#Tax Myth 3 - Tax Avoidance Is Illegal

Posted on in Business Tax

When there was a window tax paid according to the number of windows in a building, property owners blocked out some windows with the sole purpose of paying less tax.

Was this tax avoidance? Yes

Was this illegal? No

Some property owners may have lied about the numbers of windows on their property with the sole purpose of paying less tax.

Was this tax evasion? Yes

Was this illegal? Yes

If you apply this analogy to today's discussions on tax avoidance you can see why it is perfectly legal to organise your business and personal life in a way that means you pay no more tax than you should do.

When windows were blocked out there was a real event and a real consequence to that action; less light, more wall, rooms reconfigured. There was a practical limit as to how far you could go. A property with no windows wouldn't have been attractive for any tenant to rent or for resale.

What is not legal is to lie. This includes not declaring income in your accounts or on your tax return and hiding income in overseas territories.

Under declaration of income has been the subject of numerous HMRC cases over the years some of them deliberately concerned high profile people.

We may not like Google, Amazon, Vodafone et al paying low rates of corporation tax, but they are simply following the rules.

Are we suggesting they aren't allowed to 'block up some windows'?

Of course there are grey areas, such as, for Google et al, what is the amount of profit applicable to each part of the supply chain and therefore which part is the UK's taxable profit or, say, Ireland's?

These figures are documented and reviewed at great length by HMRC and there are probably about 100 correct answers. Perhaps this still needs more scrutiny. But let's be clear what we are talking about.