The great problem of rules

The great problem of rules

What do Starbucks and Jimmy Carr have in common?

It sounds like a bad joke you may have received in your Christmas cracker but the serious answer and potentially greater moral question it poses is that neither have been found guilty of illegal tax evasion.

When I was younger I used to play some rather complex tabletop games and one topic caused arguments over all others – Rules as Written vs. Rules as Intended. It is a subtle difference – by playing to the letter of the given rule, you are following the rules (and so cannot be abraded) but you’re also not playing the game as it is intended to be played nor as the other players are playing.

Quite often it was perfectly clear to see the intentions of those constructing the rules in play but by the strict interpretation of them ‘as written’, in some scenarios, those rules could be taken to mean something entirely beyond those intentions.

The same is true with the UK tax system (and with quite possibly all tax systems worldwide). Regardless of any changes made to the rules themselves it seems practically impossible to remove all opportunity to abuse ‘Rules as Written’ to gain an unfair advantage from a tax system.

Thus we are left with the choice of whether we as a nation seek redress from those deemed to have abused the Rules as Written to gain an advantage, or whether we ignore their actions as they make us such a small minority.

The difficulty with seeking such redress is determining where the line, beyond which, abuse of the ‘Rules as Written’ is established: What is deemed as abuse? What is meant by ‘intended’? Where does the power to determine this lie and how will such a police force be funded? A final consideration should also be given to whether  this would be a two way street where the public will be able to appeal against unfair disadvantage when previously such an option was unavailable when strictly applying rules as written.

Although it may be unpalatable, unless we are willing to face up to and resolve these questions first, simply condemning those who may have paid less tax than we think they should, (even though they have abided by the ‘Rules as Written’ entirely) for not living up to their end of the ‘Social Contract’ [i], when the spotlight falls on them, it is unlikely to have any impact on those out of the glare of the public spotlight.

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Chris Gent
Partner at Wilder Coe
Chris provides clear, tailored advice to each client on the preparation and completion of statutory accounts, corporate tax compliance and matters relating to corporate finance. As a trusted advisor and consultant to owner-managed businesses, his expertise and insight into the running of small and medium-sized businesses is highly valued.