Now first off I was never a huge fan of this guys radio show and I hope his smug grin has been erased for a while and quite frankly I am amazed that he had earned enough money to try and avoid paying £1 million tax.
What cases like this have done is blur the line between tax avoidance and tax evasion and got the public, through the media, thinking that all tax avoidance is wrong. Let’s distinguish:-
Tax Avoidance – This is just good tax planning, we all want to pay as little tax as we have to so we claim all the proper expenses etc., to get our tax as low as possible. It’s what you pay people like me for and is completely legal.
Tax Evasion – This is illegally reducing the amount of tax you pay or deliberately not paying what you owe.
So back to Chris Moyles, the scheme he was involved in was called ‘Working Wheels’ and was described on HMRCs own website as ‘Abusive Avoidance’. Its members claimed to be self employed used car traders. Yes the Radio 1 DJ claimed on his tax return that he was a second hand car dealer! They would declare large tax deductions for vast finance fees (£1m fees)incurred to borrow small amounts of money (£5,000) to invest in their so called ‘trade’ that they were not actually pursuing. In fact the only fees they had to pay were to the scheme promoter.
Although the scheme was a legal tax avoidance scheme the Appeals Tribunal has dismissed it after the Judge said it was impossible to reach a conclusion that this was a trade seriously pursued with a view to profit, i.e., Chris Moyles wasn’t actually trading as a used car dealer – quelle surprise!!
So despite this being a ‘legal’ tax avoidance scheme it has been decided that Mr Moyles and the other 450 members of the scheme must now pay the tax they owe. Surely this then makes the scheme illegal tax evasion but they have not been issued with any punishments, only to pay what they should have paid in the first place plus some interest and penalties. The scheme provider can go on to sell their doggy avoidance schemes to others.
Hopefully HMRC will one day seriously clamp down on these schemes so they don’t exist in the first place then they won’t have to spend millions of honest tax payers money to get the dishonest tax payers money they are owed.
Credit for some of the content and inspiration to AccountingWeb.