Jimmy Carr: “I met with a financial adviser and he said to me “Do you want to pay less tax? It is totally legal” I said yes”.

Sounds so simple.

This issue has covered the papers over the last week and rightly so. I believe the general public were unaware of the level of tax avoided in such schemes, and exposure should hopefully give momentum to outlaw them.

Many issues have arisen during the debate over this matter and as such it is important to address them individually:

1 Are they legal, and if so why are they legal? HM Revenue & Customs (HMRC) will generally enquire into such schemes. HMRC will test its legality, and see if it is effective. However, it will also test whether the steps in the arrangement have been properly taken. A step taken out of sequence or omitted would make the arrangement invalid. HMRC take special care over this, and it takes a considerable amount of time (several years in some cases). All the while the taxpayer has the tax enquiry hanging over his head. Not knowing if he can go ahead and spend that “tax” he thought he had avoided.

2 The moral issue. Our tax system is based on our "ability to pay." The more money we earn, the more taxes we pay. And the opposite is also true. If we earn a small income,we pay less taxes. So when we hear that a wealthy individual is paying a much lower rate of tax than the average person, and may even be paying less tax in total, we are morally outraged. Fairness should be at the heart of a successful tax system.

3 The schemes are obviously artificial and contrived arrangements, and anyone that goes into one knows that. Or if they don’t they must surely feel something strange is going on. See point 2 above.

4 The accountants and/or Financial advisers are paid a fat commission. So if they get a sniff of a client who is interested, the normal care taken over their client may be coloured.

5 The same said accountant/financial adviser should take special care to advise someone who is in the public eye, e.g. from the entertainment industry. As adverse publicity may well affect their chances of engaging future work, if the public have turned against the individual. Consequently individuals who engage a PR agency, may be keeping them up to date with their tax strategies!

It will be interesting to see how Jimmy Carr (No relation by the way) comes out of this. The tide already seems to turning favourably for him. So maybe it is true what they say “There is no suchthing as bad publicity”!