Is David Gauke so wrong on tax morality?

Many on the right have been quick to berate David Gauke for his comments on "cash-in-hand" payment. But is he really so wrong?

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Does David Gauke have a point?
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James Dowling
On 25 July 2012 09:13

Some of this verges on suggesting that, because the state cannot operate efficiently, it is perfectly reasonable to do whatever one can, short of breaking the law, to deny HMRC one’s taxes. As I noted above, David Gauke’s comments seem to have prompted an even more addled outbreak of the same disease. Allow me to offer a different view.

I am instinctively a tax-cutter. I believe in a small state. If the Government takes your taxes under threat of imprisonment, it has an obligation to spend your money as efficiently as possible and take absolutely no more than it needs.

However, I do think it is at least anti-social for an individual to arrogate to themselves the right to pay far less tax than Parliament intended, thereby imposing far greater costs on the rest of us.

This is distinct from using an ISA or claiming pensions tax relief, both of which or sanctioned by Parliament for a particular purposes. The verdict from some appears to be that the use of reliefs expressly provided by Parliament is on a par with avoidance– and, therefore, that both are acceptable (James Kirkup goes even further in apparently equating tax planning, avoidance and evasion – though I’m not convinced he really understands that about which he writes).

Curiously, the TUC seem to have started from a similar position – at least in relation to corporation tax, insofar as they seem to regard any attempt by corporations to plan their affairs in a tax-efficient manner as tantamount to avoidance and, therefore, wrong.

The tax system is complicated because at various times politicians have found it useful to introduce complexity into it – and occasionally they have had to.

An example on the corporation tax side would be capital allowances – which essentially exist to ensure that there is some recognition in the tax system of the cost to business of depreciation of capital. The application of them is not simple – but saves business money, and no reasonable person could seriously expect that, with Parliament having decided they should be available, taking advantage of them is morally wrong.

The same applies to, say, ISAs. This kind of simple tax planning is as far from what those involved in the K2 scheme get up to as it is possible to be – and it is bizarre that anyone could seek to equate the two.

Tax avoidance involves an exploitation of the intricacies of the tax system for purposes for which it was never designed, so as artificially to produce a beneficial tax treatment that was never intended.

Taking a loan in lieu of pay, on remarkably generous terms, from a company you own or have some kind of confected arrangement with – in so doing avoiding NICs and income tax – certainly falls into this category. So does rebadging income as capital to take advantage of the lower rates that apply.

Both these, to name just two of the more famous tricks, can occur in part because of the in-built complexities of the tax system, and the Treasury is looking at these kinds of structural issues as a consequence.

However, the fact that these complexities do exist is no excuse for taking advantage of them. It is clear that this kind of behaviour is way short of what Parliament originally intended. Although legal, it is arguably immoral – and our politicians should not be afraid to say so. Still less when actual criminality – tax evasion – is involved.

James Dowling is a former Treasury official. He is now a public affairs consultant working for Fleishman-Hillardspecialising in financial services and a member of the Conservative Party. He writes for commentator in a personal capacity

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