Following on from my article on the tax avoidance debate, I’m delighted to say that Iain Macleod of EDF Tax has written a new piece for us.
Did you see the case of Mr Lobler? http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2013/TC02539.html&query=lobler&method=boolean
The Tribunal said, In this appeal a remarkably unfair result arises as a result of a combination of prescriptive legislation and Mr. Lobler’s ill-advised actions. His life savings were invested in a life insurance policy. Because he elected for a partial surrender, without taking any advice and in ignorance of the consequences, nearly all the amounts he withdrew were treated as income by HMRC. He made no profit or gain yet the tax could bankrupt him. The Tribunal concluded,
Thus with heavy hearts we dismiss the appeal.
In its Technical Note of 13 December 2010 HMRC said,
The House of Lords’ decision in the Wilkinson case clarified the scope of HM Revenue & Customs’ (HMRC) administrative discretion to make concessions that depart from the strict statutory position.
Mr Wilkinson was a widower who argued HMRC had the power to grant him the same allowance as widows. But Lord Hoffman said, HMRC’s powers in Section 1 TMA 1970 (now Section 5 CRCA 2005) did,
not justify construing the power so widely as to enable the commissioners to concede, by extra-statutory concession, an allowance which Parliament could have granted but did not grant, and on grounds not of pragmatism in the collection of tax but of general equity between men and women.
The point being that HMRC must act within the law and can’t give up tax to which it is statutorily entitled. So HMRC simply obeyed the law in pursuing Mr Lobler.
Maybe a brilliant argument will emerge at the Upper Tribunal or perhaps even a fair minded member of the Public Accounts Committee will propose retrospective legislation to ease the predicament. Otherwise HMRC will bankrupt Mr Lobler in pursuit of tax legally due. In a system of tax law as complex and as impossible to understand as ours it is sadly inevitable that cases like Mr Lobler will emerge.
But wait a minute. Is this high minded and principled upholder of the legislation enacted by Parliament the same HM Revenue & Customs which writes letters to taxpayers with wording like,
By using avoidance schemes some individuals try to gain an unfair advantage in their tax affairs…. HMRC’s goal is for every taxpayer to pay the right tax at the right time and so it is taking robust measures to tackle tax avoidance.
So it is unfair of some people to arrange their affairs to pay less to the Government than HMRC had expected. Yet it is perfectly fair and reasonable to make Mr Lobler pay up. HMRC’s behaviour has nothing to do with fairness. It is just exerting its power and using the language of fairness, when it suits, to advance its interests.
The tax planning (or tax avoidance if you prefer) debate is riddled with such special pleading. Senior politicians have criticised individuals and corporates not for tax dishonesty but for mitigating their liabilities in accordance with current law.
As the Exchequer Secretary said in a speech on 23 July 2012
“These kinds of schemes are where we are focusing our efforts, and they are all, to borrow a phrase from the Chancellor, ‘morally repugnant’ “.2
This sort of language doesn’t help- or even make sense. It implies there is a widely accepted moral code underlying our tax system which allows everyone to discern what arrangements, regardless of the letter of the law, are fair and unfair or right and wrong.
But as Mr Lobler’s case demonstrates this is nonsense. Tax is a means whereby Governments get money for their purposes using detailed and often prescriptive rules which are construed purposively.
The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically. 3
If a circumstance is within those rules, as in Mr Lobler’s case, then tax is due. If not, then not.
Of course tax, like anything else, has a moral element. No one should tell lies or conceal the truth to get a tax advantage. Nearly everyone would accept that moral dictum. And those stupid or amoral enough to try run the risk of penalties and criminal sanctions.
But would everyone intuitively and immediately agree that tax legislation should be construed to give HMRC, or politicians, the result they would like? I doubt it. Indeed I am sure not.
Rule of Law
Would anyone tolerate such an approach in any other area of law? No.
Of course there may be behaviour that many would regard as obviously right but on which there is no law obliging compliance and so people who do not do these things cannot be held legally responsible . And there may be legislation that permits or even commands things others would regard as an offence against their personal moral code. Those offended may have to weigh up the consequences of the conflict between their code and the law of the land. Indeed there have been cases at the European Court of Human Rights on these sorts of situations. But even in these cases the appeal is to human rights law.
When HMRC and others appeal to ‘fairness’ only in situations where it suits their needs and ignore the call of ‘fairness’ where it doesn’t then the poverty of their position is exposed. Tax law does not have some special quality whereby the enacted statute is usurped by some unexplained principle of fairness, the underlying world view of which is unclear, and to which only a section of society subscribes and only then when it is in the interests of the tax authority. Without, I hope, overstating the position exaction by the State that is based on the prejudices and predelictions of one faction and not on the rule of law is tyranny.
Iain Macleod MA, CTA (Fellow) heads the tax investigations department at EDF Tax Ltd and provides support to professional firms and clients on all types of HMRC checks, enquiries and investigations. He can be contacted on 0115 983 5580 or mobile 07920 146800 or via email. His comments are his own and do not necessarily represent the views of EDF Tax Ltd. See http://www.edftax.co.uk/index.php
1. http://www.hmrc.gov.uk/press/tribunal-victory.htm 2. http://www.hm-treasury.gov.uk/speech_xst_230712.htm 3. http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKHL/2004/51.html&query=mawson&method=boolean