our tax system being far too complicated though and tax avoidance being far too lucrative. It seems to me that we need some backstop tax rules so that if a big profitable company or very wealthy individual is generating a lot of their wealth in the UK (from us), they have to pay a minimum rate of tax in the UK, regardless of the complex tax haven structures they have set up to avoid it.

    Otherwise it is unfair on companies who do comply with both the spirit and letter of tax regulation. And it is unfair on us, because not only are we paying for the services of these companies and individuals, we are also having to pay more tax because the profits they are making are cleverly syphoned off, usually outside the country.

    We need to get back to a position where our economy is making real goods and providing real services and that this is more lucrative than financial and tax engineering!

    R
    Smile :), it makes people wonder what you have been up to.
  • lazer
    lazer Posts: 3,402 Forumite
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    Tax avoidance is perfectly legal and in my eyes not even immoral (in general - some schemes that distort results to move the tax burden to lower countries through management fees etc - may be scraping the bottom of the barrel though)

    But simple things like ISA's, pensions etc are all tax avoidance and use of them should be encouraged. Tax avoidance is about saving as much tax as you can - isn't what this site is all about - money saving?

    I know Martin says ISA's etc aren't tax avoidance but really IMO they are.
    Tax avoidance is using government schemes and loopholes to save tax.

    As long as we all pay the tax we owe I am fine with it, why would we want to may more than we have too?

    I am more fine with tax avoidance than I am with debt avoidance - I hate some of the advice on this forum about how to get out of paying debt which you signed up for in the first place.
    Weight loss challenge, lose 15lb in 6 weeks before Christmas.
  • Million_Percent
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    In my view, tax avoidance is using rules in ways that they were not intended. Bottom line is the lawmakers need to close the gaps. Can't blame any individual or company for minimising their liability.
  • pcw12kcox
    pcw12kcox Posts: 12 Forumite
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    I have to concur with other posters - placing money in ISAs, pensions or tax free savings certificates is a form of tax avoidance - for two simple reasons:
    - you are using a legal method to avoid paying tax that you would otherwise have to pay.
    - Given the consequence of you, and others, using these methods of avoidance it means that the Government has to raise more taxes elsewhere.
  • Million_Percent
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    If the laws were tightened so companies like Google and Amazon paid their share, would it just mean that they'd increase prices to maintain profits? Whatever happens, ultimately it's the guy at the bottom of the pile who pays isn't it?

    Also, even if the government did increase the tax take by reducing such large scale avoidance, would the 'saving' be passed back to the populace via an income tax cut? I doubt it. I guess it would disappear into our deficit black hole. We might get a token gesture.

    I guess I'd rather these companies pay their share even if it means their prices go up. At least you have a choice whether or not to buy their products.
  • Rafter
    Rafter Posts: 3,850 Forumite
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    If the laws were tightened so companies like Google and Amazon paid their share, would it just mean that they'd increase prices to maintain profits? Whatever happens, ultimately it's the guy at the bottom of the pile who pays isn't it?

    Also, even if the government did increase the tax take by reducing such large scale avoidance, would the 'saving' be passed back to the populace via an income tax cut? I doubt it. I guess it would disappear into our deficit black hole. We might get a token gesture.

    I guess I'd rather these companies pay their share even if it means their prices go up. At least you have a choice whether or not to buy their products.

    MillionPercent,

    Been through the same thought process when deciding whether I should keep shopping at Amazon too!

    Came to the conclusion that I should pay a bit more but that overall there should be no difference because (in theory at least) my tax bill should come down too.

    The losers would be tax accountants and tax havens (no bad thing in my view) but that it would be good for competition and consumers overall.

    Ultimately I believe the success of companies or individuals should be based on how good your product is or how talented you are - not just how good you are at manipulating the rules to your advantage to stifle or get one over on the competition!

    R
    Smile :), it makes people wonder what you have been up to.
  • jonthedog
    jonthedog Posts: 95 Forumite
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    The TV licence fee is also effectively a tax. By advising people to not pay it if they only watch iPlayer, I'd say MSE crosses its own line from 'planning' to avoidance.
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