Happy to pay your taxes?
Tax avoidance has been hitting the headlines again recently, with the conduct of HSBC and their wealthy Swiss bank account holders being questioned.
Perhaps unsurprisingly, the Chancellor has avoided commenting on the lack of prosecutions by HM Revenue against people who evaded tax through HSBC Switzerland.
However if the Government is claiming to take tough action on aggressive tax avoidance (let alone evasion!), isn’t this sending out mixed messages?
Especially given that most small business owners have no option but to pay their taxes (although there are legitimate ways to minimise your tax bill) and will face the full force of the law (or rather, HMRC's heavy mob) should they step out of line.
In the last year or two, high profile entertainers such as Jimmy Carr, Gary Barlow and Chris Moyles (OK we use the term ‘entertainers’ loosely) have been heavily criticised by the media and politicians over their tax arrangements.
It was therefore interesting to read on the BBC news website about wealthy individuals who have chosen not to reduce their tax bills.
You can read the BBC article in full here.
Those notable public figures who say they do pay the full amount of tax they owe include Ricky Gervais (who has described tax exiles as "unsavoury") and TV presenter Graham Norton (who says "I should pay my tax because I can afford it" - a view we find very refreshing).
Celebrities’ aside, high profile businessmen such as billionaire John Caudwell (former head of Phones 4 U) and Mark Constantine (co-founder of Lush), have also come out in favour of paying their taxes in full.
In fact Constantine recalls spending three days trying to understand one avoidance mechanism that was suggested to him, before being nagged by "the uneasy feeling that it's illegal" and the fear that the taxman would pay him a visit if he signed up.
Constantine also remarked on tax avoidance schemes generally (one involving second hand cars springs to mind) and went on to say, "It's weird that we're even talking about it," and "Paying your taxes is what you're supposed to do."
Although their opinions seem to place them in a minority amongst the mega-rich, it would appear that the majority of the general public do believe in paying their taxes.
According to a YouGov survey published last November (before the HSBC scandal made the headlines), 63% of British people said they believed the moral duty to contribute to public services was stronger than the right to keep the money one earns. Interestingly enough in the US, only 37% agreed.
It’s worth mentioning that with austerity measures still being felt, it's not a good time to be known as a tax avoider. Think carefully, can you risk damaging your business reputation and alienating your customers by taking aggressive tax avoidance measures?
Our view is that if takes THREE DAYS (see above) to understand a tax saving transaction and it sounds too good to be true, it usually is.
We’d suggest it might be sensible to ignore a friend’s ‘advice’ on a saving tax scheme they may have heard about, as it might come back to haunt you in the future.
And in our experience, it isn't paying taxes that most small business owners object to, it's the fact that they are not making an acceptable profit in the first place or have serious cash flow issues which make it difficult to meet their obligations.
If you’d like tax planning advice that’s legal and guaranteed not to give you sleepless nights worrying about the taxman (or angry customers!) or if you'd like an accountant who can help you improve your cashflow and make more profit, feel free to email our friendly tax adviser Richard on [email protected] or give us a call on 01202 048696.