Tax avoidance and tax planningJimmy Carr has been put under the spotlight with his use of a particularly aggressive tax avoidance scheme. I have seen no comment from anyone that it’s illegal, but are attacking the “immorality” of his actions.

I have often quoted from this judgement from 1929:

“No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.”

Lord Clyde, Ayrshire Pullman Motor Services and Ritchie v. IRC (1929)

Savings to ISAs, contributions to pensions, and the sensible step of moving investments into a low-earning spouse’s names are all examples of avoidance. These and other lower-risk measures are regularly employed by this firm as a legitimate part of a tax planning strategy. After all, if we can reduce the tax paid by a higher rate tax payer from 40% to 0%, we’ve almost doubled their total return!

Lord Clyde’s quote highlights there is no “moral” need to pay a penny more tax than is owed. Jimmy Carr has deep pockets, and a scheme as agressive as the K2 tax-planning scheme may ultimately fail – he may well be faced with significant legal bills, back tax and penalties. Clearly this is not likely to be appropriate, or a risk worth taking, for the majority of individuals. Nevertheless, prudent tax planning, and avoidance, is an essential part of an efficient and realistic financial plan.

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