Should the Church evade the issue of tax avoidance?

It is perhaps surprising that senior people in the Catholic Church have been relatively quiet in the recent debate about tax avoidance. But, keeping quiet is probably a good strategy. After all, the Church herself is part of one of the most important tax avoidance mechanisms available: Gift Aid. And it has to be said that the issues are genuinely difficult. Whilst we can be clear that illegal tax evasion is wrong, the whole issue of avoidance is highly complex.

Evasion involves illegally not paying tax that is due. This includes not declaring £10 received for babysitting and multi-million pound schemes by professional criminals. Evasion is wrong and it is also wrong to aid and abet somebody else in evasion, for example by paying a tradesperson cash when we know that they are not declaring the income. Even if the state does some immoral things with our money, we cannot choose whether we pay tax that is legally due. If we did, the state could not provide those things that are necessary for the common good.

Avoidance involves taking action within the law to pay less tax. This can include saving in a pension fund or giving to charity. The government often deliberately provides these avoidance mechanisms as part of a conscious policy and it would be wholly unreasonable to suggest that it was immoral to use them. The difficulty comes when individuals use quirks in Britain’s 11,000 page tax code – the longest in the world – to try to reduce their tax bill dramatically. That is precisely what has happened in recent high-profile cases such as that of the comedian Jimmy Carr. Is this more aggressive avoidance immoral?

I think we can dismiss the argument immediately that any moral person should pay tax with moral pleasure because tax provides some kind of common thread that helps to bind us together in society. That was the argument in the infamous English and Welsh Bishops’ document Taxation for the Common Good. This thinking was echoed by Anglican Giles Fraser, when he said on Newsnight recently that we should have some kind of common morality about taxation and that paying tax should be a pleasure in that context.

If the state is taking from us a relatively small proportion of our income to provide important goods that can only be provided by the state – as well as helping the poor who are not assisted sufficiently in other ways – then that shared sense of duty, or even pleasure, from paying taxes may well exist.

But, when the state is taking around half our income, it is difficult to understand how there can be such a shared sense of a morality. Is there a shared sense of morality about taxation to finance military action in Afghanistan, abortions or huge areas of the welfare state where policy penalises working, family and saving? I don’t think there is.

The Catholic vision of society is not one of an over-mighty state spending half of families’ incomes, it is of a deeply embedded sense of solidarity within and between all families and between the great network of societies and communities that are served by the state rather than being at the service of the state. If that vision were a reality there might, indeed, be a shared sense of morality about what the state did with its tax revenues.

But, that does not mean that every action to reduce our tax bills is morally laudable. Are there actions that are legal but immoral? Should Jimmy Carr be criticised by politicians and Church people alike? Where do we draw the line?

Personally, I would question the morality of an action that made use of a loophole that allowed an individual to stretch the definition of something beyond any reasonable interpretation. There seem to be some cases where money that is clearly income is being classified as a loan. From a moral point of view this looks problematic. However, it has to be said that many aggressive avoidance vehicles have been specifically established by government to encourage investment, for example in the creative arts. I think such tax breaks should be abolished but we can hardly complain if they are used.

There is also the question of what we do with the money we save from avoidance. After paying tax that is legally due, we should balance the needs of our family, the community and the state. We might legally avoid tax and put the money to better use. Jimmy Carr is, for example, a considerable philanthropist.

So, there is room for wide disagreement about what is and what is not moral tax avoidance and then also room for wide disagreement about whether a particular individual is, after meeting his legal tax obligations, acting with the spirit of charity and solidarity that is demanded of all people. Before heaping moral outrage upon somebody, we should consider their behaviour in the round because tax payments beyond those required by law are just one of the obligations that we owe out of both charity and justice to our families and to others. We should be careful before examining the consciences of others in this area.

There are wider policy issues that we might wish to consider too. With the state spending half of national income and trying to raise this sum in taxes, there are a lot of hard cases. People want exemptions for child care; charities; savings; and so on. We end up with an 11,000 page tax code that only the well-off can negotiate and that can be used by people receiving good advice to avoid tax. High taxes also encourage the black market where tax evasion takes place. The shadow economy is over 10 per cent of national income in Britain, 15 per cent in Sweden and 25 per cent in Greece.

Though the level and complexity of taxes are, in principle, separate issues from those of avoidance and evasion, we should have a tax system that is just, simple and where taxes are easy and convenient to pay. This is only possible with a lower level of taxes than we have in Britain today. But, regardless of the level of taxes, we should pay unto Caesar what is legally due to Caesar whilst, at the same time, treading carefully when criticising those who use legal means to pay less tax. It is not that what they are doing is necessarily morally right. It is just that we should be careful before casting the first stone because there are other uses for our money that can be morally more virtuous than paying taxes.

This article was originally published in the Catholic Herald.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

8 thoughts on “Should the Church evade the issue of tax avoidance?”

  1. Posted 10/07/2012 at 12:59 | Permalink

    “Evasion involves illegally not paying tax that is due. This includes not declaring £10 received for babysitting…”

    Unlikely. Most babysitters probably don’t earn enough to reach either the tax or the NI threshold, so there is no reason why they should declare it for tax purposes.

  2. Posted 10/07/2012 at 18:13 | Permalink

    Before we cast our stones against the churches with their tax loopholes,we should
    take a look at the widescale abuse of tax payment by the Takeaways,cafe,restaurant,market trader ,self employed service engineer sector
    If these were to pay their correct dues ,we could probably pay of the national Debt.
    Let us be honest,the only ones paying the correct amounts are the PAYE slaves

    Bless em

  3. Posted 10/07/2012 at 19:49 | Permalink

    This may be true; but it may not. Somebody childminding/babysitting for (say) three hours a day five days a week, 40 weeks a year would easily reach the NI threshold (at south east rates). But, point taken.

  4. Posted 11/07/2012 at 06:13 | Permalink

    Philip – You have an somewhat inflated idea of babysitting rates and how much babysitting an individual would do! Even were they to do 15 hours a week for 40 weeks per year (unlikely) they’d have to be paid around £13/hr to meet the threshold.

    Those are higher than the rates that nannies get, let alone babysitters.

    Nevertheless, your article makes some very good points.

  5. Posted 11/07/2012 at 18:34 | Permalink

    We are only morally obliged to pay just taxes to a just government. There’s a caveat to the obligation. I don’t have the exact wording in front of me. We are permitted to render unto Caesar, even is he is evil, and not suffer the stain of sin by complying with that demand. If a tax is just, we are obliged to pay it. I can’t think of a modern state that is just.

  6. Posted 12/07/2012 at 12:18 | Permalink

    Hang on – using gift aid or a pension isn’t tax avoidance.

    As you say, these are conscious government policies, designed to encourage particular behaviour – and are perfectly compliant with UK tax law. I’m assuming when Cameron & Osborne stated that aggressive tax avoidance was morally wrong, they had in mind the Treasury’s definition:

    “Tax avoidance represents a significant part of the UK tax gap. Unlike evasion, it is not in itself illegal, but it involves using the tax law to get a tax advantage that Parliament never intended. It frequently involves contrived, artificial transactions that serve little or no purpose other than to reduce tax liability. And it enables some taxpayers to gain an unfair advantage, undermining confidence in the tax system.”

    Source: Tackling Tax Avoidance:

    Conflating the morality of using perfectly legitimitate tax breaks with highly artificial off-shore avoidance schemes (a la Jimmy Carr) totally confuses this debate.

    By definition, there’s no tax avoided when a person does what parliament encourages them to do and invests in a pension, ISA, or uses gift aid. Exploiting obscure loopholes in the system – which are not avilable to those without an account – is surely morally reprehensible.

    If people (and companies) took more responsibility to pay the taxes they owed, we wouldn’t need such a complex tax code in the first place – and overall tax rates could be lowered.

  7. Posted 12/07/2012 at 13:13 | Permalink

    Chris J – as far as I can see, this is simply a definition of avoidance invented by the Treasury for the purposes of bringing in generalised anti-avoidance rules (that are retrospective). It is not the accepted definition of avoidance. The point is that there are important shades of grey (as I tried to make clear in the article). On the one hand, ISAs, somewhere in the middle using to the extreme tax avoidance schemes that were designed to help a particular industry but them being used to a much greater extent than was ever envisaged by parliament, and then schemes that seem (under any reasonable person’s interpretation) to be classifying income as loans. There is no strict delineation which is why I was trying to make the point that moral judgements about other people’s behaviour are difficult. Even the “parliament never intended” issue is difficult. Did parliament intend with separate taxation that self-employed people could set up companies and allow a non-earner to receive dividends? I suspect parliament never really considered it. On the one hand, this is a perfectly logical application of separate taxation but HMRC took a different view. But the main point is that we are not objectively morally obliged to pay simply what parliament intends if that is not what the law requires and if there are competing claims on our money which we may judge to be more important, especially if the state is not using our money justly. Regarding the tax code, i think it is the other way round. A simple tax code would lead to much less avoidance – these loopholes should not be there in the first place. I am not saying that you are completely wrong, just that these issues (in Catholic social teaching and more generally) are difficult froma moral perspective.

  8. Posted 16/02/2015 at 22:50 | Permalink

    Philip, if I may add something in relation to your response to Chris J. (12 February at 13.13):

    You say “generalised anti-avoidance rules (that are retrospective)”. If this is a reference to the new GAAR, I don’t think it is retrospective. It is there, and people have advance notice of it when they consider whether to use an avoidance scheme. (The taxpayers may not understand it, but if they are entering into schemes that might be caught, they will have advisers who will understand it.) It does mean that a scheme can fail even though there was, at the time, no specific provision that prevented the scheme from working, but there was still a non-specific provision that did so – the GAAR itself.

    The GAAR is vague: a taxpayer cannot always be sure whether a scheme will be caught. But I think that vagueness is a different issue from retrospection. And a scheme does have to be pretty aggressive to have any chance of being caught, on account of the double reasonableness test: the tax avoidance actions must be such that they “cannot reasonably be regarded as a reasonable course of action” (Finance Act 2013, section 207(2)). Moreover, the GAAR needs to be vague, or it would not work.

    There is a debate to be had as to when vague legislation should be enacted. Vagueness is bad, but it may on balance be necessary. Compare public order offences, which have to be vague so that the police officer on the spot can use his or her common sense. But the vagueness there is still bad, because someone on a demonstration to advocate some political or social cause may be arrested because a police officer arbitrarily decides that some harmless conduct amounts to a public order offence.

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