Tax: avoidance vs evasion, bad luck vs reprehensible conduct

I find it hard to work up any sense of displeasure at the reports of multinational companies doing their utmost to avoid tax liability in the UK. The likes of Apple, Google, Amazon and Starbucks bring employment opportunities for the British and sell products that we wish to buy. Their primary duty is to maximise their shareholders’ dividends and capital gains. They would all be missed if they closed down their UK operations and left as a result of the tax regime becoming more hostile.

And that’s before we get started on the myriad ways in which our beloved government still squanders revenue receipts. To say nothing of the fact that tax avoidance is openly and legitimately promoted to the public at large via products such as ISAs, assuming of course we had any money to save after our net earnings have been bled dry by council tax and astronomical fuel and energy bills.

 

But I digress. Not long ago, in a professional setting, I encountered a telling illustration of the difference between tax avoidance (lawful) and tax evasion (unlawful) that clearly transgressed mere bad luck or poor judgment.

 

Let’s set the scene further. Suppose that a small company has just received its six monthly tax bill. The business is struggling. The boss takes a chance that he won’t be brought to book for not paying it on time, and “borrows” from the tax reserve to buy in new stocks in the hope of trading through the short term difficulties. Alternatively, as is all too often the case, he looks in turn at his overdrawn bank account and his list of overdue debtors, sees nothing there to pay the taxman, and again decides to carry on trading in the hope of better times ahead. In either case, he works every hour God sends and draws only a pittance for himself and his family, or nothing at all. If the company then goes bust, and HM Revenue & Customs is a major creditor, it may be correct to conclude that although tax has been evaded, prosecution of the boss would be unduly harsh.

 

Now go to a scenario where the insolvent corporate failure is well into six figures. Where the percentage owed to the taxman is far in excess of anything owed to trade creditors. And where the outflow from the substantial turnover in the last year’s trading evidently shows a deliberate decision not to pay tax when it had fallen due, but instead to favour trade creditors and the sole director himself, in his case involving sums equivalent to a Supreme Court judge’s gross salary (and way in excess of a Prime Minister’s). Reprehensible conduct.

You and I, the ordinary taxpayers of the UK, have to make up this shortfall – it’s not as if the government is going to squander a little less because tax evasion has had unforeseen impact on anticipated receipts. Would it be fair in this scenario to let the tax evader off with a mere disqualification, rather than prosecution? One would sincerely hope not.