Tax from the trenches: “Tax Aversion”

I don’t like my next door neighbour. I never have, and I was more than happy when he moved the other week. He’s the sort of guy that knows everything about everything and enjoys imparting knowledge in a condescending sort of way. He is also seemingly immune to sarcasm or barbed comments. A conversation with him last year involved him leaning over my fence to lecture me on everything I was doing wrong with my lawn and shrubs. His lawn and shrubs were, of course, immaculate. Eventually I cut him short and asked him, in a pseudo polite but obviously sarcastic way, if he believed that lecturing people in that flat monotone voice made him popular or respected. I told him, with a sweet smile, that I found his monologues just a bit dull, truth be known, and suggested that next time, he try and inject a bit of interest or humour even. Maybe he could pause for questions or even give the impression of it being anything other than a lecture? If so, then I might just be interested. He paused briefly and looked me square in the eye. “You ever thought about buying a strimmer?”

But I digress. Much though I dislike my ex neighbour, he did once say something that tickled me. As soon as he realised I worked in tax he launched into a speech about tax based on his own detailed knowledge and experiences, during which he gravely informed me that very few people knew the difference between tax avoidance and tax aversion. I hiccupped momentarily on my tea and tried not to laugh. I’d only known him a few months and knew him to be a bit of a pilchard, but at that stage I hadn’t reached the point of openly insulting him and not caring about the consequences. Had he been genuinely clever here and arrived at a joke that worked well on several levels? I’ll answer that later. But in the meantime it leads me on to this month's blog and people's intentions towards tax.

In this last month I’ve met a client who is completely averse to risk and would prefer to pay more tax than he really needs to. We’ll call him Bob, mainly because he does a bit of building work in his retirement. It is a tricky job persuading him to claim for expenses against his self employed income that are perfectly genuine and allowable for tax. “I don’t want to antagonise them” he said, meaning HMRC. “If you get on their wrong side they’ll just keep going until they get you”. I’ve had this discussion with Bob before and I’ve told him that whilst his attitude to tax is commendable, HMRC don’t want people to pay more tax than they properly owe. Also structuring your tax affairs efficiently is absolutely not tax evasion. You’re allowed to do this and encouraged to do this. I also pointed out that as a pensioner with a small self employment, Bob isn’t really very high on HMRC’s hit-list. I’m an ex Inspector you know I tell him. Bob always looks at me like I’m a fool when we have these chats. “You just don’t know” he says and happily agrees to pay a £400 tax bill next January that is double what it should be.

In contrast I also met a couple of guys whose attitude is very much of the aversion category, or tax evasion to give it its proper name. Tax evasion is different to tax avoidance. It is best described as when a person or company intentionally avoids paying their true tax liability. It arises most commonly when people supress their income or decide not to put a particular source of income or capital gains on their tax return. Evasion can also involve the falsification of documents although, thank goodness, I’ve only ever seen this in my time with HMRC.

The guys in question were potential clients who, shall we say, were more than just keen to get their tax liability down to the lowest possible level. We ran through various corporate and group structures, together with extraction protocols and acceptable tax planning that should have suited them a treat. I was more than a little surprised that they seemed disappointed. “That’s what everyone else has told us”, they said. “Oh” I said just a little deflated. Other than feeling a little chastised that I couldn’t come up with anything uber-original, I enquired as to what they might be looking for over and above tax planning. Something more aggressive they said, you know, adding a few noughts on invoices, tax schemes and stuff.  Tax aversion indeed. Suffice to say there are people you enjoy acting for as an accountant, and some people that you never would. I wished them well in finding an agent but said that it couldn’t be us. I also gave them some well intentioned advice about the difference between avoidance and evasion, and how one is acceptable and the other can end up with a spell behind bars. Unfortunately I think their aversion to tax will win though which is unfortunate for everyone.

And finally back to my ex neighbour, was he being funny by inventing a new word to describe tax behaviours? A humorous amalgamation of words to produce a new word that actually fits the original criteria in a new but linked way? No, of course not!