20 per cent VAT 2012 budget 50% return accountancy accountancy fees accountancy services accountant accountant B accountants accounting for dividends accounting records accounting software accounts accounts software administration annuity annuity rates Autumn statement avoid inheritance tax avoidance of tax avoiding inheritance tax bank lending basic personal allowance BCC big picture book keeping Bribery Act British Chamber of Commerce BS7858 budget budget 2011 Budget 2012 budgeting business business accounts online business advice business cash management business confidence business continuity business continuity management business continuity plans business cost management business efficiency business exit business exit planning business finance business friendly business funding business goals business growth business investment business loan business management business owners business performance business plan business planning business record keeping business records business sale business success business succession planning business survival business tax planning business tips bwe based account cash flow Cash flow forecast cash is king cash management Cash-based accounting cashflow chancellor chartered accountant chartered accountant Birmingham chartered accountants chartered financial planner chartered financial planner Birmin child savings children’s savings choosing an accountant client entertaining Cloud accounting Company Tax returns compliance industry contractors IR35 corporartion tax Corporation tax credit control credit control procedure cyber attack cyber crime cyber insurance cyber security cyber threats data security data security. IT security debt collection debt recovery despite some of the bad press over recent years director’s loan account directors loan directors pensions Directors’ loan account dividends doubl Dragon’s Den dragons den Economic expansion EIS email security employee data security Enterprise Investment Scheme enterprise zones entrepreneur Entrepreneur’s relief entrepreneurs entrepreneurs relief ethical hacker Everyone needs to finance their retirement and exit planning finance finance management financial advisor financial difficulty financial forecasts financial freedom financial goals Financial management financial plan financial planner financial planning financial planning checklist financial planning tips financial wellbeing FSTE 100 FTSE100 fund manager gifts global markets growth growth finance HMRC HMRC enquiries HMRC enquiry HMRC IR35 guidance HMRC tax enquiries HMRC tax enquiry home loans how to manage time ICAEW IHT income tax income tax r income tax relief income tax return independent financial advisor information security information security management inheritance tax inheritance tax planning insolvency Institute of Chartered Accountants investing Investment investment advice investment diversity investment in marketing investment management investment options investment philosophy investment planning investment portfolio investment risk investment strategies investment volatility investments investors IR35 ISO 27001 ISO 27001 benchmark ISO 27001 consultants ISO22301 ISO27001 IT security Jimmy Carr jobs keeping the books key perfirmance indicators key performance indicators KPIs kpi's late payment penalties late payment penalty fines late payments legal tax strategy management information management meetings management standards managing data security marketing investment miscalculated tax motivating staff national lottery new years resolution online accountancy online accountancy software online accounting on-line accounting online accounting software online accounts online tax return online VAT return outsourced accountancy outsourcing outsourcing accounts overtrading owner managers Parker Management Consultants partnership agreements passwords Pay off mortgage PAYE paying a dividend Payroll penetration testing pension pension contribution pension contributions pension fund Pension funds pension investment pension investment strategy pension scheme pensions pensions forecast per personal allowance trap Personal financial plan personal financial planning personal guarantees personal pension personal pensions personal tax return plumbers tax safe plan pre pack administration private pension profitable business sale R & D tax credits R&D tax credits recession red tape reduce tax remote working report on economy research and development tax credits retirement retirement planning risk risk return safest passwords Saga sareholder protection cover security of websites Seed Enterprise Investment Scheme SEIS selecting an accountant Self assessment self assessment tax return self invested personal pension selling my business selling your company shareholder agreements shareholder protection SIPP SIPPS small business small business owners small business tax small businesses small firms SME SME business management SME marketing SME tax planning SMEs social media policy SSAS start up start-up stock market succession planning tax accountant tax affairs tax avoidance tax breaks tax charges tax code tax disclosure tax enquiries tax enquiry tax evasion tax investigation tax investigations tax liability tax man tax mitigation strategies Tax planning tax planning advice tax planning schemes tax reduction tax reform tax relief Tax return tax saving tax saving strategies tax savings tax strategies Tax tribunals taxation tax-break time management time management skills top rate of tax tough times UK Bribery Act UK economy VAT increase vat return VAT rise VAT submission web based acc website security when to pay a dividend work-life balance Xero Xero accountancy software Xero accountants xero accounting xero accounts Xero accounts service

Nick Clegg, tax avoidance and good accountancy practice

Add to: Digg Add to: Del.icio.us Add to: Facebook Add to: Furl Add to: Google Add to: Live Spaces Add to: MySpace Add to: StumbleUpon Add to: Twitter
Thursday September 30, 2010 at 7:05pm
At the Liberal party conference Nick Clegg was the latest Government spokesman to talk about clamping down on tax avoidance. He even went on to talk about avoiding tax as being an ethical question. I’d say a bigger ethical question is how our taxes are spent by government. Indeed if people felt their taxes were being spent wisely and fairly they may have more time for the ethics of high taxation.

What’s all the fuss about?

It is probably worth looking at the distinction between evasion (illegal) and avoidance (legal). Tax avoidance involves a tax payer arranging their financial affairs in such a way that they minimise the amount of tax they pay. Indeed there is case law upholding the taxpayer’s right to do just that.

As accountants working with owner managed business we would have few clients if we didn’t help them arrange their finances to pay less tax. Remember it is all about the profits that you keep, not the profits that you earn.

Is it really fair that business owners take on the risks of business ownership and should they be successful risk losing half of the profit made to the tax man? The higher the tax rates climb the more valuable tax avoidance will become. One answer is to keep taxes and public spending low.

There are plenty of examples of perfectly legal tax avoidance from the very simple to the quite complex. Some of the simplest are salary sacrifice schemes (which are offered by many larger employers). Here the employee takes a slightly lower salary in exchange for the company making a contribution into a pension on their behalf. The tax avoidance bit is that there is no employers or employees national insurance deduction from company payments into the pension. Hence this benefit can be passed on to the employee in full, or shared between employee and employer.

More complex tax avoidance arises from conversion of income to capital and usually involves the sale of assets to an individual and utilisation of some form of Capital Gains Tax exemption. Even more complex is contributions into Employee Benefit Trusts but then these also produce some of the greatest tax savings.

Nick Clegg compared tax evaders to benefits cheats and I would whole heartedly agree with this. Tax evasion is fraud and is something we at Parker would never condone. It involves the manipulation of expenses, not declaring income and possibly falsifying documents. Several MP’s are facing prosecution for evasion over the expenses scandal.

But what is unethical about legally arranging your affairs to pay as little tax as possible? It is difficult to see that this has an economic consequence. Tax avoidance puts more money in the hands of the business owner who then chooses how that money is spent. The alternative, higher taxes, with politicians deciding how our money is spent. As far as economic growth is concerned the important bit is that the money is actually spent on goods and services.

Andy Parker
Chartered Accountant and expert tax avoider

Comments on this post: (1 comment)

Tax Warrior | Thursday September 30, 2010 at 10:28pm
Can't agree more, see Telegraph for more on this and tax saving http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/8023692/10-ways-to-beat-the-taxman-honestly.html...

Share your experiences:

Your Name  
(to appear with your comment)
Email Address  
(will not be published)
Comments:  
Human Validation Check  
In the box below, please type the characters that you see in the picture. This helps us to ensure a real person (and not a crafty computer!) is submitting this form.

Enter the code shown to the left:

Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here