Sarah Saunders

Written by: Sarah Saunders

Sarah Saunders

Personal Tax Manager

Losing my religion - How far would people go to avoid tax?

  • May 2018
  • 4 minutes

It is often amazing what complex transactions people are prepared to carry out to avoid tax. Some of the tax avoidance schemes out there boggle the mind. Sometimes, however, the action taken to avoid tax is simple, but the implications of the action are much more personal.

Losing my religion

In some countries there is a requirement to pay an annual levy from your income to your church or other religious establishment. You must therefore register your religious alignment and the tax concerned is paid over to them. In the past this may have worked relatively well, but in our more secular modern world it is meeting resistance. 

In Germany, where the tax is payable to the relevant Christian church, some 200,000 people renounced their membership of the protestant church during 2014, and it is believed a similar number renounced membership of the Catholic church. This was not just a paper exercise - the declaration is official, requires payment of a fee, and leads to denial of service from the relevant church.  

Finding a new religion

In Iceland, where a similar tax is in place, and non-church members still have to pay the tax to the state, a different tactic has been used. The ancient Sumerian religion has been ‘restarted’ as Zuism and approximately 1 per cent of the population have signed up. The attraction? Zuism offers to refund the religious tariff.

Historic tax avoidance

These are just a couple of the more unusual examples of tax avoidance currently out there. In the past, England had the window tax - which led to bricked up windows. In Holland, there was a tax based on the width of the building frontage, so suddenly very narrow homes became fashionable. When we had a hearth tax, people bricked up their chimneys. What are seen as ‘unfair’ taxes can produce extreme reactions.

What does this have to do with us?

In theory, this just gives us a collection of amusing anecdotes (at least amusing to us tax geeks) but it also highlights an important point: when people believe a tax is arbitrary, or that the collection of it is done in a way they do not approve of, some of them then feel entitled to take matters into their own hands and avoid a tax not by stealth, but by a public action.

The IR35 employment tax dispute

The current issues regarding IR35 decisions, where people are being advised they should be taxed on the basis they are (and were) employed after years of apparent self-employment have led to a considerable number of people feeling that HMRC has effectively moved the goalposts on their tax position - putting them at a major disadvantage. People who believed they were operating through legitimate tax efficient structures suddenly find themselves with large tax bills covering many years. These people are resisting, not because they want to evade tax but because they believe they were obeying the rules and have suddenly been told they were not.

A warning for HMRC

This is something governments will do well to recall. Most people are amenable and cooperative on their taxation affairs, but choose the wrong subject to tax, or the wrong approach and things can become difficult. The current controversy regarding ‘retrospective taxation’ under IR35 rules and loan scheme advance payment notices show that normally quiescent taxpayers may seek to resist apparent injustice.

In the long term, the risk is that if HMRC is perceived to act unfairly, this in turn may legitimise future tax avoidance or even evasion in the public mind. For tax to work, people need to feel things are done fairly and on a level playing field.  

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