The Labour Government in its second term in office is truly showing its colours now with its attacks on tax avoidance.
A whole series of measures have been introduced to crack down on tax avoidance, inc-luding very short time limits for scheme creators or advi-sers notifying the Revenue – five days, and swingeing penalties for late notification or non-notification.
The Government is trying to reclassify tax avoidance as tax evasion. I always understood that tax avoidance was perfectly legitimate whereas tax evasion was not.
There have been several tax cases over the years, including Ramsay and Furniss
Dawson, where the Revenue has tried to crack down on tax avoidance but without enduring success. In one famous case, the judge stated a taxpayer is entitled to arrange his affairs in such a manner as to ensure that the Revenue does not put the biggest shovel into his estate.
At a time when we are paying more and more in taxes which are being wasted on a grand scale, it is amazing that the Government is not satisfied with the huge increases in tax revenue it has secured over the last seven years.
Tax freedom day is now May 31 and the date gets later each year. This means almost half of the average person's income is lost in taxes every year.
Of course, tax avoidance increases when tax rates are higher. Under Labour in the 1970s, the top rate of income tax was a whopping 98 per cent (103 per cent including certain surcharges). This inevitably led to much tax avoidance. While we do not have a top income tax rate of 98 per cent, we do have a Government who are past masters at the opposite of tax avoidance – stealth tax.
In many ways, we are worse off today than in the 1970s because there were a lot more tax reliefs available then, including 100 per cent capital allowances, up to 60 per cent tax relief for pension contributions and up to 60 per cent mortgage interest relief.
This Government is raising tax revenues across the board and in many ways in a devious manner. The £5bn a year raid on pension schemes from the dividend tax credit was one of the worst examples of this.
The latest Finance Act is a behemoth at over 300 pages in length. I recently read an article which gave a famous old quote along the lines of “The greater the amount of legislation the more corrupt the government.” Interesting that.
We had the Proceeds of Crime Act a few months ago which affects not only financial advisers but also solicitors and accountants. Under this act, you have to notify the NCIS, National Criminal Intelligence Service, if you suspect or know that your clients have committed a crime as well as tax avoidance. Failure to notify the NCIS can result in heavy fines and potentially imprisonment.
Apparently, the number of reports to the NCIS has increased dramatically but NCIS staff numbers have only increased a little. Result – a paper-chase chaos. The police will not have any more resources to cope with a suspected tenfold increase in reports. Sounds like an episode of Yes Minister, only I'm not laughing.
I always thought you had a fundamental human right to report a crime or not. I would always favour reporting a crime but I would like to reserve the right not to report one if, for example, I felt it endangered me or my family.
This is very poor law and is yet another example of making businesses carry out Government work for free. We are already unpaid tax collectors – now we are unpaid police too.
What can we do about it? By all means vote. The recent local and European elections should be a big wake-up call to this Government but I do not think it will make a lot of difference in the general election. Basically, the serious votes will be for Labour or Tory. And guess what, it will not make a massive difference whichever party gets in. Even if the Tories win the election, they will not reverse Labour's policies, especially the stealth taxes.
If there is a change of Government, the main difference will be that the Tories will tax us a little less and be more friendly towards businesses.
What we need to do to really change things is to lobby our MPs, MEPs, councillors etc and join pressure groups or march in protest rallies. That is what changes things.
Tony Byrne is business development director at Wealth And Tax Management