Tax Avoidance 101: Investing in British film

[Lateralthinking1]

Thanks for the heads-up on booking ahead for the whist dirve Lat - imagine the disappointment if...........

Exactly Mr Oven. Just think of it as a small contribution from me towards joy in this most special of kingdoms.

[Beef Oven]

so, on topic hopefully, the investment in the film industry thing may be legal, but for the life of me I cannot understand why it should receive preferential tax treatment to other industries.
The entrepreneurs love of risk/reward should surely be enough?
Too many "wealth creators" these days want other people to take the risk. Electricity producers, for example.

This was made off-shore to avoid paying tax on the royalties - The book it was based on was about a marooned coach in Deptford

[Lateralthinking1]

This was made off-shore to avoid paying tax on the royalties - The book it was based on was about a marooned coach in Deptford

Ah, but did they need healthcare?

http://www.bbc.co.uk/news/health-18584968

[Beef Oven]

Ah, but did they need healthcare?

http://www.bbc.co.uk/news/health-18584968

Have a big merger and wind up with an unwieldly 'beast'

[MrGongGong]

I'm self employed
I don't earn vast amounts of money (in fact my daughter who is at University gets a grant for some of her fees as we are classed as "low income")
A few years ago my accountant changed the date of my tax year so I could juggle some of the earnings of one year (with low profit) into the next (with higher profit)

does this make me immoral ?

Some people don't understand the difference between evasion and avoidance ...............
some people seem to find ways of evading tax in ways that are technically seen to be legal avoidance
Given the outrageous way that Cameron and Clegg have launched an attack on the most vulnerable in our society they have no right to lecture the rest of us on morality and I hope they end up sad and lonely ..............

[Lateralthinking1]

I'm self employed
I don't earn vast amounts of money (in fact my daughter who is at University gets a grant for some of her fees as we are classed as "low income")
A few years ago my accountant changed the date of my tax year so I could juggle some of the earnings of one year (with low profit) into the next (with higher profit)

does this make me immoral ?

Some people don't understand the difference between evasion and avoidance ...............
some people seem to find ways of evading tax in ways that are technically seen to be legal avoidance
Given the outrageous way that Cameron and Clegg have launched an attack on the most vulnerable in our society they have no right to lecture the rest of us on morality and I hope they end up sad and lonely ..............

I just go back to my point about self-categorisation. Those who sound like they are placing themselves in the same category as Carr, Barlow, Green etc often shouldn't feel a need to do so. I assume you didn't pay 1% tax in either year.

More broadly, while a distinction between evasion and avoidance is being hammered in, another word, weirdly, is missing. Exemption. That is the one that applies to ISAs and TESSAs and it is wholly distinct from avoidance.

[ahinton]

Have your usual Babycham then son!

Do they even make that stuff these days? And have you never heard of fine malt whisky? Cognac and Pineau des Charentes? Wine? Heaven knows how many other beverages that aren't beer of any kind?

[ahinton]

More broadly, while a distinction between evasion and avoidance is being hammered in, another word, weirdly, is missing. Exemption. That is the one that applies to ISAs and TESSAs and it is wholly distinct from avoidance.

I'm pleased that you raised this, as it's just another malleable and oleaginous euphemism of which there are no doubt more in the wings for this kind of issue; VAT already sports one, since it has classifications of "exempt" as well as "zero-rated". Principally, "evasion" is thought of as action and enablement of action beyond the law and all other such euphemisms denote actions within the law, the problem with some people's understanding of which is that the law is always changing, just as is almost everything else - furthermore, tax laws have to change and indeed are changing with ever-increasing rapidity and complexity purely in order to try to catch up with the constant invention of new loopholes. If there's anything of a whiff of "morality" about any of this it might therefore be whether it could be considered "immoral" to invent, implement and promote tax loopholes.

[Panjandrum]

More broadly, while a distinction between evasion and avoidance is being hammered in, another word, weirdly, is missing. Exemption. That is the one that applies to ISAs and TESSAs and it is wholly distinct from avoidance.

So, what's your point?

These were schemes established to encourage saving and investment. Given that ISAs have set limits to the amount which can be subscribed to in any given fiscal year, it really is irrelevant when it comes to talking about tax avoidance or evasion. Moreover, interest on cash in a S&S ISA is subject to a 20% charge, so only partially exempt.

[Lateralthinking1]

I'm pleased that you raised this, as it's just another malleable and oleaginaous euphemism of which there are no doubt more in the wings for this kind of issue; VAT already sports one, since it has classifications of "exempt" as well as "zero-rated". Principally, "evasion" is thought of as action and enablement of action beyond the law and all other such euphemisms denote actions within the law, the problem with some people's undestganding of which is that the law is always changing, just as is almost everything else - furthermore, tax laws have to change and indeed are changing with ever-increasing rapidity and complexity purely in order to try to catch up with the constant invention of new loopholes. If thee's anything "moral" about any of this it might therefore be whether it could be considered "immoral" to invent, implement and promote tax loopholes.

Well, no. For the Government to describe an ISA as exempt from tax is for it to permit that product not to be taxed and even to nudge the public in the direction of that particular product. Its direction was never to avoid tax wherever possible. Very obviously, the creation of specific products told us there was to be no broader application. Arguably, it was a response to people who had complained about tax, rather charitably meeting them halfway. It gave them less of an excuse to have their own, or their accountant's, 'creative initiatives'. Now that generosity is being thrown in its face.

The ISA, and John Major's TESSA before it, did not represent an invention, implementation and promotion of tax loopholes. Being policy formulated, they were, and are, a component of tax policy. To argue that they are a loophole is to argue that anything that isn't subject to VAT is a loophole which of course it isn't. There cannot possibly be confusion in the minds of those who use accountancy services as those of us who don't use accountants understand it very clearly. The products have, after all, been around since the 1990s and at the time were presented with a fanfare.

Much has been made of last summer's riots. What is largely upper and upper middle class 'tax avoidance' - a phrase invented by avoiders to distinguish it from evasion in the minds who aren't avoiders, so those of us who don't avoid tax and are now using the phrase can hardly be blamed for the euphemism - is far more anarchic. It seeks to bypass the will of the electorate through action intended to lever Governments into change. It is nothing less than a threat to democracy. One could think theoretically of many parallels. If a sufficient number of people decided to drive at 120mph on motorways because they opposed the speed limit, the police couldn't do anything about it. Their hope would be that Government would alter its policy, whatever the majority wanted.

So some think this is how things should be. They forget the climate they are creating. For example, I could argue that the Government allowing other people to have shops is a disincentive to me to set up a shop myself and employ people. If hundreds of thousands begin to think in that way and simply steal goods, you can kiss goodbye to any kind of market as you know it. My baser instinct rather likes the idea of the smashing of the high street because of overwhelming looting. The more mature part of me is concerned because Britain would become the OK Corral. It is heading that way already.

[ahinton]

So, what's your point?

These were schemes established to encourage saving and investment. Given that ISAs have set limits to the amount which can be subscribed to in any given fiscal year, it really is irrelevant when it comes to talking about tax avoidance or evasion. Moreover, interest on cash in a S&S ISA is subject to a 20% charge, so only partially exempt.

Whatever their original (or even current) intention, I happen to know of one married couple each member of which has taken out the maximum permissible investment in PEPs and then ISAs every year since they began and, as a result of good independent financial advice and a fair wind behind the investments, have amassed a portfolio of them whose value now comfortably exceeds £1m, the acquisition of which has cost them not a penny in tax.

Pension contributions have allowed far larger amounts to escape the tax net than have PEPs/ISAs/TESSAs and the like.

The reason that it is correct to describe these as tax avoidance schemes is largely that they are investment schemes whose vehicles are taxable when not within those schemes; by this I mean that equity ISAs are effectively unit trusts with a tax avoidance wrapper around them, cash ISAs are deposits that would otherwise attract taxable interest (albeit very little of it at present low interest rates!) and pension contributions are invested in the market place in the same ways as other monies are invested there but, simply because they are classed as pension contributions, they enable the contributors to avoid tax liability on those investments. Personal income tax, NI and capital gains tax allowances are likewise tax avoidance schemes by virtue of enabling those whose incomes and assets disposals fall below those thresholds to avoid paying tax at the prevailing rate applicable to income and assets disposals above those thresholds; no government is forced to create these allowances, but they do create them and, in so doing, help some of the least well off to avoid liability to tax and some of those not much better off to reduce their liability to tax.

The point at issue here is one of mere semantics whereby too many people have allowed themslves to become hoodwinked through the use of a variety of terms to decribe tax - er - planning. In reality, it's quite simple and falls into just two principal categories; the first is tax evasion, which is not government sponsored or condoned because it contravenes current tax laws and the second comprises all the others, be they termed "reliefs", exemptions", "zero-rated status" or any other forms of avoidance all of which are government sponsored or condoned because they do not contravene current tax laws. Some might even argue that the very existence of top rates of income tax and NI themselves embody a sense of a kind of tax avoidance in that they might be seen tacitly to imply the avoidance of still higher rates on greater incomes, in that the rates charged on taxable earned incomes or profits are the same on incomes of £150K p.a. as they are on incomes or 100 times that amount.

Leaving aside the attitudes of jealousy towards those with high incomes and/or high value asset portfolios in terms of the rates of tax charged on them and the extent to which British tax can be avoided in respect of them, one thing is almost certain; were all those income and/or asset wealthy people taxed to the hilt and successfully barred from all tax avoidance and evasion (and were they to remain within Britain and put up with this burden), the amount of additional revenue into HMT's coffers, whilst not insignificant, would hardly be life-changing, whereas if at the same time everyone entitled to any kinds of state benefit were to claim them in full and everyone who'd been overcharged in tax were repaid with interest, the contrary effect wuold balance this out in any case and probably leave HMT worse off than it is now. In fact, I recall reading a paper from a reliable source (which I cannot now find) which claimed that, were everyone entitled to state benefits to claim them in full, it would bring the country to its knees; I have no idea how true this might be, but it has elsewhere been claimed (again, with how much veracity I do not know) that several thousand people who are entitled to receive state retirement benefit have slipped through the net and not claimed it, with the result of a "saving" to DWP of more than £1m per week.

We are now incresingly hearing tales of woe from a number of sources including local authorities and sectors of NHS that are becoming unmanageably cash-strapped or even going bust, without a rapid and sustainable solution to each of which neither will be able to guarantee continuous future provision of the services that they are charged to provide; I cannot imagine that many local and national taxpayers will be too happy about that.

As I have pleaded on more occasions than I care to recall, were the taxation and benefits system to be radically simplified, the net amounts saved (if passed on to taxpayers as they should be, since taxpayers are investors in the state) would likely reduce the motivation for tax evaders and the need for such a complex variety of avoidance schemes whether government sponsored or not; there would still be tax evasion and avoidance, of course, but I suspect that it would be an a vastly smaller scale than is the case today. I do not claim that such fundamental simplification would be a catch-all or a cure for all ills, but I do believe that it could make a mark on national revenue collection and distribution that would likely be beneficial to society as a whole.

[ahinton]

Well, no. For the Government to describe an ISA as exempt from tax is for it to permit that product not to be taxed and even to nudge the public in the direction of that particular product. Its direction was never to avoid tax wherever possible.

No - its "direction" was to enable taxpayers to avoid tax on those specific investments, which it did and does, but in the full knowledge that an ISA is only one of a number and variety of government sponsored tax avoidance schemes, a few of which I have already mentioned above.

Very obviously, the creation of specific products told us there was to be no broader application.

It did nothing of the kind! How could it have "told" anyone anything of the sort?! It simply added these products to the list of tax avoidance vehicles that already existed, perhaps the most important and widely used before the advent of PEPs being pension contribution tax relief, for which the figures for most contributors are far higher than those applicable to PEPs and ISAs and for the wealthiest contributors have been very high indeed.

Arguably, it was a response to people who had complained about tax, rather charitably meeting them halfway. It gave them less of an excuse to have their own, or their accountant's, 'creative initiatives'. Now that generosity is being thrown in its face.

Did it really? So why has there continued to be such a growth industry in other tax avoidance schemes since PEPs were first introduced? And where is the direct and incontrovertible evidence that PEPs, TESSAs, ISAs, MIRAS and the like were all created solely in response to the complaints of taxpayers?

The ISA, and John Major's TESSA before it, did not represent an invention, implementation and promotion of tax loopholes. Being policy formulated, they were, and are, a component of tax policy. To argue that they are a loophole is to argue that anything that isn't subject to VAT is a loophole which of course it isn't. There cannot possibly be confusion in the minds of those who use accountancy services as those of us who don't use accountants understand it very clearly. The products have, after all, been around since the 1990s and at the time were presented with a fanfare.

PEPs (the forerunners of the current ISAs) were actually introduced more than a quarter century ago on 1 January 1987 during Thatcher's premiership. I did not state that such tax wrappers for investments are "loopholes"; I merely observed that actual tax loopholes (provided that they are legal) are effectively analogous to these government sponsored tax avoidance schemes because they each achieve the same ends, i.e. enabling taxpayers who take advantage of them to avoid paying the taxes on them for which they would otherwise be liable in the absence of those government sponsored tax wrappers. Likewise, exemption and zero-rated VAT status are tax avoidance enabling facilities, as is surely demonstrated by the constant changes in those things that might qualify for either such status at any time. The only real difference in these kinds of tax avoidance scheme and the others to which you refer is in the need for the services of an accountant; that said, I've yet to encounter an accountant or financial adviser whose tax planning advice includes recommendation of what you term "creative" tax avoidance schemes that doesn't also encourage his/her clients to take full advantage of government sponsored tax avoidance schemes.

Much has been made of last summer's riots. What is largely upper and upper middle class 'tax avoidance' - a phrase invented by avoiders to distinguish it from evasion in the minds who aren't avoiders, so those of us who don't avoid tax and are now using the phrase can hardly be blamed for the euphemism - is far more anarchic. It seeks to bypass the will of the electorate through action intended to lever Governments into change. It is nothing less than a threat to democracy.

So are you claiming that governments create tax avoidance schemes, tax allowances and reliefs and the rest as a direct and sole consequence of coercive pressure from upper and upper middle class taxpaying members of the electorate? - and, if so, is this intended to imply that the complaining taxpayers of whom you wrote above are all and only from those particular "classes" rather than from all taxpayers regardless of their "class"?

One could think theoretically of many parallels. If a sufficient number of people decided to drive at 120mph on motorways because they opposed the speed limit, the police couldn't do anything about it. Their hope would be that Government would alter its policy, whatever the majority wanted.

Whether or not that might be the end result, driving at almost 200kph on a UK motorway would be a clear and blatant breach of the law, whereas taking full advantange of legitimate tax reliefs, concessions, avoidance schemes, exemptions, call them what you will, is not; your analogy here is therefore invalid.

So some think this is how things should be. They forget the climate they are creating. For example, I could argue that the Government allowing other people to have shops is a disincentive to me to set up a shop myself and employ people. If hundreds of thousands begin to think in that way and simply steal goods, you can kiss goodbye to any kind of market as you know it. My baser instinct rather likes the idea of the smashing of the high street because of overwhelming looting. The more mature part of me is concerned because Britain would become the OK Corral. It is heading that way already.

It's been that way to some extent ever since businesses had commercial comnpetitors! Every financial transaction has a beneficiary and a loser; that's life. That fact and its due recognition, however, does not signify or pave a road to anarchy for, if it did, we'd have had that centuries ago.

[amateur51]

Every financial transaction has a beneficiary and a loser; that's life.

Nice try, ahinton but it has nothing to do with life per se and everything to do with life under Capitalism

It certainly ain't natural

[ahinton]

Nice try, ahinton but it has nothing to do with life per se and everything to do with life under Capitalism

And the difference is so unidentifiable that one cannot cite a single case of a nation, however ostensibly socialist in intent, where financial transactions are or have ever been any different; I suppose that this fact might suggest one argument for describing all régimes past and present as capitalist, at least to the extent that they are and have always been reliant on capital and the movement of capital.

It certainly ain't natural

But in the world of capital, what is?!

That said, I did notice your emoticons, by the way(!)...

[amateur51]

And the difference is so unidentifiable that one cannot cite a single case of a nation, however ostensibly socialist in intent, where financial transactions are or have ever been any different; I suppose that this fact might suggest one argument for describing all régimes past and present as capitalist, at least to the extent that they are and have always been reliant on capital and the movement of capital.


But in the world of capital, what is?!

That said, I did notice your emoticons, by the way(!)...

But you're not talking merely about the movement of capital, ahinton, you're talking about the creation of excess value through that movement, innit