If ‘tax avoidance’ is the answer, what is the question? For many years it might have been: ‘what subject excites only a small number of tax lawyers and HMRC officials?’ But in the age of attempted deficit reduction, ‘tax avoidance’ – or rather ‘clamping down on tax avoidance’ – is the answer you hear every time an ‘anti-austerity campaigner’ is asked how they’d cut the deficit. Tax avoidance (legally arranging your affairs to lower your tax liability, as distinct from the illegal practice of tax evasion) has become a salient political issue. And as ever when governments respond to populist calls for something to be done, it’s leading to very bad law-making.

Some schemes seeking to reduce tax bills clearly go way beyond what the law intended. It is ultimately appropriate for tax to be paid. But there are a broad range of other government schemes where people are doing specifically what was intended, or taking advantage of terrible government drafting. It’s therefore important to get the process right to deal with difficult cases.

Rather than simplifying our tax law to avoid these ambiguities in the first place, the government’s reaction to the cacophony surrounding the supposed immorality of tax avoidance has been to hand a raft of new powers to HMRC. These will lead to a host of unfair and unjust outcomes – as flagged again last week when the National Insurance Contributions (NICs) Bill saw its third reading in the House of Lords. This will give HMRC the power to issue so-called ‘Accelerated Payment Notices’ (APNs) in disputed tax cases for NICs – a power already granted last year for income tax.

The Orwellian name for this procedure suggests that it is merely a case of HMRC collecting money that is due to it more quickly. In reality it is an assault on the idea of ‘innocent until proven guilty’. Until last year, a disputed tax bill would not have to be paid until it was decided by a court of law. Yet these new notices in effect force taxpayers to pay upfront within 90 days – potentially requiring people to sell substantial assets, row back on business plans, or close businesses entirely in some cases – with taxpayers only then able to take potentially very costly legal action to find out that the tax was not due. This is not only unjust, but will also in effect be retrospectively applied on existing known tax avoidance schemes.

One would think that such a dramatic abandonment of our legal traditions would have to be well-justified. But the arguments put forward by the government are decidedly weak: first, that this will prevent tax avoiders from deliberately delaying the process of payment. And second, that HMRC wins 80 per cent of cases taken to court anyway.

Even on HMRC’s own numbers this means 20 per cent of cases will entail people having to make upfront payments for money that is not due – only getting it back if they take legal action. But in reality, HMRC currently only takes cases to court when it thinks it is more likely than not to win. It seems probable that these new powers will lead to a larger number of APNs being issued than currently observed court cases, potentially meaning many more people affected.

The government believes this action is worth it, whether due to its desire for more revenue (this is estimated to bring in an extra £4-7 billion per year) or simply so that it is seen to be acting on an issue that many care about. But granting the power for HMRC to be judge, jury and executioner without legal process on disputed tax cases should be regarded as a very high cost indeed. With powers for HMRC to dip into our bank accounts also on the agenda, the current hysteria over tax avoidance is leading to some very dangerous precedents.

This article was originally published by City AM.

Comments (0)

Post new comment

The content of this field is kept private and will not be shown publicly.
Type the characters you see in this picture. (verify using audio)
Type the characters you see in the picture above; if you can't read them, submit the form and a new image will be generated. Not case sensitive.

As in all IEA publications, the views expressed in this blog are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.

Previous blog posts


Peter Ainsworth
26 January 2015

Liam Byrne, shadow universities minister, was quoted in the New Statesman recently in relation to tuition fees, saying: ‘We've just got to ask ourselves, how much more debt are we going to...
Stephanie Lis
23 January 2015

Last night we learned that the government plans to change the law to ensure that cigarettes are sold in plain packages. The ostensible goal of reducing the number of smokers may be well-intentioned,...
Mikko Arevuo
22 January 2015

Ever since James Watt was awarded a patent for the improvements he made to the Newcomen steam engine in January 1769, economists and libertarians have been divided over intellectual property rights (...
David B. Smith
21 January 2015

This article is based on David B. Smith’s Politeia paper ‘The UK Government Spending Ratio: Back to the 1930s?’.   Some politicians have asserted that Britain’s...
Ryan Bourne
20 January 2015
1 comment

One of the insights of the Public Choice School of economics is that voting groups with more homogenous interests will have much more influence on the political process than those with more diffuse...
Ryan Bourne
19 January 2015
1 comment

Global capitalism has eradicated poverty and generated prosperity in the developing world at an unprecedented rate. You might imagine that a global anti-poverty charity, such as Oxfam, would...
Ryan Bourne
16 January 2015
1 comment

"What is the point of walls and warships and glittering statues if the men who build them are not happy?’ asked Socrates in the 5th century BC. "It is preoccupation with possessions,...
Philip Booth
15 January 2015

With the news that inflation has fallen to 0.5 per cent there are “fears” that we might be about to slide into deflation. It is worth noting, firstly, that it is CPI inflation that has...
Colin Robinson
14 January 2015

In September 2013, at a time when energy prices were increasing, opposition leader Ed Miliband made an eye-catching proposal: a two-year freeze on the retail prices of gas and electricity. Last...
Ryan Bourne
14 January 2015

Last week, dreadful headlines and stories on A&E waiting times dominated the front pages of almost every national newspaper. If not for the sickening events in Paris the following day, the NHS...
Ryan Bourne
13 January 2015

A lie, repeated often, becomes the truth in the public mind. That’s why, when a Fox News commentator suggests that Birmingham is a “Muslim-only city”, we feel it important to set...
Len Shackleton
12 January 2015

Despite all the furore about immigration, comparatively little is written about emigration. But what we know about emigrants from the UK can shed some useful light on the debate about Britain’s...
Philip Booth
9 January 2015

There are not many things that economists are agreed upon. However, to slightly corrupt a quip attributed to George Bernard Shaw, if you laid all the economists in the world end-to-end around the M25...
Kristian Niemietz
8 January 2015

In the early 2000s, long waiting times at Accident and Emergency departments were commonplace. About one in five patients was stuck in the waiting room for longer than four hours before being seen....
David Henderson
7 January 2015

The Financial Times has long been a continuing source of misleading statements about the relative size of the economies of different countries, as given by their real GDP - i.e. their output of goods...
Ryan Bourne
6 January 2015

Friday 19 December 2014 was a happy day for many Londoners, marking their last in the office before Christmas. Yet amid all the festivities, you’d have been forgiven for missing something...
Christopher J. Coyne and Rachel L. Coyne
5 January 2015

Many associate markets with self-interest and greed whilst associating politics with other-regarding, publicly-interested behaviour. Perhaps nowhere is this view more prevalent than in the speeches...
Ryan Bourne
29 December 2014

The fallout from the Autumn Statement has mainly revolved around one Office for Budget Responsibility (OBR) graph and the words of an excitable BBC journalist. The now infamous ‘Chart 1.1...
Steven Horwitz
24 December 2014
1 comment

The recent signals by the Obama Administration that they might wish to normalise relations with Cuba should be welcomed by freedom lovers everywhere. Unfortunately, we have already seen criticism...