Recently I wrote my comments on tax evasion by pop star Lauryn Hill of the Fugees. I mentioned that tax avoidance was legal but it was difficult at times to see when the legal line had been crossed. However the question of morality of tax avoidance was raised this week by the Prime Minister in relation to the tax shelter scheme K2 that comedian Jimmy Carr had taken advantage of. It is interesting that the comedian only a day later said, as reported by the BBC, that it was a terrible error of judgement, he was no longer involved in the scheme and will conduct his financial affairs in future more responsibly.
This case raises a number of issues about the relationship between morality and the law. As a tax practitioner I am aware that HM Revenue & Customs (HMRC) require tax payers taking advantage of tax avoidance schemes to get their approval first, as was probably the case with Jimmy Carr. The law enforcers at HMRC therefore give their blessing to such schemes but it is interesting that the Prime Minister whose government is responsible for enforcing the law now brings in to question the morality of such acts. This sends out a confusing message to UK taxpayers as to the conduct expected of them by the government.
This case of Jimmy Carr and his response therefore clearly highlights the moral angst in cases of tax avoidance. This year I have had some very interesting discussions with our own students on ethical issues on tax avoidance with many expressing views which are diametrically opposed. Some would say that if the law allows it then it is right, and others that taxpayers need to be socially and therefore morally responsible irrespective of legislation.
The Chancellor wants to introduce general anti-abuse legislation so that HMRC can differentiate between what is responsible tax planning and what is abusive tax avoidance. Unfortunately even then the vexed question of whether it is moral or not to minimise ones taxes in my opinion remains unanswered.
For those interested in this particular case there is quite a lot of information on the BBC website.
Arvind Lall has also provided expert comment on the following news item:
‘Lauryn Hill responds to tax evasion charges’