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My thoughts on Jimmy Carr – it's a matter of choice

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax” (IRC v Duke of Westminster [1936] AC1 (HL)).

This is a House of Lords judgement on tax avoidance dating back to the 1930s. Tax avoidance is legal, although some may see at as ‘morally repugnant’.  Everyone has a choice to arrange their tax affairs in such a way as to give themselves a lower tax bill.

Jimmy Carr was not evading tax, he was not paid ‘cash in hand’ to obtain tax-free income, he just arranged his affairs to pay the lowest amount of tax. No one should be subjected, in my view, to the naming and shaming in a national newspaper if they have conducted their affairs within the law.

How far you want to take steps to avoid tax is a matter of personal choice. The K2 structure is very complicated and does come with a number of risks and many people would be unhappy with those risks.

Your personal risk profile may be a long way from using a tax avoidance strategy but sharing income with a spouse, paying dividends instead of salary, making pension contributions and investing in an ISA are all examples of tax avoidance.

If you are in business – and Jimmy Carr is a business – you can choose to mitigate your tax bills or to pay the maximum amount of tax payable. You do have a choice.

All any professional adviser can do is give you the options to make an informed choice. The decision on tax planning always rests with the individual.

4 Responses to “My thoughts on Jimmy Carr – it's a matter of choice”

  1. Andrew Gray says:

    Q:What do the Queen and Jimmy Carr have in common (apart from both appearing at the jubilee concert a few weeks ago)? A:They have both benefitted from legal tax avoidance: the Queen saved £28m from a (legal) exemption from IHT on her inheritance from the Queen mother; Jimmy Carr, we all know about. His saving? Maybe 10% of the Queen’s £28m at the most I would guess. I look forward to seeing what the Times makes of our monarch’s tax avoidance.

  2. Bob Harper says:

    I wonder if the Duke would have altered his quote if he was aware that people could pay less than the most basic rate of tax?

    If tax planning schemes (like K2) are subsequently found to not work, does that make them as illegal cash not declared?

    The only difference is knowing 100% it is illegal before doing it.

  3. Bob Doney says:

    Jimmy Carr also had a choice whether to make public mockery of those who sought legally to avoid tax. His sin was hypocrisy rather than just greed. The earlier JC had quite a bit to say about both.

  4. Rob Biggin says:

    I can make no judgement on Jimmy Carr but I do think that the press and the government have taken a simple and one-sided view of this.
    I’d like to be a bit more thought provoking.

    For me there are a few aspects to this that I’d like to add into our discussion.
    I believe the government encourages tax avoidance.
    By it’s use of tax incentives it has built an industry based on tax avoidance and tax planning.
    It has also built a humongous tax / legal monster full of loopholes.
    Apparently our tax code is now officially the longest in the world,(we overtook India earlier in the year).
    This not something the government are making a big play about.

    There is a complete spectrum of schemes and scheme sellers.
    The drawing of the line between moral and legal is more blurred than the press are making out.

    Let’s look at the schemes
    Solar Panels:
    The government is encouraging people to put panels on their roofs.
    It does this by making the returns from the investment tax free and index linked over 25 years.
    Can Only rich people do this? Are there schemes available?
    Is it considered tax avoidance to invest in solar panels?

    Isas:
    The government wants us to save.
    It makes the returns capital-gains and income tax free.
    Is there an industry selling Isas?
    Is this tax avoidance to invest in Isas? I think most would say so.

    EIS + VCT:
    The government wants us to invest in new ventures.
    Companies spring up and come up with tax avoidance based incentive Schemes.
    Is this tax avoidance to invest in these? Is this morally wrong?

    EZT:
    The government wants us to invest in deprived areas.
    It comes up with ideas (were called Enterprise Zone trusts now something else).
    Scheme sellers spring up to turn the government ideas into financial products.
    The incentives are tax avoidance based. Is it morally wrong to invest in these schemes?

    Film Schemes:
    The government wants us (with a little help from Dickie Attenborough) to invest in the British Film Industry.
    Companies turn the ideas into schemes. The schemes are tax avoidance based.
    Morally wrong?

    Self Employed / SME Companies:
    The taxation schemes for those running companies are different to PAYE.
    You could argue that the risk and rewards are different.
    Is paying yourself out of dividends rather than through PAYE because you pay less tax and can invest more in your company morally wrong?

    How much more morally wrong is paying yourself via a scheme called K2 via Jersey or wherever the Jimmy Carr scheme came from?
    Is it a lot more morally wrong or only just a little bit more morally wrong?
    Who decides?
    The press? (Those people who hack our phones?)
    The government? ( Those people who fiddle their expenses?)

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