Tuesday, July 13, 2010

No Mr Redwood, you cannot avoid tax on a tax exempt savings account

Yesterday, the UK parliament debated corporate tax avoidance. You can find the Hansard account of the debate here (scroll down to John McDonnell's opening remarks at 4.40pm).

We are thrilled to see TJN's work quoted in this context, especially our work on the tax gap and the country-by-country reporting standard for multinational companies.

However, we would like to set John Redwood MP (Conservative member for Wokingham) right on the following question:

If a constituent of the hon. Gentleman’s had a deposit in a savings product that was paying interest, on which they were paying tax, and they switched that into a tax-free national savings product, would that be tax avoidance or sensible investment?

No Mr Redwood. Tax-free national savings products such as Individual Savings Accounts (ISAs) are exempt from tax. By definition you cannot avoid tax on income that is exempt from tax. Tax avoidance involves taking deliberate steps to not pay tax which would otherwise be due.

So the answer to your question, Mr Redwood, is that if the constituent switched to a tax-free national savings product, her sensible investment would be exempt from tax.

2 Comments:

Anonymous Neil said...

genuine question - does your report consider pension contributions (especially salary sacrifice arrangements using ITEPA 2003 s307) to be tax avoidance?

I note that one of your reports wants to limit tax relief for those with income >£100k to £5k above the personal allowance. Would that include employer pension contributions to a registered scheme?

2:27 am  
Anonymous Richard Murphy said...

The reports do not think pension contributions are avoidance. They are allowed by law.

I argue for economic reasons we can't afford that law and should withdraw that relief.

But those are different issues and different arguments and not to be confused.

Richard Murphy

www.taxresearch.org.uk/blog

4:08 am  

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