The topic of tax avoidance popped up in Radio Four’s Today programme today, with accountants getting the rap for helping wealthy individuals and companies to legally minimise their tax bills.
Paul Lewis, presenter of the Radio Four Money Box programme, said that accountants ‘romp in it [tax avoidance] and have fun’ while inveterate tax justice campaigner Richard Murphy accused accountants of ‘abusing’ loopholes.
The discussion came a day after chancellor George Osborne claimed he was ‘shocked’ by the 20 anonymous multi-millionaires who had used legal methods to reduce their tax bill. Why was he shocked? We all know that money doesn’t grow on trees and the self-made are often the most money-conscious of all.
Most people who become rich stay rich by managing their money effectively. And if it is possible for people to reduce their tax bills through legal means, many will do so. Accountancy bills aren’t cheap and lots of clients would rather not pay them. They see the value of an accountant in how much money he or she can shelter from the taxman’s grasp. One of the first things I was told when I became self-employed was: ‘Get yourself a good accountant – they can save you a fortune.’
Although there is something morally distasteful about extreme tax avoidance with the wealthy going to significant ends to protect their wealth, let’s be honest about the role of accountants as far as most taxpayers are concerned.
Accountants are professionals, and therefore they have a public service duty, but they are also business people. Who pays their bills? Their clients, not HM Revenue & Customs. And they rely on satisfied clients to refer them more work. As the client of an accountant myself, I expect my accountant to advise me on the standard legal means that I can use to minimise my tax bill. Does that make me a tax avoider? No, I think it makes me a sensible businesswoman. I bear the risks of being self-employed and I feel that where tax reliefs exist to support me in that, I should use them.
Given that the UK’s tax system is notoriously complex, accountants actually perform a vital public service. They are, in effect, tax collectors who make sure that billions of pounds of tax are paid into government coffers each year. And what’s even better, the government doesn’t have to pay for this service. You could argue, on that basis, that the state gets pretty good value out of the accountancy profession.
But, of course, you never get something for nothing.
It seems to me that the state can’t have it both ways. We can’t have a complex taxation system full of legitimate ‘loopholes’ and then expect accountants, who are paid by their clients to minimise their tax bills, not to make use of these loopholes. If the state really wants to abolish tax avoidance once and for all, either the taxation system needs to be radically simplified so that every man, woman and company can file their own return online and feel confident that that the HMRC computer system will be able to make sense of their circumstances and apply the right reliefs, or the accountancy profession needs to be nationalised so that accountants become civil servants answerable to the state.
Back in the real world, as neither of these things is likely to happen, the reality is that accountants will continue to help their clients minimise their tax bills. Can you really see any accountant saying to their client: ‘You’re loaded, mate. You really could afford to pay more tax than you legally have to’?
No, I didn’t think so.