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It's Both a Tax and a Moral Issue.

The last several weeks haven't been kind to Rishi Sunak's ambitions to become the next Prime Minister. At the beginning of March, it appeared like he would be in position by the middle of the year

By cheap accountantPublished about a year ago 4 min read
Accountants in London

However, following a Spring Statement that drew nearly universal condemnation, the Chancellor of the Exchequer's fortunes were severely harmed.Unfortunately, it quickly became the least of his worries, as the latest revelation revealed that he breached the law by attending BJ's birthday celebration and appears to have lied to Parliament about it. This revelation comes on the heels of reports that Mrs Sunak, also known as Akshata Murty, made uncomfortable front-page headlines when someone (depending on which rumour you believe, either the Labour Party or the Prime Minister) released the fact that she was not a British citizen. In theory, this would appear to be unimportant if it weren't for the fact that Ms Murty used her position to save a reported £4 million in UK tax each year.

Reality Checks

Initially, the Sunaks told the media that everything was legal and above board, a defence that Boris Johnson has made his own. That could be the case, but HMRC should look into the legitimacy of Ms Murty's non-dom status and if she truly intends to make India her permanent home. After all, she had informed the US tax officials of her plan to make the country her permanent residence. Even if you are a billionaire, how many permanent residences can you have? By Friday, the pressure had become too much, and the Chancellor's wife proclaimed that she would no longer claim UK non-dom tax refund on income earned abroad, despite the fact that she was fully entitled to do so. Her brave reasoning was that this was morally correct. Nobody has truly noticed that she would likely accept the assumption that her earlier behaviour was wrong. Some may see more echoes of good old BJ. It also begs the question of what goes on in the Sunak home when they discuss moral concerns over breakfast, given that the Partygate denials, while not on a Johnsonian scale, push the boundaries of morality beyond any normal level. By taking a strictly moral perspective, Ms Murty has brought to light a previously unseen debate in accounting and legal circles over whether morality has any bearing on taxation.

Inaction of the camera

Last week's column looked into a legal claim made by persons who subscribed to a failed film partnership scheme and lost their lawsuit against Andrew Thornhill QC, who allegedly issued an opinion that it was valid. This may appear to be a contentious remark, but film partnerships, in my opinion, were created to help the UK film industry develop more films. However, many of my colleagues, not to mention some very renowned QCs, saw them solely as a tool of minimising UK tax liability, with actual films serving as a minor annoyance. Is this ethical? If you believe the answer is yes, please comment with a thorough justification. There is or will be a delicate line between uncontroversial tax avoidance strategy and slightly more aggressive behaviour, as well as strategies that Ms Murty and even her husband would consider immoral. It is difficult to see many people objecting to those who invest in pension systems in order to receive upfront tax reduction at the expense of paying tax when future withdrawals are made. The middle ground may involve modest inheritance tax planning, but it is unlikely that collecting cash payment for services and omitting to declare it for VAT or income tax purposes will be acceptable.

Individuals will differ in where their moral warning bells should sound. Much of the super-tax rich's preparation involves complex trust arrangements, corporations in tax havens, and obfuscation to ensure that no one in the tax office ever discovers the identity of an asset's owner or owners. The majority of the populace, one imagines, would grade this as failing a morality test, especially if they were told that the initial monies were taken illegally and subsequently laundered through the City of London. To be honest, our lawmakers have a lot to answer for. The tax regulations have become extremely complex and confusing, allowing astute barristers to exploit numerous loopholes, allowing them to rob (or deprive) the Exchequer for the benefit of their clients (and indirectly themselves and other professionals).

Attempts to rebalance the balance, such as enacting a General Anti-Avoidance Rule, have had little practical impact.

According to the letter of the law

Many accountants who read this column will definitely believe that anything that strictly adheres to the letter of the law is legal. That is undeniably true, as long as schemes stay within the bounds of the law, which isn't always the case. The problem is that, to quote Charles Dickens through Mr Bumble in Oliver Twist, "the law is an ass," and the only way for it to work as intended by Parliament is to beg taxpayers, typically those at the very top of the income and wealth scales, to behave morally, that is, to pay more tax than they strictly need to. Ms Murty deserves our gratitude for donating tens of millions of pounds to the Exchequer. That is, unless she arranges her finances in such a way that she avoids this outcome.

If the virtuous lady wants to finish the job, she could persuade her husband to find a method to incorporate a morality clause into tax law before the couple moves to the UK.

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