David Cameron’s condemnation of Jimmy Carr’s tax arrangements as 'morally wrong' made headlines. Carr’s public apology, after withdrawing from the avoidance scheme in question, added to the moral overtone.…The moral compass was sent swinging out of control once more as David Gauke’s comments about the 'immorality' of paying tradespeople in cash hit the media. As a tax professional I am ever cautious about casting knee-jerk moral judgements on tax arrangements and was especially surprised to hear such comments coming from Mr Gauke. As former Director of Ivobank, which specialised in financing the notoriously cash-rich betting industry (reliant on the arrangement that the proceeds of gambling do not incur a tax liability) I did think that Gauke might have removed the plank from his own eye before he started commenting on specks in the eyes of others.Never has the relationship between an individual’s tax code and moral code been more widely conflated. Moral pronouncements of 'right and wrong' sit uneasily within an objective system. Clearly we should all pay a correct share of tax but this needs to be achieved through the introduction of watertight legislation, rather than politicians attempting to take the moral high ground, a position that in my view they are ill suited too.…The government does have plans to combat tax avoidance through the introduction of a General Anti-Abuse Rule (GAAR). Unfortunately, the very generality of the rule means that it’s more of a blunderbuss than a sniper’s rifle. The government requires tax avoidance legislation that will operate with the precision of a surgical scalpel, allowing them to excise tax avoidance schemes which are aggressively abusive, without compromising businesses and individuals engaged in legitimate strategic tax planning.
Sadly, a GAAR could actually be more detrimental to smaller businesses and sole traders than to the 'big fish' it was 'designed' to catch. The application of the GAAR hinges around one word – 'reasonable' – and a judge’s perception of what it constitutes. So, common business tax planning behaviour which has been endorsed – and even encouraged – for generations could suddenly be held up under the microscope with uncertain and unexpected results.…The 'catch all' premise of the GAAR sets it up to create casualties where the government should be building areas of strength – in SMEs and family business. HMRC has declined even to provide a clearance process - whereby conscientious individuals could submit their tax arrangements to the Revenue for approval – so increasing the likelihood that unsuspecting members of the public will be hit.…To come back to morality, if anything’s immoral it’s the government’s presentation of the GAAR as something which will promote fairness and equality. In fact it is likely to favour those who can afford to engage in lengthy law suits hinging on the definition of what is 'reasonable'. It’s no coincidence that the GAAR draft legislation follows the suggestions of a committee chaired by a lawyer. One wonders who will be involved in arguing the meaning of the word 'reasonable'. At the very least, we deserve certainty when dealing with the state in terms of tax. The government plans to introduce a scheme which will undermine this. Where’s the morality or common sense in that?