What the limited company-bashers just don't get
It’s quite normal for tax advisers like us to report a busy month, particularly with the new financial year looming, writes Richard Bayliss, managing director of the Low Tax Group. But more so than ever before, the last four weeks have seen the tax savings long-enjoyed by thousands of contractors come under scrutiny by an increasingly suspicious media.
I have found the recent criticism of particular limited company individuals, quite apart from the inaccuracy of the information being distributed by some press outlets, amusing.
The general press consensus is that after the mass bailouts of the banks, those very bankers who took high risks that didn’t pay off should not be rewarded. This stand by Fleet Street’s finest against unfair, undeserved, or unjust rewards has been widened in the last month or so to other personnel, notably senior civil servants and other high-profile individuals being paid by the state. Among the figures ‘exposed’ is Moira Stewart, despite her and the others seeming to follow tax rules, which means legally ensuring they pay the minimal amount to HMRC.
As our name suggests, we are in the business of ensuring that individual’s finances are structured in a way so as to legally keep their tax as low as possible. When government ensures they spend their money on services and avoid wastage, this is considered good practice and the same should be said of contractors who legitimately reduce their tax burden.
At a time when some may be questioning the ethics of tax avoidance (it’s not just the press of course), it is worth pointing out that a principle of the UK tax system for nearly 100 years has been the following.
Lord Clyde, in Ayrshire Pullman Motor Services v Inland Revenue, said it such: “No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores”.
In the current economic conditions, we all need to play our part. But I believe that a media witch-hunt against individuals abiding by the law is not the best way of doing so. The critics of Ed Lester et al have failed to understand (and mention) the saving to the public purse of employer national insurance contributions and PAYE tax that would be due. They also don’t seem to realise that such individuals, where they are in business of their own account, forego sick pay, holiday pay and pension provision.
I think most people will agree that economic growth is the quickest way for a country to return to prosperity. Therefore, is it not better that individuals are able to reduce their tax burden and increase their spending power which in turn will stimulate growth? Take us an example. Having reduced tax for many of the contractors with whom we work with, we will be able to use the increase in revenue to procure more products and services (which will incur tax) and, of greater benefit to the public purse, employ more people.
Stimulating growth is good for the economy and when individuals legally arrange their affairs to minimise tax liabilities, it is in fact to the economy’s advantage, overall.