How avoiding tax can be ethical

aat comment

Advising and helping clients to avoid paying tax is not unethical. It’s what you do with the rewards that counts, argues AAT member in practice Jenni Frost

Tax avoidance will be debated at the Members’ Weekender later this month. Booking details are available online.

Ethics. They’re everywhere. Good ones, average ones – and politician ones. As accountants, we need to be sat firmly in the Good Ethics chair. It’s all very well doing an ethics assessment, but – as with everything learned at college – putting it into practice is different.

The AAT forums turned up this gem recently, from a ‘find an accountant’ website. ‘My businesses do share costs and are separated in order to avoid VAT,’ posted this prospective client.

‘Any accountant taking on our accounts should be aware that we have always run these two businesses on this basis. If you are unhappy with this arrangement please do not consider taking on our accounts. We say this as we have all sorts of mixed reactions from accountants.’ Wow.

Jimmy Carr: how the funnyman avoided paying tax

Someone took a dose of stupid before they posted that, but at least he’s honest about being dishonest. Clearly a client to avoid. Last year, Jimmy Carr came under fire for using a complex scheme promoted by his accountant to avoid paying tax.

Ironically, David Cameron, whose family’s wealth profited in no small amount from offshore tax avoidance, was most vocal in his criticism of Carr. We can’t fall into the same hypocritical trap; as accountants in practice, we have to have integrity. So where do we draw the line in avoiding paying tax? Isn’t that what the client wants from us?

In 1929, Lord Clyde, head of Scotland’s judiciary, said: ‘No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.’

That’s why our one-man-band limited company clients have directors who take a low salary and the rest of their remuneration in dividends. It’s standard tax avoidance, and if you don’t offer this you’re arguably negligent.

Some of my work-from-home directors have a non-exclusive rental contract with their company, allowing them to claim far more than the standard £4 per week for use of home. It’s accepted, reasonable – and means they avoid paying tax.

The muddy waters of avoiding tax via offshore structures

Yet some firms set up complex offshore structures for avoiding tax. Ah, the muddy waters of ethical avoidance! If I knew how, I’d do it for myself without a second thought. When it comes to aggressive avoidance, for me, the key is not ‘but the government needs taxes to cut the deficit and pay for public services’ but what the avoider does with the money saved.

Given the global distribution of wealth (if you have money in your bank and some change in your pocket, you are in the world’s wealthiest 8%), having any money at all is an ethical responsibility, even before you bring tax into the equation.

What we should be doing with the rewards of tax avoidance

Wouldn’t it be nice if we could bring morals as well as ethics into our work? And see people give much of the tax saved to charity, or directly to their local school or hospital instead of via taxation? I’d love to do that. Sure, the government would still spend the VAT I collect for it on MPs’ second homes and bombs – I can’t avoid that – but I’d be happier.

As accountants, we need to decide where we stand, not only within AAT’s ethical framework, but within our own senses of morality. There is nothing wrong with bringing your own morals into the workplace, within reason – we are human and it’s part of our individuality.

Maybe a bit of the good side of ethics and morality in business could help counter the mess Western society is in. Corporate greed is not sustainable; business and ethics are not mutually exclusive. Ethics isn’t just about following rules. It’s about doing what you deem is right.

Whether it’s in avoiding tax, charity, or not acting for certain types of clients, where do you stand?

Tax avoidance will be debated at the Members’ Weekender later this month. Booking details are available online.

Watch Jenni discuss how Starbucks managed to avoid paying tax in the UK for the last three years and her views on bringing your own morality into your work:

Jenni Frost is a licensed accountant .

Related articles