Should MoneySavingExpert encourage tax avoidance?

Should MoneySavingExpert encourage tax avoidance?

Should MoneySavingExpert 

Update 14 November 2017: From the Paradise Papers to the Panama Papers, Jimmy Carr to David Cameron and Google to Starbucks, headlines about avoidance continue to split the nation – some view it as a moral abhorrence, others legal self-protection.

So I thought it would be worth setting out mine and MSE’s view. First of all, let’s clear up some terminology. There are three different ways you can reduce paying the taxes that are due:

  • Tax evasion. This is where through lying or deceit you pay less tax than you should. It is against the law and often punishable by a prison sentence.
  • Tax avoidance. This is where you manipulate the tax system in a way it wasn’t designed to be manipulated to find loopholes and techniques or move money abroad to pay less tax than you ordinarily would, and less than you’re supposed to – but within the law.
  • Tax planning. Here you organise your finances in such a way as to take advantage of state-encouraged schemes which are designed to reward you to act a certain way, with the incentive of paying less tax.

Of course, there are blurred edges between the three. Yet that shouldn’t take away from the fact that not all tax reducing is bad.

MoneySavingExpert’s tips are about tax planning

Putting money into an ISA is not avoidance. The ISA is a scheme set up by the Government to encourage people to save or invest. The incentive to do it is that the interest received isn’t taxed as it normally is (though now with the Personal Savings Allowance 95% of savers don’t pay tax on interest anyway). Where appropriate, I’d happily encourage those who can to do it (see Top Cash ISAs).

The reason this is done is that people having some savings is good for society as they have their own emergency funds if problems hit (too much saving though, while individually good, takes money out of the economy, hence why the amounts are limited).

Saying ISA saving is avoidance is akin to saying those people who earn under £11,500 avoid tax, because they don’t earn over the personal allowance (the amount you are allowed to earn tax-free each year – see the Income Tax Calculator).

Nor are the following similar tax planning examples avoidance:

  • Pensions – they allow you to invest tax-free to encourage you to put money aside for old age to take the burden off the state.
  • Enterprise Investment Schemes (EIS) / Seed EIS – they give tax advantages for those investing in smaller companies/start-ups that may struggle to get funding elsewhere to help build enterprise.
  • Charity donations – money can be given to charity from before-tax income so the charity receives more than you lose from your pay packet. Charity giving is encouraged as, again, it often takes the burden off the state.
  • Marriage tax allowance – this is a government policy to reward marriage or civil partnerships within the tax system. Whether you believe in this form of social engineering or not, it allows people to make a tax gain of up to £662. See how to claim the marriage tax allowance.
  • Uniform tax rebates – if you wash and launder your own work uniform there’s a tax allowance you can claim for doing so (see Uniform Tax Rebates) as this is seen as a legitimate cost of employment, so you shouldn’t be out of pocket.
  • Childcare vouchers – this is a state scheme to ease the burden of childcare costs by allowing it to be paid for from gross income (see Childcare Vouchers).

Of course all schemes have the potential for abuse, crossing the line into avoidance or evasion. Yet in their vanilla sense, they’re all tax planning and people should be encouraged to take advantage.


Should encourage tax avoidance?

This is a much trickier question. There is, of course, an argument that a site which shows people loopholes and tricks to pay less to big companies should do the same with tax.

Yet we don’t, never have and aren’t planning to change. Whether that’s because both I and the site have an underlying belief that tax, like it or not, is the cost of living in a civil society; that it’s beyond the scope of the site’s expertise; or that we believe even though we’re a private enterprise we have a public service remit, I’m not sure.

Ultimately, while MSE is here to try to financially help people right across society, it’s for governments to decide how much tax we pay, and individuals and the public to vote them out if we don’t like it.

If individuals choose to sidestep this and avoid tax, then that is their decision, but I don’t believe it is fitting that MSE is a facilitator.

Of course some of the recent headlines about offshore accounts Google, Amazon and Starbucks do rub people who pay all their taxes up the wrong way. Especially as it gives these huge international corporates an unfair head start over UK-based, UK-serving enterprises.

Yet that doesn’t mean everyone should flow to the lowest common denominator. You only need to look across to Greece in recent times to see the net effect of an inability to effectively collect taxes.