What is tax avoidance? Navigating the tax planning landscape

If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

This well-known example of inductive reasoning perfectly characterises current public attitudes to tax avoidance. We all know what tax avoidance is and it is clearly wrong that the rich and powerful are able to avoid paying ‘their dues’ while the rest of us have no choice.

But herein lies the problem. One man’s avoidance is another’s legitimate tax planning. So is it good enough for successive governments to rely on a taxpayer’s judgement and sense of morality to determine tax liabilities? The simple answer is no.

Nonetheless, this is where we are today and this is the climate in which professional advisers have to operate. The old system of legislation and case law being used to establish tax liabilities has been swept away in the face of a tsunami of moral indignation in the press, combined with a series of bizarre tribunal decisions seemingly based more on what it is considered the taxpayer ought to pay, rather than what he or she is obliged to pay under the law.

The catalyst for this climate has been various wholly artificial tax-avoidance schemes, which have been peddled by promoters eager for a fast (and very substantial) buck. Whereas reputable professional advisers will listen to a client’s issues and develop solutions to address them, the more unscrupulous product providers have turned the process on its head by developing solutions and then seeking out customers to whom they can be sold.

So what can we now tell our clients? What is legitimate in the spectrum of advice, from planning to avoidance, to abuse and evasion? How do we make sure that we carry out our contractual responsibilities to our clients to maximise tax efficiency, while ensuring that they are protected from attack by HMRC? And how do we ensure our professional indemnity insurers do not have to write out a series of large cheques?

Are ‘schemes’ dead?

There is no doubt that the government’s approach to the perceived problem of tax avoidance on an industrial scale has worked. From DOTAS to GAAR, from a public morality debate to accelerated payment notices and the threat to raid bank accounts, the government’s carefully calibrated, gloves-off approach has completely changed the mood.

It was not so long ago that clients would tell of conversations with the ‘bloke in the pub’ who had suggested one tax scheme or another and asked why they couldn’t do the same. The appetite was seemingly endless for what might be called ‘packaged tax avoidance’ and the promoters were making fortunes.