There has been a huge amount of debate in the press about tax and tax avoidance over the last couple of years. I feel that two major themes have emerged from the debate. The first, which we are all aware of, is that the public view is that aggressive tax planning is not acceptable in times of austerity, such as now. This is in marked contrast to the attitude towards tax avoidance during the 1970s and early 1980s, at the height of the Rossminster tax planning schemes, when the general view appeared to be that it was quite acceptable for very wealthy people to reduce their tax bills by these means.
The other lesson that has come out is rather less obvious: the fact that the public is largely ignorant of the way in which the UK’s tax code works, so that they are unable to distinguish between aggressive or unacceptable tax planning, acceptable tax planning and even the normal operation of the tax code. This situation has been exacerbated by the way in which messages have been put across by two groups of people from whom one should expect better, the financial press and members of the Public Accounts Committee (PAC).
One obvious example was the announcement that Google only paid £11.6m tax on UK income of £3bn in 2012. Both financial journalists and the PAC members are well aware that corporation tax is paid on the profits of a business, not on its turnover. Their insistence on castigating companies by comparing tax paid to turnover, rather than profit, can only be wilful misinformation, i.e. deliberately misleading the public for the sake of selling newspapers or for a politically advantageous sound bite and the associated political kudos. It is unimaginable that any serious financial journalist genuinely believes that a company pays corporation tax on its turnover; it is equally unimaginable that members of the PAC have not been briefed on the correct way in which tax is charged, yet they continue to compare tax paid to turnover.
Another major example that springs to mind – which doesn’t involve multinational tax planning or, indeed, tax planning at all – was the row over the rate of tax paid by the utility companies. At least on this occasion, however, the correct comparison is made, with the tax bills being compared to the accounts profits of the companies. Many of these companies have been investing billions of pounds into infrastructure, and the legislation permits them to claim capital allowances on that expenditure, resulting in lower tax bills.
Instead of focusing on the positives, that the investments into infrastructure are being made (and we all recall the outcry from a few years ago when water companies were accused of not doing enough to prevent leakage from their ageing pipeline networks), the press and the PAC, again, concentrated on the effective tax rate.
Once again, one would expect competent and informed financial journalists to understand the tax allowances for infrastructure investment, which can hardly be described as aggressive tax planning, and one would expect the PAC to be properly briefed.
While it is easy to accuse others of creating misinformation, are we as a tax profession entirely blameless? I do not mean that we act as stewards of arcane knowledge that can only be passed down to qualified initiates (although I am sure that there are some people like that in the tax profession), as most of us enjoy thinking and talking about tax with our clients and colleagues. But we tend only to do so in the context of a specific client need, so we are only talking to one client at a time about any given issue and only to the depth that is required by the particular issue.
Perhaps some of the public willingness to believe what they are told by the press, and what they hear from the PAC, is based on the fact that they do not know any better, because we have not told them.
It seems to me that this is as good a time as any to try to explain tax to people in a much wider sense. Many of us, for example, can access local newspapers and write occasional articles about part of the tax code. In doing so, I am very conscious that it would be helpful to put in examples that demonstrate that a low effective rate of tax is not necessarily the result of aggressive tax planning or avoidance.
Similarly, we have opportunities to speak to local groups – whether professionals, such as branches of the law or accountancy institutes, or more general interest groups – and we should all take those opportunities to spread our message about how the tax system works.
No doubt other readers can think of other ways in which we can put out the good word, and I think it is important that as many of us as possible start searching out these opportunities to speak within our local and regional communities to put the record straight.
I, for one, am very concerned about the reputation that my profession now appears to have.
Worse, I find it completely unacceptable that we live in a world where the chairman of the PAC can announce that a government tax initiative, the patent box, is a tax avoidance scheme, when it is precisely the opposite, and where nobody outside the tax world understood enough about the subject to correct her.
