Wasteful, not immoral
There is nothing wrong with having efficient tax affairs, as there is no such thing as a 'correct' amount of tax that must be paid by any tax payer
With the recent release of the Panama Papers, there has been a great deal of noise (from politicians and political journalists) on the subject of tax avoidance and financial fairness.
As financial adviser I find it frustrating, although not surprising, that so much of the public comment is financially illiterate. That aside however, it's hard to defend many of the more 'aggressive' tax strategies. I'd be the first to agree that whatever the strict legal position, many such schemes, to put it bluntly, are unfair - in sporting terms, they are akin to cheating.
But inevitably, because of the lack of understanding, this condemnation spills over where it shouldn't - and I think that politicians and political journalists have been too quick to condemn many forms of perfectly legitimate tax planning.
The phrase 'tax avoidance' is increasingly used to include what I think is just simple tax planning. The phrase implies there is a pre-determined amount of tax that is to be paid by someone, but by exploiting some little loophole some people manage to 'avoid' paying the correct amount of tax.
However, with an increasingly complex tax system (over 17,000 pages compared to Hong Kong's 276 pages) that has trebled over the last twenty years, can there ever be a pre-determined 'correct' amount of tax?
As an Independent Financial Adviser and Chartered Financial Planner, part of my job is to ensure that my clients don't inadvertently pay too much tax. In this regard, I'm firmly with Lord Clyde who gave his famous quote (in taxation circles) in the case of Ayrshire Pullman Motor Services v Inland Revenue  Tax Case:
'No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue'.
For many clients, putting their money in one place, or withdrawing it from another, can have a significant impact on the amount of tax that they pay, and how much of their own money they retain.
We recently undertook some auto-enrolment work for one small business employing a dozen people. Following this, we suggested we review the three directors' own financial affairs. These directors felt they were in that 'squeezed middle' with relatively good incomes but not feeling particular well off.
For historic reasons, their income was primarily salary and bonus with relatively small dividends. Along with the normal financial planning considerations, I noted that they could reduce their overall tax liability by approximately £2,500 a year each, just by rearranging their income in favour of dividends as opposed to salary.
This was not by using any artificial tax schemes, simply a tried and tested method of paying directors mainly dividends rather than salary.
Now is that tax avoidance or tax planning? Some might say it's avoidance as we've managed to reduce their tax liability, but that presupposes that their initial tax liability was 'correct' in the first place.
Had they taken advice earlier, they may have, in common with many other small businesses, simply elected to pay the directors primarily by dividend rather than salary from the outset. Consequently, rather than being seen as undertaking tax avoidance today, it could be viewed that they have historically been guilty of tax waste.
With the UK public estimated to waste around £4.6 billion in unnecessary tax this year, we as professional advisers have a professional obligation to ensure that our clients are fully aware of all of the legitimate tax planning opportunities available to them.
Scott Gallacher is a director at Rowley Turton
He writes the regular IFA comment in Private Client Adviser