Politicians are always moaning about all those nasty tax avoiders and how we should all pay “the right amount of tax” regardless of what the law says. Well here’s a case where the boot was on the other foot and the taxman could easily have ended up getting more than “the right amount of tax”.
It was the case of Julian Martin v HMRC which was heard at the First Tier Tribunal in December 2012 (so very recently). Basically, it was about a “golden handcuffs” bonus that was subsequently clawed back.
Mr Martin was paid £250,000 by JLT Risk Solutions Ltd for committing himself to them for 5 years. Mr Martin paid tax and NI on this lump sum amounting to £102,500.
For whatever reason, Mr Martin left within 2 years and had to pay 65% of the money back. This is where the taxman often gets lucky, as there is no legal obligation on HMRC to refund tax on income derived from a bonus that is clawed back in a later tax year.
The case was notable in that HMRC were almost apologetic to Mr Martin in opposing his appeal (if you can imagine such a thing) and apparently went to great lengths to explain that they were merely upholding the law.
Fortunately, there was a happy outcome Mr Martin as the Tribunal agreed that the claw-back was deductible against his other income that year as “negative earnings”, thus making his taxable income zero. So at the end of the day, he did get most of his excess tax back.
However, that was only due to the fact that he happened to have earned enough money that year to “soak up” the claw-back. Had he been out of work and not earned anything, he would have been totally shafted and paid more tax on the bonus than he actually received.
To me, the moral of this story is that politicians and tax officials should not bang on about tax avoidance and moralise about people gaming the system when they are more than happy to play hardball with the rules when it suits them.
By all means close down the abusive schemes if they drive a coach and horses through what Parliament intended, but please, spare us all the preaching and moralising. It might make us think that they are total hypocrites!