Now is not the time to skimp on tax payments, because people will notice, says Eliot Wilson
It all started with Dame Margaret Hodge’s father. In 2012, The Daily Telegraph reported that the company he had founded paid just 0.01 per cent tax on £2.1 billion worth of business in the UK, and questioned her suitability as chairman of the Commons Public Accounts Committee. That spark ignited a firestorm over other businesses, especially US-based ones, and whether they paid their ‘fair share’ of taxation in the UK.
In 1947, the American judge Learned Hand had declared: ‘Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.’ But what was then ‘cant’ is now a major issue for HNWs and the people who advise them. The formerly sacrosanct distinction between tax avoidance and tax evasion is now blurred beyond recognition – the court of public opinion the most important forum for the judgement of people’s finances.
The first and most important piece of advice is this: don’t complain about the new order. No amount of teeth-gnashing nor hair-tearing will change it. The importance of a good reputation in tax matters has been heightened by the Covid-19 crisis.
The pandemic has put public services like health and education firmly on the front line, and the public is grateful and in a generous mood. If rich people must pay more tax to reward the guardians of public health and safety, that is a fact of public policy.
So, what should HNWs do? Step one is easy: make sure you pay your tax bill. Step two is a little trickier: avoid excessive mitigation of that tax bill. Because if you are found out, Learned Hand’s maxim will no longer prove much of a defence.
Step three is about location, location, location – and selecting an appropriate jurisdiction for your companies, trusts and foundations. You are never more than a Panama Papers episode away from ignominy. The fourth step is to remind oneself that no one is immune from the vagaries of public esteem. We live in an age of populist governments who live by feeding fresh meat to their voters.
Successful companies and HNWs may be engines of enterprise, but they are low-hanging fruit for a predatory politician. Finally, if mistakes have been made and the worst comes to the worst, a good reputation manager or PR adviser can help. But we’ll be much more successful if you’ve laid prudent groundwork. Good luck.