Is it ever morally acceptable to fiddle your tax form? (Radio4)

A friend suggested I listen to a Radio 4 Sunday morning religious programme broadcast this morning. The headline item was titled: Is it ever morally acceptable to fiddle your tax form?

I listened with interest and growing disappointment as I realised that this was a clear case of misrepresentation.

In the event the real focus was the age old argument about the moral rationale for telling white lies. As one speaker noted: When your wife asks: "Does this dress make me look fat?" No man should ever reply, "No dear, it's your fat that makes you look fat".

But en route to that discussion the presenter, Ed Stourton, introduced the programme by referencing "good citizens" who had either already filed their tax returns or were "scrambling to meet tonight's deadline". The BBC had apparently undertaken a straw poll on the streets of Manchester and the public had presumably been asked the question from the title of the programme.

Interestingly the majority of those asked seemed NOT to have fiddled their taxes. I got the impression that this wasn't what the producers had expected. There were a couple of more interesting replies such as:

"Some people tweak their receipts - fair play to them"

"I've embellished, but never fiddled (I've claimed I've done more miles in the car)"

But then it was clear that subsequent replies were to more generic questions about white lies and 'ethical creep'.

Back in the studio the distinction between embellishing your expense claims and fiddling your tax return was later described, without approval, as "cunning" - with no reference being made to the 'cunning' MPs' expenses scandal last year (which prompted me to list the 25 unanswered tax questions).

There was also a reference to the classical distinction between legal tax avoidance and illegal tax evasion.

But perhaps the most shocking (to me) point was when Ed Stourton asked his guests:

"Is anyone who uses an accountant guilty of an ethical crime?"

The implication seemed to be that all accountants help their clients pay less tax than is strictly due. His guests did not agree with this implicit slur on our profession and the discussion then moved entirely away from the subject of tax forms - despite the title of the programme. I wonder why?

At the time of writing you can listen to the programme online or as a Radio 4 podcast.

Retrospective tax avoidance legislation ruled LEGAL

Another nail has been placed in the coffin of 'artificial' tax avoidance schemes.

The media is today reporting the outcome of a claim for judicial review brought by Robert Huitson - who is described as a UK resident self-employed IT contractor. By arranging his affairs to conform with an avoidance scheme being marketed by Montpelier Tax Consultants in the Isle of Man (IoM), Mr Huitson paid the equivalent of just 3.5% tax on his income. He had secured this 'tax advantage' since first becoming a client of Montpelier in June 2001.

The scheme in question exploited the terms of the UK-IoM Double Tax Agreement (DTA) and was well known to HMRC.

As part of his March 2008 Budget, the Chancellor published BN66 - Double Taxation Treaty Abuse. This announced the introduction of retrospective anti-avoidance amendments to legislation introduced in 1987. The new rules were enacted as section 58 Finance Act 2008 despite some protests by opposition parties at the retrospective nature of the law.

The Government stated that UK users of a scheme that exploited a loophole in the 1987 legislation “remain liable to UK tax”, and have done since 1987, “despite the elaborate, artificial structure designed to exempt them.” Obviously those who had been promoting tax avoidance schemes that exploited the loophole were unhappy. As were many of those who had bought into such schemes - arguably in good faith that those promoting the schemes seemed genuinely confident that the schemes were both legal and effective.

In considering the facts of the case reported today, Mr Justice Kenneth Parker noted that:

"Whatever the true meaning of the DTA, there was a wider rationale in terms of public policy: UK residents should pay UK income tax on the profits of any trade or profession; and a DTA, intended to relieve from double taxation, should not be used as an instrument either to avoid all taxation or to reduce it to well below the level that would be applicable to the relevant income in the country of residence."

This strikes me as suggesting a purposive interpretation of the law.

He also stated, in defending HMRC's approach:

"...in my view, the state was not obliged to test the matter first in the courts before enacting legislation, even with retrospective effect. The public policy was of such paramount importance that legislation was necessary in any event to put the position beyond all doubt and to maintain the relevant public policy"

"At no time did HMRC indicate to affected taxpayers, including the Claimant, that they could safely rely upon the arrangements. On the contrary, HMRC consistently maintained that the arrangements did not work, and advised taxpayers to pay on account the income tax which HMRC said was properly due. Any prudent taxpayer who followed that advice would not now be prejudiced by the retrospective effect of the legislation."

As I have indicated many, many times on this blog, there is often a long time lag between someone entering into a tax avoidance scheme and when they can be certain as to the outcome. In this case HMRC first wrote to Mr Huitson 18 months after he started to use Montpelier's scheme. And it's only now, a further 7 years later that the outcome is clear. The High Court has ruled that the backdating of demands by HMRC was 'in the relevant circumstances proportionate' and did not breach human rights.

I have no doubt that the promoters of tax avoidance schemes will continue to assert that there is only a very small chance of any future anti-avoidance legislation being retrospective. They may be right as the facts here were specific to Double Tax Agreements. However I am equally sure that the goal posts have moved further together such that the scope for successful avoidance schemes is now smaller than ever.

Previous relevant blog posts:

• HMRC confuse tax avoidance and tax evasion again
• Were you wasting time advocating this tax scheme?
• The beginning of the end for structured tax avoidance schemes?
• Bending vs breaking tax rules
• Tax avoidance is a card game - the metaphors multiply
• Tax avoidance - what are you allowed to do? A simple guide.
• Tax avoidance schemes - a simple guide
• Naive promoters of tax avoidance schemes
• Five facts all accountants need to know about tax avoidance schemes
• Five more facts all accountants need to understand about tax avoidance schemes

What to do about the "Hidden Economy"?

In the 2009 PBR the Chancellor announced that HMRC would be establishing a Hidden Economy Advisory Group to take a fresh look at what can be done to reduce the hidden economy.

An announcement was made earlier this month that the group has now been formed and that it is expected to report back "on a Budget 2010 timescale" with an initial assessment of the current situation and proposals for practical and immediate steps that could be taken by HMRC.

So in just a few weeks the Group needs to:

• examine the main barriers preventing people in the hidden economy joining the formal economy;
  
• recommend workable measures that might be introduced to remove or reduce those barriers;
• examine the motivations and behaviours that lead people to join the hidden economy; and
  
• make recommendations on what can be done to prevent and stop people joining the hidden economy.

The terms of reference for the group suggest that far more time is required to produce any meaningful independent advice as:

The group will examine the tax system and HMRC’s administrative processes and consider the whether they facilitate or prevent people from joining the formal economy.

This will include an assessment of the barriers – financial, practical or other – that act as disincentives to entering the formal economy. It will also examine the behaviours and attitudes of those that choose to remain in the hidden economy.

Based on this assessment, it will consider what actions that HMRC can take to increase the number of people that make the transition into the formal economy. It will do this while ensuring that HMRC continues to act in a manner that is fair to those who already pay their taxes.

I applaud the initiative but I deplore the short time scale in which the Group is required to report initial findings. This would challenge a full time research team let alone a simple 'Advisory Group'. Am I alone in wondering if the mere existence of this Group is intended to provide legitimacy to announcements of a more heavy handed approach from HMRC in the next Budget?

Bragging about witholding tax due by 31 January

Billy Bragg's tax protest, re the bonuses due for payment by (84%) state owned RBS, has received wide publicity in the media - from the FT and BBC to the Daily Mail, the Daily Mirror and the Guardian. And let's not forget his facebook group: NoBonus4RBS which now has over 23,000 members (at the time of writing).

I sense the genuine anger and frustration behind the protest and the growing support for Billy's campaign. Initially he was reported to be intending to withhold payment of the income tax he was due to pay by 31 January 2010. In his BBC interview however he admits that his taxes will be paid.

Here are a few facts for anyone considering joining the campaign and seriously intending to hold off paying their tax on 31 January.

Basic rules

1. If your tax is paid late the taxman's computer will charge you 3% interest until the tax debt is settled. If all of the tax due is not paid by 28 February the computer will add a 5% surcharge that you will be liable to pay in addition to the tax and interest. The surcharge increases to 10% if the tax isn't fully paid by the end of July 2010.
2. The £100 fine that you often hear about relates to the late submission of your tax return. So you can file your return online by 31 January and avoid the fine even if you don't intend to pay your tax on time. Incidentally, if you pay all your tax on time the £100 penalty is cancelled once your tax return has been fully processed.

Coming back to the campaign:

1. If you are an employee or pensioner you probably pay all of your tax through the PAYE system. This means you have no tax payable on 31 January. So you can join the campaign in spirit only.
2. If you are self employed or have to submit a tax return for other reasons you may well have already submitted your 2008-09 tax return. In such cases you and the taxman will know how much tax you should be paying by 31 January 2010. So you can expect to get increasingly threatening demands if you do hold back on payment.
3. If your tax return has yet to be filed the taxman doesn't know how much tax you are due to pay. So initially the demands will be for you to file your tax return. The £100 late filing fee will be charged and added to the outstanding tax, penalty, interest and surcharge.

Cutting off your nose
You may be due a tax refund from the taxman. This will generally only be the case if your total tax bill for 2008-09 will be lower than it was for 2007-08 - eg: because you suffered a fall in your income due to the recession.

The tax refund will arise if you have paid all the tax due last January and last July but where it now transpires that this is more than you needed to pay for 2008-09.

If this describes you then you would lose out if you joined the campaign by holding back on filing your tax return. Obviously the taxman won't send you a tax refund until he has processed your tax return.

Comment
I admire Bill Bragg for raising the issue so publicly and for linking it with tax payments due by 31 January. In practice though the taxman's computer will churn out standard demands for interest, penalties and surcharges if tax is paid late. And I can't see those demands being waived if anyone tries to argue that they paid late because of this campaign. So, support Billy's facebook group if you're so inclined - but pay your taxes on time!

HMRC wins Best public policy decision of the year

At the first ever Citizens Advice Awards ceremony this week, HMRC were announced as winners of the "Best public policy decision of the year". This was felt to be HMRC's decision not to issue unexpected tax demands to thousands of low income pensioners following an administrative error in respect of the tax year 2007-08.

The Citizens Advice press release explains that:

"Through their engagement with a coalition of charities, including Citizens Advice, HMRC demonstrated that as well as being open to arguments of a legal and financial nature, they were also mindful of the plight of the pensioners concerned. In using their discretion not to pursue the unpaid tax they displayed the fairness and common sense for which this award commends them."

The only problem is that I'm not sure that HMRC deserve the award. As is well known HMRC do not have facility to exercise discretion and regularly tell us that they are legally obliged to collect all tax that is due even when the law operates unfairly.

As reported by the Telegraph in May 2008, the decision to waive the collection of tax in the case described in the citation was taken by the Government in response to extensive pressure brought by the charities and MPs. Perhaps HMRC officials were known to have passed on these representations to minsters. Perhaps.

What's your view on this award?

Tax and financial advisers in court again re 'failed' tax scheme

Tomorrow, January 18th is the date on which Blackfriars Crown Court will pay host to pleas and a case management hearing re an apparent prosecution about which I have written on this blog before (see below).

Two tax advisers, their wives and a financial adviser are allegedly being prosecuted for cheating the public revenue through their involvement in connection with a tax scheme, “which took advantage of the legislation providing tax relief on the donations of share to charities". They were first interviewed by HMRC in 2006 in relation to the scheme which was being promoted as recently as 2004.

Reports of the case suggest that:

• Roy Faichney and David Perrin, two tax advisers, (who were not qualified accountants but who ran the tax practice at Vantis accountants) are accused of setting up a sophisticated scheme which involved hundreds of clients.
• Vikash Kulkar, a financial adviser, helped attract people to the scheme.
• The tax advisers' wives are also accused of involvement in their husbands' dealings at the accountancy firm.

Despite the reports, setting up such schemes is not illegal and, as I have said before, I'm sure that senior tax Counsel had endorsed the scheme in question before it was promoted to, apparently, "an Oscar winning film executive, a celebrity psychiatrist, senior City bankers, top barristers and company directors." As such the advisers were doing nothing different to many other promoters of aggressive tax planning schemes. And was the financial adviser any different to other such advisers who actively promote tax schemes to their clients?

I have explained my views about this case before (see below) and remain confused as to what really prompted what seems to me to be a very heavy handed approach by HMRC. And I say that as someone who is no fan of structured avoidance schemes. But equally I am no fan of discriminatory persecution of professional advisers.

Previous relevant posts:

• Wives of promoters of Vantis tax scheme also facing charges
• Vantis tax advisers to face charges of “cheating" re tax scheme
• Too many marginal tax products are sold to too many unsuspecting people

TV Tax Tease: Avoid CGT by moving to Gibraltar

Fate conspired to ensure that I caught the end of Piers Morgan on Marbella on TV last night. He was talking to a British expat from Sunderland, James Yeung, who is

"living the high life in Marbella after buying a flat in the tax haven of Gibraltar then selling his business in the UK and saving a fortune in capital gains tax."

I listened to the interview and wondered how soon it would be before Mr Yeung receives a visit from the taxman. He told us that he sold his business for £2m and did not have to pay CGT as he had established residence in Gibraltar. The impression given was that this was as simple as buying a small property there. He doesn't live there though. He now lives in Marbella. I hope he left the UK before he sold up and doesn't plan to return.

Oh dear. I imagine a few accountants and tax advisers will be asked to advise clients on this "wheeze" over the next few days and weeks. Possibly even more people will attempt to replicate James' escape from CGT without taking advice. And of course there will be questions in Parliament and demands that the rules be changed to prevent such "outrageous" and "blatent" tax avoidance.

Er. The UK tax rules don't allow it. Which means a number of key issues weren't mentioned in the interview. And if it were that easy to take up residence in Gibraltar I imagine I would have heard about it before now. I note that Piers Morgan has also visited Gibraltar so perhaps we shall learn more when that episode is broadcast.

In the meantime if you want to know about capital gains tax planning that is based on more than simple holiday sand, do contact an independent tax expert.

Taxman targets evasion by Medical professionals

Medical professionals are being encouraged under a new Tax Health Plan to tell HM Revenue & Customs (HMRC) if they have been evading tax. In effect they are being provided with the best opportunity they will ever have to regularise their tax affairs with the promise of a minimal penalty.

The Tax Health Plan is the first initiative in a new HMRC campaign focused on professionals. It seems that more such focused initiatives will follow. Much as with the Offshore Disclosure Facility and the New Disclosure Facility, this initiative promises a 10% cap on the penalty for previous non-disclosures.

HMRC make the point that these terms are in line with those offered for any full and accurate unprompted voluntary disclosure of tax liabilities. So is there really any incentive to come forward during the 'disclosure window' that closes on 31 March 2010?

I think there is. In effect HMRC are giving medical professionals a last chance to make an unprompted disclosure. From April it will be too late as HMRC will be writing to those professionals it believes have undisclosed income from, for example, NHS Trusts, private hospitals and private medical insurers. It seems that HMRC have been collating details of payments made by such entities that it suspects the recipients have not fully disclosed. From April the penalty will rise from 10% to at least 30% and possibly upto 100% - see: The new penalties regime - making tax taxing.

It's worth stressing that in all such cases there is no tax 'amnesty'. The 10% penalty will be by reference to the tax previously unpaid. This will also be payable together with interest on the late payment.

HMRC suggests that anyone interested in taking advantage of this facility should contact them. I disagree. I advice that more objective advice will be provided by an independent tax expert.

HMRC confuse tax avoidance and tax evasion again

On the Spotlights page of HMRC's website they say that 'Spotlights' is "all about tax avoidance".

"It will help you to understand what we are likely to see as tax avoidance by identifying the types of arrangements or scheme which we are likely to challenge."

I applaud the concept of Spotlights and support much of the content on the page which first appeared in 2009. I am equally aware that HMRC's choice of terminology does not accord with mine or that of most accountants and tax advisers.

I would much prefer to see the words 'tax avoidance' qualified by a prefix of 'abusive' or 'unacceptable'. In effect HMRC are putting the spotlight on structured tax schemes and arrangements that they (and, by implication, the Government) consider to be abusive. There are plenty of inoffensive ways of avoiding an unnecessary liability to tax and of reducing the tax that you might otherwise have to pay. This too is tax avoidance achieved through sensible tax planning.

The other point is that 'abusive' and 'unacceptable' arrangements are not the same thing as deliberate tax evasion or fraud - at least until and unless they are successfully challenged in Court. But the clear message on the Spotlights page is that you undertake such transactions at your own risk. And I've addressed these before on this blog.

Earlier posts (see list below) reveal I'm no fan of structured abusive schemes so, despite my reservations about the terminology used, I am pleased to replicate HMRC's list of "a number of indicators of tax planning to be wary of."

The inclusion of one of these features does not necessarily mean that tax avoidance is involved, but the more of these features that are present, the more likely it is that HM Revenue & Customs (HMRC) would see the arrangements as tax avoidance and challenge your self assessment. If you have doubts about a scheme then you should check with a reputable tax adviser.

Tax planning to be wary of:

• It sounds too good to be true.
• Artificial or contrived arrangements are involved.
• It seems very complex given what you want to do.
• There are guaranteed returns with apparently no risk.
• There are secrecy or confidentiality agreements.
• Upfront fees are payable or the arrangement is on a no win/no fee basis.
• The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
• The scheme is said to be approved by HMRC (it does not follow that this is true).
• Taxation of income is delayed or tax deductions accelerated.
• Tax benefits are disproportionate to the commercial activity.
• Off-shore companies or trusts are involved for no sound commercial reason.
• A tax haven or banking secrecy country is involved without any sound commercial reason.
• Tax exempt entities, such as pension funds, are involved inappropriately.
• It contains exit arrangements designed to sidestep tax consequences.
• It involves money going in a circle back to where it started.
• Low risk loans to be paid off by future earnings are involved.
• The scheme promoter lends the funding needed.

As they say, a good list of factors, most of which should sound warning bells, even more so if more than one or two are present. The challenge for many accountants is that the promoters of such schemes employ excellent sales people who are well versed in convincing gullible clients that it's worth the risks.

Previous relevant blog posts:

• Were you wasting time advocating this tax scheme?
• The beginning of the end for structured tax avoidance schemes?
• Bending vs breaking tax rules
• Tax avoidance is a card game - the metaphors multiply
• Tax avoidance - what are you allowed to do? A simple guide.
• Tax avoidance schemes - a simple guide
• Naive promoters of tax avoidance schemes
• Five facts all accountants need to know about tax avoidance schemes
• Five more facts all accountants need to understand about tax avoidance schemes

Tax truism - our tax system is more complex than it needs to be

On his President's page in the January 2010 issue of Tax Adviser magazine, CIOT President Andrew Hubbard puts his finger on one of the many problems with our tax system that resulted in me choosing to cease giving tax advice myself.

Andrew says, in the specific context of a merger between two large accountancy practices, but referencing commercial transactions generally:

"It is extraordinary how often most of the big commercial issues can be agreed without too many problems, but then some obscure technical issue - which is of course completely impenetrable to all but the tax experts - comes up and threatens to derail the whole process."

I made a similar point as regards more day to day complexities in my Taxation article in 2008. I indicated that I had reached the limit as to the number of times I could explain to clients that:

• despite being law abiding citizens and in principle deserving of a widely available tax relief, their circumstances took them just outside the qualification criteria;
• there were apparently arbitrary distinctions in the tax code and inconsistencies in HMRC practice;
• there is a continued absence of tax rules to reflect the new working practices of the 21st century;
• we cannot appeal HMRC's refusal to apply a concession or statement of practice (as we are 'taxed by legislation, and often only untaxed by concession');
• tax credit claims can only be backdated by three months. Thus if you unexpectedly make a loss in your business, you cannot claim the tax credits to which you would have been entitled if you made a claim (for no credits) at the start of the year, just in case you made a loss;
• there are different rules for computing income for income tax, National Insurance and tax credit purposes;
• bizarre arguments and distinctions are highlighted in tax cases, albeit that I can sympathise with HMRC to a degree when it is evident that clever tax advisers have encouraged their clients to push the envelope.

Any more suggestions for undue complexities?

New tax rules on pension contributions favour Ministers

Bill Dodwell, head of the tax policy group at Deloitte suggests that HMRC's analysis of the tax gap could have a previously overlooked reason for non-collection: "daft law"

Bill makes the point in the January issue of Tax Adviser magazine after referencing the new extension to restricting tax relief for pension contributions in respect of high-earners. He points out this led to a 115 page document to explain how the rules will work and asks, quite reasonably:

"Didn't it occur to anyone that if the chancellor wanted to restrict tax relief, a simple flat-rate amount would be the solution?"

This tax change was announced in Budget 2009 last March and included what were called 'forestalling measures' which led me to write a piece last May: Pension tax changes that hit high earners NOW.

I remain of the view I first expressed last May that the new rules were refined to reduce the potential impact on ministers and civil servants. In effect this is another example of taxing 'real people' without impacting those in power. But it's been done in such a way that Ministers can deny that they are receiving beneficial treatment - unlike the position with MPs' severance payments and MPs' expenses. With the pension tax changes there is no specific exemption - it's just that Ministers and civil servants are among the very few high earners still in final salary pension schemes and are thus unaffected.

Special tax rules for MPs are wholly indefensible in all but the most extreme cases and those who argue otherwise are clearly unaware of what goes on in the real world.

What now for undisclosed offshore bank accounts?

The deadline for admitting the existence of previously undisclosed monies in offshore bank accounts expired on 4 January. Early indications are that the number of reports made to HMRC under the 'New Disclosure Opportunity' were much lower than the taxman had hoped.

If true this will be disappointing for the taxman and for the Chancellor.

What does the future hold for those who were unaware of or chose to ignore the deadline?

HMRC will, at some stage, write to offshore account holders who are resident in the UK and who are not recorded as paying tax on the interest. Such letters could start to appear as early as next month, later this year or at any time in the next few years.

Anyone receiving such letters would be well advised to take professional advice from tax investigation specialists to assist them in negotiating the best possible settlement - or indeed to make HMRC go away if there really is no undeclared taxable income.

The prospective penalties if HMRC identify unpaid taxes will now be at least 35% of the late paid tax. This will be payable in addition to the unpaid tax and interest charges by reference to when the tax should have been paid. The interest can really mount up if the tax liability has been unpaid for some years.

And the 35% penalty is simply the lowest possible charge going forwards. The maximum penalty payable at the moment is 100% of the unpaid tax. And beware: As part of his Pre-Budget report the Chancellor published a consultation document: "Modernising Powers, Deterrents and Safeguards: Tackling Offshore Tax Evasion". This included a note that:

"For periods prior to April 2009, HMRC will view non-compliance involving an offshore element as conduct of the utmost gravity, and will seek penalties accordingly. The maximum penalty prior to the introduction of the new FA 2008 penalties is 100 per cent"

The Document also suggests that:

"a taxpayer seeking to evade tax by failing to declare the existence of an overseas account or the interest arising from it could be subject to two separate tax-geared penalties. In the most serious cases of tax evasion, the sum of these two penalties could reach 200 per cent of the tax evaded."

These new rules could come into effect next year. The deadline for responding to the consultation is 3 March 2010.

The 'New Disclosure Opportunity' (NDO) was the second so-called tax amnesty operated by HMRC in recent years. The previous 'Offshore Disclosure Facility' (ODF) in 2007 raised more than £400m in revenue when offshore account holders with five major UK banks were given the opportunity to put their tax affairs in order. Now HMRC has access to information from more than 300 banks and has assured us that there will be further such tax 'amnesty' as some misleading reports describe the Disclosure Facilities. To an extent the NDO was required as the ODF had insufficient publicity; a mistake HMRC has attempted to avoid this time around.

And just a word about the separate Liechtenstein Disclosure Facility (LDF) which some very wealthy tax avoiders are hoping will allow them to come clean whilst paying less tax. Er, no. The tax and interest charges will be the same as ever. The penalty charges MAY be lower than normal but only if HMRC are satisfied that the undisclosed funds fully satisfy the terms of that Facility.

Previous blog posts on this subject:

• Offshore bank accounts - HMRC warning video
• 5 tax facts and advice if you have an offshore bank account

Teach them about tax too

Does anyone else consider today's 'news' to be ironic?

Under a new personal, social, health and economic (PSHE) curriculum which becomes compulsory next year, all pupils in England, aged five to 16 will be given financial literacy lessons and taught how to save. This is commendable stuff - more so when you read the details rather than simply controversial and contrived headlines. The Mirror, for example, reports that "Children as young as FIVE will be taught how to manage bank accounts and budget." - Er. No. That's not very likely at all nor is it what the announcement says.

I prefer the Observer's headline: Children to be taught perils of debt or The Times: Pupils to be given lessons on debt. And there is the irony as it this Government that has created a new generation of graduates who are saddled with £15-£20k of debt even before they start work. It's all too easy to anticipate that these same graduates will spend upto the limit on new free credit cards. After all what's another £2k?

Ed Balls, the children schools and families secretary, is reported to have said: "It's really important that we teach our children about pensions, responsible saving and effective money management." The full departmental press release is here.

Teaching children about the difference between good debt and bad debt is important. Justifying student loans as 'good' debt will then have to follow - although I'm not sure it satisfies all the usual criteria.

One crucial element of effective money management concerns the basics of our tax system. Children don't need to know about this in detail at the age of 5 any more than they need to learn how to manage a bank account at that age. However they do need to understand some of the basics about tax before they leave school to go out to work.

A recent conversation with a hairdresser serves to ilustrate the point. She told me she is self employed but works in a salon owned by someone else. When she left school she started working in a local salon and got paid her wages each week. The expression 'cash in hand' didn't mean anything to her. As far as she knew this was normal and she did what her boss - whom she assumed to be her employer - asked of her. That was all long ago but no one had ever taught her the different tax obligations for the self employed and for employees. Or indeed the differences between being an employee and really being self employed even if working regularly for the same person.

According to the National Curriculum website, Personal, Social, Health and Economic (PSHE) education brings together personal, social and health education, work-related learning, careers, enterprise, and financial capability. In practice PSHE is intended to cover all those life lessons that we demand schools 'teach' although they are not examined so are rarely seen as a priority.

Bottom line? Even though PSHE has its detractors, please can we also ensure that we teach pre-school leavers a few key facts about the tax system?

What do you think?

Lord Turner champions environmental taxes - Is it that easy?

The Guardian reports that, in an interview with BBC Radio 4 to be broadcast tonight, Lord Adair Turner will be saying:

"If we have to raise taxes – and we will to some extent – we can deliberately design those to tax bad environmental things, like overuse of fossil fuels..."

It's long been known that one of the key attractions of environmental taxes is the double dividend of:

• generating additional tax revenues; and at the same time
• discouraging 'bad' behaviour so as to help the fight against climate change.

I mentioned this in my post here last August: Environmental taxes - going up

The Institute of Directors' view is that:

"Environmental taxes have their place in the tax system, but there is a real danger that because they are seen as being in a good cause, they will be set higher than they should be, or will become a way of increasing the total tax take."

Er, yes. That's the idea. Most informed commentators anticipate that taxes will rise in 2010. As I concluded in August: "It seems inevitable to me that environmental taxes will rise."

The key question, which it seems Lord Turner will not be addressing, is the extent to which such taxes are eventually borne by the consumer.

One key attraction of environmental taxes is that they tend to be paid by big industrial conglomerates. Typically however they will simply raise their prices in order to maintain their profit levels. Thus the effective burden of the 'green' taxes is borne by the ultimate consumer.

One of the best ways to avoid this is to offer tax incentives to develop, produce and supply alternative environmentally friendly products which consumers can choose to buy instead.

I predict that rather than big rises in income taxes and VAT, 2010 will be the year in which we focus on green taxes and environmental taxes. In addition to those charged on businesses there will also be those intended to change our behaviour as consumers. The big challenge will be to ensure that the greener options exist so that we are not simply forced to pay the taxes for doing 'wrong' when there is no real alternative.