Tax avoidance, Right or Wrong?

Tax avoidance, Right or Wrong?

David Cameron has been under fire recently after he singled out Jimmy Carr for using a tax scheme based in Jersey called K2. One of over 1000 individuals using the scheme, Jimmy Carr managed to pay 1% tax on over £3.3 million. The K2 Jersey scheme is completely legal however Cameron is quoted as calling the act “morally wrong”. Cameron has been criticised for singling out Carr but not other celebrities such as Gary Barlow, a well known conservative.

The question over ethics is a complicated one. One of the many aspects of accountancy firms is to advise firms and individuals on tax efficient ways for money management but some accountants go further than others. Carr’s accountants Peak Performance accountants are being investigated by the Institute of Chartered accounts of Scotland*. Is what Jimmy Carr did right? Or is it the fault of the accountants for offering such temptations.

Where does the legal act of tax avoidance become the illegal act of tax evasion? Well Albinet Media and Consulting Services say that “Tax avoidance is generally the legal exploitation of the tax regime to one’s own advantage” they go on to define tax evasion as the “efforts by Individuals… to evade the payment of taxes by illegal means.” Examples of tax avoidance include establishing offshore companies in tax havens, or using tax deductions. Tax evasion is considered a crime in the UK and included dishonest tax reporting, and under declaring income or overstating deductions.

Interestingly the law does change from nation to nation. In Switzerland, tax fraud is considered a crime (forging documents, etc) whereas tax evasion is not, such as under declaring assets. On a side point, In the USA all income is required to be declared, including assets gained from theft. However this is not usually done seeing as doing so would be a declaration of guilt. In many cases a criminal may be sentenced for tax evasion when there is insufficient evidence for theft, etc. The most notable case for this is the 1920’s gangster. Al Capone.

In reality, one will not get sent to prison for using tax savvy ways of money management, for example, don’t expect Jimmy Carr to be incarcerated any time soon. However there is a thin line and as soon as dishonest methods are being used, the law is being broken.

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