Tuesday 8 January 2013

Confessions Of A Serial Tax Avoider

With the debate raging about tax avoidance, tax evasion there are two basic propositions.  One is that no tax is “fair” but some taxes are more unfair than others.  The other is that we are all tax avoiders either by accident or design.  The distinction between them will not be clear.

Also, the nature of present tax avoidance etc. is nothing new.  In the 1950’s I knew students who, in the grants system at that time, were on full grants despite their parents being evidently people of means. 

One I knew dressed very smartly; ran a sports car and whose father owned a chain of profitable shops.  This continued as long as the old grants system did, those whose accountants could sort the figures had full grants, most of the rest did not.

Down the decades, I have come across many a person, notably in certain trades who lived in some style but were either forever bankrupt or rarely involved with the Inland Revenue.  Tax havens were made use of by those in the know or rich enough to for certain private banks to welcome their custom.

This was all very discrete and whilst it was recognised that it occurred it was thought that the scale of it was marginal and did not impact substantially on the tax take by the Revenue.  A few more flagrant or unwise were caught but not many.

At the same time, however, in a lot of the private sector but a then limited part of the public amongst management and others all sorts of “perks” were common that were tax free at the time and an essential part of the salary and conditions of service.

When first into taking on a mortgage, I chose the “tax efficient” method at the time, involving endowment insurance rather than the basic form.  Luckily I got out of this just before the system began to fail.  Also, in a period of rapid inflation I was gaming the car loan facility to avoid any cash loss or tax.

More recently our tax avoidance has become more subtle.  With coming of the EU and value added tax one way to achieve both economy and reduced tax loading has been simply not to spend on a variety of goods or services.  Applying the test of real need as opposed to want rigorously has some interesting results.

If something can be done another way or it is possible to do without a consumer product then by definition both consumption spending and related tax do not occur.  I will not go through the household list but simply say that almost none of the heavily advertised consumer products are in use.

This does put us in a minority and a very small one at that.  If the majority of people were simply to stop buying the things we have then consumer spending would collapse, GDP go into a tail spin, the advertising industry atrophy, companies fail and VAT returns decline significantly.  The knock on effects across the whole tax system would be immense.

Recently, we may have been involved in evasion by accident.  A particular product, low value so tax was not an issue was bought by post because of its precise specification.  Initially, it came from a large distribution shed in the Midlands but then appeared to be from Guernsey.  It didn’t, the Channel Island was simply an address and a bank account for the money.

A good deal of our national revenue at present occurs from spending which is not necessary in the last analysis for life or living.  We eat well, are warm, do a few things and skip those that people think they “ought” to do or want.  It is still a great deal better than the 1940’s.

The other half of the problem is that government spending is high with state debt that incurs added charges, however much it tries to damp it down with “low interest” monetary devices.  This cannot last much longer and any real upward shift will hurt and hurt badly.  The promises and commitments made in the past make this situation dangerous.

Over the last two decades the changes in the banking industry, the global reach, the applications of computer technologies have offered tax avoidance on a large scale to both companies and individuals.  This applies to many beyond the very rich or a few insiders, it reaches down into those of middling incomes.

Across the board, no longer in the more select private parts of the private sector but in the higher reaches of the public sector extensive payment and reward systems that avoid tax have become common.  To a great extent this was once covered by the boosting of debt driven consumer spending and other forms of outlays.

This has now come under severe strain and there is both rancour and division.  Also, other factors may stress it further.  If food prices do go up sharply and this occurs in parallel with significant interest rate rises there will not be a “consumer strike” after our fashion.

It will be that people already on a tight budget and under debt stress will no longer be able to spend as they have done.

Anyone for some nice left overs?


  1. "Anyone for some nice left overs?"

    We've been eating them for days! Interesting post, although I suspect only older folk will really understand.

  2. Wheels turn full circle. Nothing really new. Nice to know we are not alone in thinking similarly. It all seems a bit back to the future. I've never stopped making do, mending and hoarding - just cannot throw anything out, let alone food, unless truly useless. Husband's toolshed lair is the same. Our children did NOT copy us. However, the TEENAGE grandchildren often come to US for advice on just about everything - and actually listen.