Tax avoidance/minimisation – what's realistic?

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  • Tax avoidance/minimisation – what's realistic?
  • geetee1972
    Member

    I understand why people get so angry about this, but realistically, if you set the rules to such a way that you make it perfectly legal to minimise your tax liability, why on earth would anyone voluntarily choose not to take advantage and pay more tax?

    To illustrate my point, the tax avoidance schemes that the very rich take advantage of are all available to the rest of us. There is nothing stopping anyone from doing the same thing apart from the fact that the amount of tax you would save, would be a fraction of what it would cost to set up the structures to achieve the saving.

    To put it another way; if the system was structured such that anyone could easily avoid paying tax in a legal way, do you think we would all be doing it or would we all be ‘morally superior’ and volunteer to pay more than we had to?

    My point is that super rich people who avoid paying taxes they don’t need to represents perfectly normal behaviour that any of us would also adopt given the opportunity.

    The problem lies with the tax structuring itself, not with people/companies avoiding them.

    Thoughts?

    Premier Icon MSP
    Subscriber

    the tax avoidance schemes that the very rich take advantage of are all available to the rest of us.

    No they are not, there is very little you can do as a PAYE tax payer.

    No they are not, there is very little you can do as a PAYE tax payer.

    + 1,000,000

    Only way the “ordinary” man can make substantial tax savings is to go contracting / LTD.

    allthepies
    Member

    What they said re: salary.

    You can of course put money in a pension, invest in ISAs etc which have positive tax implications. I guess the tax-avoidance nay-sayers don’t do this however and elect to pay full tax on any investments 😉

    jonba
    Member

    The costs of avoiding tax don’t increase inline with the amount of money you save either. To avoid tax you either need to put in a lot of time or pay an expert to sort it out for you. If you save £1000 you will lose overall but if you stand to save £100000 it would be worth the accountants fee.

    Having said that I would and do take of advantage of opportunities to save money (legally) so can understand why other people do as well. With larger companies it may come back to haunt them from a coorporate responsibility view point. They may lose business if people feel they are cheating in a similar way to green issues are thought of now.

    Taxing large companies is complex my understanding is that they essentially negotiate how much they should pay with HMRC. HMRC have a duty to chase up and negotiate hard to maximise their takings(something the civil service doesn’t have a good public image for).

    Peyote
    Member

    My point is that super rich people who avoid paying taxes they don’t need to represents perfectly normal behaviour that any of us would also adopt given the opportunity.

    The problem lies with the tax structuring itself, not with people/companies avoiding them.

    That’s a damning indictment on human nature really! Basically you’re saying that we are all essentially selfish when it comes to paying tax.

    I’m not sure I agree because despite getting a bit annoyed about the waste that I see tax income spent on, I’m well aware of the good it does re: NHS, eductaion, helping the vulnerable and generally keeping society going. I’d have difficult alligning my moral compass to a lot of what I hear the super rich doing.

    That’s not to say there isn’t a big problem/s with the tax structure either though!

    Premier Icon zilog6128
    Subscriber

    I would definitely be in favour of 95% income tax over £100k. Hell, £50k even. I mean, how much money do people really need?

    PJM1974
    Member

    Yep, the tax system is flawed.

    The problem is that society has become skewed in favour of the top 2% of the wealthy who can pretty much get away with anything because we’d rather they spent their wealth here than anywhere else.

    The system needs to be fairer, not just to ensure that HM Treasury receives more tax income but also for the common good of society.

    mudshark
    Member

    What about avoiding stamp duty on house purchases? How’s that done?

    Alpha1653
    Member

    There are various ways of minimising your tax liability and any actions to that effect constitute tax avoidance which, in my mind, is perfectly justifiable – if you’re willing to put in the work to structure your finances in such a way that it saves you money, crack on. If the Government thinks that a way to avoid paying tax is unjust then they should close the loophole if possible. Tax evasion, however, is not paying the tax that is due which is wrong and tantamount to stealing in my opinion.

    As for the schemes that the “very rich” take advantage of not being open to Joe Public, I imagine that’s because they’re avoiding paying tax that Joe Public doesn’t have to pay anyway.

    geetee1972
    Member

    Basically you’re saying that we are all essentially selfish when it comes to paying tax.

    More or less yes; what I am saying is that everyone acts firstly in their own self interest and then secondly in the interests of society.

    For example, I would do absolutely within the letter of the law to give my son the very best I can, including not paying any tax I didn’t legally have to pay in order to afford him a better education (for example by saving for university, private schooling, extra tuition, whatever I felt was going to be the best for him).

    Once I’d taken care of him, then I would think about my fellow man/society.

    As for tax minimisation for anyone and everyone on PAYE, it’s not really the point. The point is, if there were the opportunity to legally not pay tax, the vast majority of people would take it.

    deviant
    Member

    Zilog….i think that post was trolling but i’ll bite anyway.

    Its not about need, if somebody chooses to work long hours, have two jobs, work overtime etc then why on earth would you penalise that person with a 95% tax on their higher earnings?….seems like punishment for having a work ethic.

    geetee1972
    Member

    I mean, how much money do people really need?

    Depends on where you live, but in London, £50k goes virtually no where and £100k doesn’t make you well off!

    Glad I no longer live there!

    Peyote
    Member

    More or less yes; what I am saying is that everyone acts firstly in their own self interest and then secondly in the interests of society.

    From your example I can see where you’re coming from.

    However, I don’t think the two are mutually exclusive, it’s just much harder to view the interests of society as directly impacting on you compared to how your direct actions can be viewed.

    Also, is there a limit? I mean what kind of actions would you consider appropriate and inappropriate? If you found a (hypothetical!) way to reduce your tax to 0.1% of your income would you take it? Or would you feel any gult at the money not going to fund society? Maybe everyone has a different point they draw in the sand…

    clubber
    Member

    zilog6128 – Member
    I would definitely be in favour of 95% income tax over £100k. Hell, £50k even. I mean, how much money do people really need?

    It’s a reasonable point BUT I don’t agree with it. What matters for me is whether those people deliver value – if someone genuinely brings in millions to a company in a job that other people couldn’t do then I see no issue with them earning lots of money. Where the issue lies is where those two aren’t properly linked and people earn silly money for something that many others could do. Or if they do it in a way that isn’t morally sound. That’s the far more complex issue and something that requires legistlation to control – something which is unlikely to ever happen or be that effective IMO.

    My solution is much simpler – simplify the tax system massively so that people simply pay fair rates of tax on their earnings and so that except in a few very uncommon loopholes, people can’t avoid it.

    geetee1972
    Member

    Also, is there a limit? I mean what kind of actions would you consider appropriate and inappropriate? If you found a (hypothetical!) way to reduce your tax to 0.1% of your income would you take it? Or would you feel any gult at the money not going to fund society? Maybe everyone has a different point they draw in the sand…

    That’s a really good question.

    Honestly, I think I would probably take advantage of that opportunity (it’s purely hypothetical; it would never happen, at least I hope it wouldn’t) and then end up donating more money to charity, or sponsoring some other type of initiative. Which is pretty much what the tax system is supposed to do, i.e. the redistribution of wealth as organised by government on behalf of society.

    Premier Icon zilog6128
    Subscriber

    Its not about need, if somebody chooses to work long hours, have two jobs, work overtime etc then why on earth would you penalise that person with a 95% tax on their higher earnings?….seems like punishment for having a work ethic.

    Hard work should indeed have it’s reward but there’s a difference between having a work ethic and having an unhealthy obsession with material wealth. The (presumably fictional) person you’re describing sounds mentally ill IMO.

    Depends on where you live, but in London, £50k goes virtually no where and £100k doesn’t make you well off!

    I don’t think income going to pay off your mortgage (for the property you live in) should be taxed which would help with that!

    Premier Icon MSP
    Subscriber

    i.e. the redistribution of wealth as organised by government on behalf of society.

    The primary role of taxation isn’t about the redistribution of wealth, its about financing the fabric of society.

    Premier Icon MSP
    Subscriber

    I don’t think income going to pay off your mortgage (for the property you live in) should be taxed which would help with that!

    That would be OK as long as profit on homes was taxed as earnings.

    geetee1972
    Member

    The primary role of taxation isn’t about the redistribution of wealth, its about financing the fabric of society.

    In the way I was using the term ‘redistribution’ they are the same thing.

    an unhealthy obsession with material wealth

    That’s a total value judgement. Are we all supposed to then subscribe to your definition of what is healthy? I happen to agree with you to some degree but I don’t believe I have the franchise on what is right.

    I don’t think income going to pay off your mortgage (for the property you live in) should be taxed which would help with that!

    That’s an eminently sensible suggestion. If only it hadn’t been abolished (along with tax exemption on pension investments).

    b r
    Member

    I would definitely be in favour of 95% income tax over £100k. Hell, £50k even. I mean, how much money do people really need?

    You’ve not a family them – and/or live in the south?

    Is this a Tony BLiar ‘promoted’ post?

    tbh A single rate of tax and a high (enough) tax allowance would reduce vastly the admin. costs all round – for people. Companies is somethng different.

    FunkyDunc
    Member

    “I would definitely be in favour of 95% income tax over £100k. Hell, £50k even. I mean, how much money do people really need?”

    Thats a very short sighted, naive view. People who earn £100k plus add more to the economy by spending, creating jobs etc etc. If you are going to put a 95% tax bracket in then why the hell would people bother working?

    Its already affects a lot of people already at the 40%. Mrs FD will routinely way up whether its worth covering additional shifts because she will get relatively little reward for it. At 95% the answer would be a definate no.

    Premier Icon teamhurtmore
    Subscriber

    Ok three students with same background/qualifications etc graduate from Uni at same time and make three different, independent career choices:

    Tom – chooses to substitute financial returns for leisure. Takes average holiday x50% but earns average salary x2
    Dick – takes average holiday, earns average salary
    Harry – chooses to substitute leisure for financial returns. Takes average holiday x2, but earns average salary x 50%

    [ps I know the maths doesn’t hold here!]

    So Dick looks at Tom and is envious of his salary. He then looks at Harry and is envious of his holidays. But on balance he feels ok – he has the best of both worlds.

    But along comes Mr X and decides that there are different values associated with these free choices. Specifically, he thinks it is unfair that Tom earns average salary x2, so he decides to take some of it away and give it to Dick and to Harry. But is this fair. No, so he takes Harry’s holiday and makes him work on some of those days for the benefit of Tom and Dick. But is this fair? No, but at least its consistent (not that this would ever happen!!!).

    Of course, none of the above (T,D,H, MrX) have a moral right to the chosen returns of the others free choices – but when has that ever stopped anyone? So funny that those who think that there is too much focus on money are often the first to focus on redistributing it?

    geetee1972
    Member

    Is this a Tony BLiar ‘promoted’ post?

    Given how much tax he’s paid lately (it was on Radio 4 this morning; something like £350,000 on earnings of £12m IIRC) I would say it is not.

    IHN
    Member

    along with tax exemption on pension investments

    Pension contributions are still tax-deductible. Dividends are taxed, but investing in a pension is still hugely tax efficient.

    Personally, I don’t think that there should be tax-exemption on mortgage payments. House purchase shouldn’t be subsidised and all it would do would be to drive prices higher, keeping more people in the rental ‘trap’, which, assuming you make rent payments tax-deductible too, would seem to be hugely unfair.

    Premier Icon MSP
    Subscriber

    THM, your argument assumes that we have free choice over our careers and the benefits it brings, in reality we get a very limited pick, otherwise I would have chosen to be a wealthy international playboy.

    Norton
    Member

    I would definitely be in favour of 95% income tax over £100k. Hell, £50k even. I mean, how much money do people really need?

    I would definitely be in favour of flat rate tax regardless of income. Hell 25% even. I mean how much money does the state really need?

    geetee1972
    Member

    Pension contributions are still tax-deductible. Dividends are taxed, but investing in a pension is still hugely tax efficient.

    It’s tax efficient relatively speaking, but it’s far less profitable than it used to be and as such as contributed (significantly but not uniformly agreed on by how much) to the pensions crisis.

    Abolishing MIRA in the late 90s didn’t seem to stop house prices from spiraling out of control though. Maybe it would have been worse or maybe the bubble would have popped sooner (because it would have inflated even quicker) if we’d left MIRA in place.

    I don’t think it’s healthy for a tax system to be predicated on what is morally right for everyone as an individual (i.e. we won’t let some people have vastly more money than others) at the expense of what does the most good for society overall (i.e. at the cost of there being a massive gap in relative wealth, we will still all be better off).

    joao3v16
    Member

    everyone acts firstly in their own self interest and then secondly in the interests of society

    hence why society is in the state that it is …

    Premier Icon zilog6128
    Subscriber

    That’s a total value judgement. Are we all supposed to then subscribe to your definition of what is healthy?

    That’s a fair comment. But we all know people who are lazy just like we all know people who are workaholics. Neither extreme can be considered ideal.

    You’ve not a family them – and/or live in the south?

    Is this a Tony BLiar ‘promoted’ post?
    Don’t have a family yet but I do live in the south-east and I’m a business owner and about as right-wing as they come. Fully support tax breaks for families, small businesses, etc. Just don’t see why anyone (family included) needs that much cash.

    Thats a very short sighted, naive view. People who earn £100k plus add more to the economy by spending, creating jobs etc etc. If you are going to put a 95% tax bracket in then why the hell would people bother working?

    I suppose because they enjoy working. Otherwise, just take the £100k and spend more time with your family or helping the community.

    I would definitely be in favour of flat rate tax regardless of income. Hell 25% even. I mean how much money does the state really need?

    A lot more than it’s got at the moment, apparently! Having a flat-rate of tax is a reasonable argument. But that’s another debate really.

    Peyote
    Member

    Honestly, I think I would probably take advantage of that opportunity (it’s purely hypothetical; it would never happen, at least I hope it wouldn’t) and then end up donating more money to charity, or sponsoring some other type of initiative. Which is pretty much what the tax system is supposed to do, i.e. the redistribution of wealth as organised by government on behalf of society.

    My initial reaction to that is “You trust the charities you’re donating to to do a better job than the Govt?” Then I had a bit of a double take and realised that if the Govt, and society, did a proper job in the first place Charities would be unecessary. It’s a bit of a can of worms that whole line of thought, possibly worthy of another thread.

    In the meantime I guess you aren’t quite as selfish as you suggest your fellow humans are (now there’s a veiled compliment!) because you’re still contributing to society via the charities, why not keep it all for your sons education/inheritance? Is it not that you do value society, you’d just like more control over what an where you contribute to that society?

    geetee1972
    Member

    You know on reflection, one of the hardest things to achieve in working life is balance.

    You either work to earn above the mean national income (upwards of £35k, which is above the mean of £22) in which case you are asked to put a huge amount of discretionary effort in, at the compromise of family life/work life balance. Or else you’re stuck in a low paid job with few prospects; you have more free time, but less money to spend it doing anything rewarding.

    You don’t have to move that high up the pay scale before you start having to work silly hours just to keep you where you are.

    TandemJeremy
    Member

    There is a simple fact that tax inspectors going after tax avoidance / tax evasion generate far more than they cost but are cut. People investigating benefit abuse generate far less than they sand are being increased.

    Tax avoidance should be chased hard and loopholes filled – and retrospective swinging fines levied.

    Its totally wrong that rich people pay a far smaller % of their income in tax that poorer ones

    Premier Icon zilog6128
    Subscriber

    Then I had a bit of a double take and realised that if the Govt, and society, did a proper job in the first place Charities would be unecessary.

    This is 100% true. Of course, at the other extreme, if people/companies voluntarily donated enough money to keep the country running/help the disadvantaged then there would be no need for mandatory taxation of any kind.

    geetee1972
    Member

    Is it not that you do value society, you’d just like more control over what an where you contribute to that society?

    It’s not really any of that. I like contributing to society and feel good about the taxes I pay and the contributions to charity that I make. I feel it’s important to be a good person and a good citizen, i just don’t want that to mean my family and I are compromised too far.

    It only takes a little imbalance in the system for the system to become unsustainable.

    Consider this:

    You structure the tax system in the way described above. At first more or less everyone behaves in the way I said I would, i.e. relatively altruistically, contributing as much back in charitable contributions as they do now in taxes.

    But a few people don’t behave that way. They act entirely selfishly. Those around them/close to them, see this and feel aggrieved at this and adjust their behaviour accordingly.

    This is then replicated among society, passing like a ripple through it, that becomes like a standing wave reinforces itself.

    Pretty soon everyone is forced to act entirely selfishly until the system collapses.

    Premier Icon teamhurtmore
    Subscriber

    THM, your argument assumes that we have free choice over our careers and the benefits it brings, in reality we get a very limited pick, otherwise I would have chosen to be a wealthy international playboy.

    The hypothetical argument has many assumptions indeed. But that is helpful to test the underlying logic.

    But Ok, lets ignore the three scenarios. Lets assume instead that we would both like to be a wealthy international playboy – a football player or someone born with a silver spoon in their mouths. Bit unfair that talents/advantages, be they sporting, intellectual, birth etc, are so randomly distributed. So we want a “fairer” (sic) system. Whose value system should we impose to re-address the balance? Lets take the money of the toff and lets make the talented footie play with his laces tied together to make things fairer, then see if he makes as much money?

    Or lets take geetee’s concept that we should maximise the happiness of most people before respecting the rights of the individual. To be fair, we shall apply this to all aspects of life – tax, education, health etc.

    Sounds great.

    But then geetee falls of his/her mtb and cuts his/her arm and needs stitches. He goes to A&E and is waiting in his booth. But at the same time, there are three critically ill children in the booths next door – one has heart failure, another kidney failure and the last liver failure. Without immediate transplants all these children will die as there are no donor organs available. I am the doctor and I have been told to live by geetee’s logic. So I sneak into his booth, slip him some drugs and then whip out his heart, liver and kidney. I transplant them into the kids and they survive – all three of them. Sadly geetee is not so fortunate and he passes away.

    Not very nice that but at least we have all been consistent 😉 and geetee will be happy (?) because we have looked after the greater good for society and three have lived. Who knows he may even go to heaven – but that is assuming there is a God and a heaven!!!

    geetee1972
    Member

    Whoa hang on a minute. How the hell did I suddenly become an extra in the film ‘Coma’?

    Premier Icon teamhurtmore
    Subscriber

    Just having a bit of fun geetee!!!

    Its the age old question to which there is not easy answer – the right of the individual versus the right of society versus the right of absolute moral standards.

    You can pick each viewpoint apart!!

    Premier Icon MSP
    Subscriber

    Whose value system should we impose to re-address the balance? Lets take the money of the toff and lets make the talented footie play with his laces tied together to make things fairer, then see if he makes as much money?

    We could just have a progressive tax system that, taxes the rich more but still allows them their relative wealth.

    Premier Icon jambalaya
    Subscriber

    Zilog

    I would definitely be in favour of 95% income tax over £100k. Hell, £50k even. I mean, how much money do people really need?

    As I always say to such suggestions why don’t you try that out at a Premiership football ground at half time, stand in the centre circle and tell the 50,000 fans their club will have a vauxhaul conference squad.

    The other factor to consider is that as all the high paid jobs will go abroad you’ll actually collect much less tax and all the remaining people earning 50k will have to pay a very high rate of tax (60% ?) or have no social services, police etc.

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