Reducing fares legitimately - akin to tax avoidance?

[els]

Interested in people's views on this:

Tax avoidance (e.g sheltering money in tax havens) is generally frowned upon. It is not breaking the law but it is using the rules to one's advantage.

So why are legitimate fare reducing tactics such as split ticketing and breaking journeys short (e.g. where the fare to the named destination is cheaper than for the intended destination, but it is further away) not considered the same? It is effectively exploiting 'leakages' in the fares system.

Is it a case of rich people have the broadest shoulders? And people on the railways feel they have the 'right' to pay less as they are paying over the odds for the service they receive?

Discuss...

 

[andrewkeith5]

You make a very interesting point which I wonder if anyone else has considered before.

There are a few differences, however, largely in the scale of the activity - tax avoidance tends to be on a very large scale where businesses are jugglilng millions of pounds, whereas fare reducing tactics are on a much smaller scale where individuals are trying to save a few quid. I would argue that the affect fare reduction exercises have on TOCs is almost immeasurably low compared to the scale of tax avoidance - although I would be very interested to see the financials and run some economic models. The vast, vast majority of train users either don't care or don't know how they can reduce the amount they pay - or think the only way to get a cheaper fare is to go for an advance fare, which mostly actually benefits the TOC in question, as they both sell more seats and get the full revenue from the sale.

There is also the argument of rules vurses the spirit of the rules. Tax avoidance is largely a case of interpretation of the rules, and is very much against the spirit of the rules in place (i.e. that each business/person should contribute fairly to the greater good of the country). On the other hand, train tickets and the subsequent fare reduction tactics are (mostly) designed to be the way they are - certain tickets are designed to be more flexible than others, and the rules are (in the most part) very clear as to how tickets can be mixed and matched to the individual needs of the customer. As a result, the 'art' of fare reduction can be argued to be more in the spirit of the rules as they are designed - it just happens that TOCs would prefer a much more strict/restricted spirit to be applied.

Very interesting question, thanks for asking it I look forward to seeing other's views!

 

[AndyLandy]

Having a cash ISA is technically a form of tax avoidance -- I doubt anyone would have objections to people having those.

The essence is pretty much the same thing in my mind. There's nothing wrong with fare avoidance, but there is with fare evasion.

Of course, some particularly extreme loopholes exist in both cases, and if we're frowning upon people using them, then they should be closed down.

 

[LexyBoy]

I have used the term "fare avoidance" for some time (slightly tongue in cheek perhaps).

Some techniques described I would perhaps call "fare avoision"- legally questionable but known not to be challenged.

 

[Zoidberg]

Interested in people's views on this:

Tax avoidance (e.g sheltering money in tax havens) is generally frowned upon. It is not breaking the law but it is using the rules to one's advantage.
...

I don't know why folk look differently upon those who take advantage of imaginative tax avoidance schemes and those who take advantage of the more mainstream tax avoidance schemes, like ISAs.

In the case of taxes and rail fares, as long as it's legal, why should folk not take advantage of whatever opportunities exist to minimise liability/cost?

 

[tbtc]

For me, the big difference is behaviour. I loathe the big firms who do their business in the UK yet pretend that they are based in Luxembourg (etc) for tax purposes. Or loading your company will millions of pounds of debt, so you can pretend that you made no profits. Distorting behaviour.

On a personal level, there are plenty of legitimate schemes to minimise tax - like the tax relief given to pensions. I don't have a problem with that. Something like setting up your business in your partner's name, on the other hand...

I don't have any problem with split ticketing - you should be able to buy a combination of tickets if you want (as long as your train is stopping at the stations with the splits). But something like "doughnutting"... that's A Bad Thing.

 

[DaveNewcastle]

I find a very wide gulf exists between the two systems of tax avoidance and split ticketing.

First, the 'victim'. Loss of Tax revenue deprives the State, whose harm is, to a greater or leser extent, our collective harm, but which also has an existence and prosperity in its own right which is harmed by a loss of revenue.

Second, the 'liability'. The liability to Tax is a statutory liability of all citizens who meet certain criteria, and forms a crucial component of the 'civil contract' between citizen and state. In contrast, the railway fare is a trivial, contingent, voluntary and private liability which is of no consequence to the the state.

Third, the scale. A tax avoidance scheme operates on a large scale. Mountstar plc which took the Charity Commissioners to Tribunal just last week had raised £176mil on which it sought Gift Aid for its participants when they bought 'gilts' for a mere 0.1% of their value and then donated them to The Cup Trust charity which would lever in Gift Aid calculated on the 'gilts' face value. The high rate tax payers would benefit from £46mil paid out by HMRC. The Charity Commissioners had said "If Parliament doesn’t like it, it can change the law.".
Split ticketing can cost more than a single ticket as well as less, but when it doesn't, it saves passengers a sum that is probably to be measured nationally as a few thousand a year. I doubt Parliament will want to take a view, far less change the Law.

. . . But something like "doughnutting"... that's A Bad Thing.

Indeed. But it is 'Bad' because it is both a avoiding a civil debt and committing criminal offence.

 

[Zoidberg]

For me, the big difference is behaviour. I loathe the big firms who do their business in the UK yet pretend that they are based in Luxembourg (etc) for tax purposes. Or loading your company will millions of pounds of debt, so you can pretend that you made no profits. Distorting behaviour.

On a personal level, there are plenty of legitimate schemes to minimise tax - like the tax relief given to pensions. I don't have a problem with that. Something like setting up your business in your partner's name, on the other hand...

...

The point there is, I think, that it is the fault of the government(s) for not properly defining the rules.

If it/they did not intend that the likes of Google et al should be able to minimise their tax bills in the way that they have, then they ought to have ensured that the law was written so as to outlaw the practice.

 

[tbtc]

The point there is, I think, that it is the fault of the government(s) for not properly defining the rules.

If it/they did not intend that the likes of Google et al should be able to minimise their tax bills in the way that they have, then they ought to have ensured that the law was written so as to outlaw the practice.

In the case of Google, they are doing a lot of things that appear disingenuous - like employing lots of Sales staff in the UK to do "sales" work, but pretending that the actual deal was struck in Dublin so that they can choose to pay Irish tax instead - it may be perfectly legal, but that doesn't mean I have to like it.

 

[Zoidberg]

In the case of Google, they are doing a lot of things that appear disingenuous - like employing lots of Sales staff in the UK to do "sales" work, but pretending that the actual deal was struck in Dublin so that they can choose to pay Irish tax instead - it may be perfectly legal, but that doesn't mean I have to like it.

Of course you don't have to like it. I don't particularly like it, but I don't blame the companies which take advantage of lax legislation. I blame the government(s) for not ensuring that the law which became enacted did not cover precisely what the government(s) intended.

 

[gazthomas]

Don't quite understand. Fares are not taxable and if business expenses are reduced as a result of exploiting permissible loopholes then this has a positive effect on tax?

 

[Zoidberg]

Don't quite understand. Fares are not taxable and if business expenses are reduced as a result of exploiting permissible loopholes then this has a positive effect on tax?

The point is about the acceptability of legally avoiding a charge.

One the one hand, taking steps to minimise a tax bill, on the other hand, taking steps to minimise the fare paid for a journey.

Why, taking it to extremes, should one be frowned upon and the other applauded.

 

[maniacmartin]

I think it depends on how far you push it. For example, we don't frown on people who use ISAs, and the government actively encourage it, whereas many people would class Cross Country trains selling tickets online on their website through a Luxembourg entity as morally dubious*

I don't think spending effort to find a split ticket that saves money is morally wrong - we all love to shop around and get a good deal. However once it gets to the point when you're travelling from London to Cambridge on a London Terminals to Hackney Downs ticket (map WA) then most people would say that you're taking the p**s.

I have long used the term "fare efficiency" along the lines of "tax efficiency". If one is acceptable, then why shouldn't the other one be?


* they actually do this

 

[Oswyntail]

One of the design criteria of a country's tax structure is that it should encourage companies to carry out some, if not all, of their business in the country. This will have (it is hoped) one or more of three benefits: the company will contribute tax revenue; the company will contribute desirable goods or services to the country at an acceptable price; the company will provide employment to citizens. Legal tax avoidance - reducing the effect of the first benefit - may be seen as the price to be paid for the other two.
Like most of the (IMHO envy-driven) criticisms of wealth generators and wielders, horror at tax avoidance ignores the other benefits to the country.
Fare splitting is just the same as shopping around for a good price. Quite legitimate.

 

[yorkie]

So why are legitimate fare reducing tactics such as split ticketing and breaking journeys short (e.g. where the fare to the named destination is cheaper than for the intended destination, but it is further away) not considered the same? It is effectively exploiting 'leakages' in the fares system.

I don't think the analogy is valid, and it's certainly not "the same".

If the analogy worked, then it would be like taxing people, say, 25% VAT on a meal deal, but if you bought the individual items the tax would be 15%. That just doesn't happen really (though maybe someone will find some bizarre example now I've said that!)

The only equivalents I can think of, are were you buy items separately where the VAT is less, e.g. certain items may have VAT applied if chocolate coated, and VAT exempt if not. If you then "combine" the items, arguably you are legitimately avoiding VAT, but this is totally legitimate, and is not considered to be a "tax avoidance technique", but would be a suitable analogy in my view (combining tickets vs combining products - nothing wrong with either of them!)

The NRCoC specifically allows you to break your journey (except for certain ticket types where it must be "made clear" in "notices and publications" that you cannot, e.g. Advance tickets) and/or to combine tickets.

Also you must bear in mind that most of these situations are caused by expensive TOCs, such as XC, putting up fares for the journeys they price.

As for it being cheaper to "finish short", again is no equivalent situation. It would be like CrossCakes deciding to tax certain types of cakes at 30% tax, while EastCakes only decide to tax other types of cakes at 15%, irrespective of who actually makes the cake! The customer then discovers a cake made by CrossCakes which is priced by EastCakes, and costs a few pence less than another cake made by CrossCakes, but has a cherry on top. The customer then fails to eat the cherry and finishes the cake "short". I'd see no issue with that.

I don't know if it's tax-related, but sometimes "splitting" a shandy can be cheaper. I think this is similar to "splitting" tickets and is also totally legitimate. If there is a tax saving involved (I've not looked into it) then quite frankly the tax system shouldn't be so daft in the first place.

Is it a case of rich people have the broadest shoulders? And people on the railways feel they have the 'right' to pay less as they are paying over the odds for the service they receive?

It's called yield management, there are some interesting threads on this forum on the subject.

 

[34D]

I am happy to practice both legitimate tax avoidance and legitimate fare avoidance

 

[bnm]

Split ticketing is only one form of fare 'avoidance'.

There are many more ways to legitimately save money by exploiting the fares and routeing systems. These more complex examples get frowned upon here when they are publicised. Frowned on not for their dubiousness, but rather for the fear that such loopholes, if discussed publicly, will get closed. Other examples get shared at fares workshops, by word-of-mouth, or privately via the 'You have a PM' method. Clandestine sharing in many cases to keep the TOCs and ATOC from closing loopholes.

With it being a bit of a game, I have no problem when a loophole is discovered and closed - chances are I'll find another one. It's just a shame that we have to act in this way. The fares system is a mess and too many people are paying over the odds and effectively subsidising those of us who find the bugs in the system and exploit them. But then walk-up First Class fare payers subsidise others also so there's no easy answer.

I think the fares system we currently have is no longer fit for purpose, but I can't begin to offer ideas for a simpler system.

Well except one idea. Make all public transport free and fund it from general taxation instead.

 

[Zoidberg]

I am happy to practice both legitimate tax avoidance and legitimate fare avoidance

Hear, hear!

 

[els]

It's called yield management

Is it? In my mind yield management is catering the pricing structure of, say, a rail service to maximise revenue with respect to expected demand. I fail to see the link of this to someone trying to reduce the cost of travel regardless of the time of day (i.e. fare 'avoision').

 

[87 027]

ISAs are not tax avoidance because they were specifically introduced to incentivise savings by providing tax relief on interest, up to certain levels.

Tax avoidance generally involves interpreting the law in a manner which was not foreseen or intended by the lawmakers. Sometimes if the resulting business arrangements are highly contrived and serve no business purpose other than tax minimisation then they can be successfully struck down, e.g. the Debenhams (and others) 2.5% credit/debit card handling fee schemes. But if businesses do just enough to stay the right side of the line, then it is not so clear cut (e.g. Amazon, Google etc.).

In the case of train fares, as I see it the broad principles are that fares are determined by a combination of distance travelled, day/time of travel (peak/off peak), frequency of travel, degree of flexibility and commercial incentivisation to travel with a particular TOC, with further tweaks around various routeings (i.e. easements etc.). These principles had to be formalised after privatisation as they had an impact on revenue flows between the assemblage of various organisations that operate under the collective banner of National Rail. For example 'any reasonable route' in BR days became 'any permitted', with the associated rules. But those rules do not seem to have nailed down every ambiguity or unintended consequence, and if they are not watertight, then all I can say is hats off to RJ and others who find ways to use that to their advantage. (I say this as an Annual Gold Card season ticket holder.)

As a final thought the government have on various occasions proposed a 'general anti-avoidance rule' as a legislative catch-all for tax interpretations they don't like as and when they come across them. It has little if any support from business, because it goes against the principle of certainty. What if the same applied to rail fares?

 

[soil]

Interested in people's views on this:

Tax avoidance (e.g sheltering money in tax havens) is generally frowned upon. It is not breaking the law but it is using the rules to one's advantage.

Frowned upon by whom?

So why are legitimate fare reducing tactics such as split ticketing and breaking journeys short (e.g. where the fare to the named destination is cheaper than for the intended destination, but it is further away) not considered the same?

They are frowned upon by some people.

Most of these distinctions between that which is socially acceptable and that which is not are arbitrary however.

I think the main difference is that fare reduction is seen as an every-man activity. It's not exclusive - anyone can do it. Whereas many acts of tax avoidance are not open to the average person, and require special employment conditions, or tens/hundreds of millions of pounds in financial resources.

People don't like the rich (companies, people) exploiting their position. Tax avoidance is almost exclusively about the rich getting richer.

 

[bb21]

People don't like the rich (companies, people) exploiting their position. Tax avoidance is almost exclusively about the rich getting richer.

Nail... head.

 

[neilmc]

I know comparing train journeys to supermarket shopping isn't always an apt analogy but I tend to see it like this:

If I go to Tesco and want a litre of milk and a litre bottle costs £1 whereas 500ml costs 60p, I'll buy the litre bottle. If however (and this happens surprisingly often) 500ml bottles are on special offer at 40p then I'll buy two 500ml bottles instead.

What's the result? Tesco's milk sales are skewed, and they are likely to run out of 500ml bottles inconveniencing someone who only wants a small bottle. But that's not my concern, it's their pricing model which is faulty and I've merely taken the trouble to check the prices that bit more closely to get the bargain.

Now what does a train fare - e.g. Manchester to Birmingham - cost? Well, that depends on the time you travel and whether you can book in advance, there's no straight answer. So if a Manchester to Stafford and Stafford to Birmingham combination costs less than a through ticket (and of course the train stops at Stafford) that's what I'll buy. I don't give a damn which TOC gets the revenue any more than I care whether or not Tesco can't sell their litre bottles of milk, as a customer I want the best value and if the pricing model's wrong that's not my fault it's the TOC's.

 

[wbbminerals]

The only way I afford rail travel is by reducing the price though split ticketing etc. If it's legitimate why not? It's not like the companies profiting from your tickets won't avoid tax anyway.

 

[telstarbox]

It's not like the companies profiting from your tickets won't avoid tax anyway.

Can you support that?

 

[soil]

Can you support that?

http://www.taxresearch.org.uk/Documents/RMTRailTaxReport.pdf

http://www.standard.co.uk/news/tran...uses-but-pays-no-corporation-tax-8608941.html

I believe there is also some use of Luxembourg by various train companies.

 

[Harlesden]

Quite honestly I don't see that minimising the fare you have to pay by legal means such as split ticketing etc. is any different to walking past Curry's Digital where the printer you want is £75 to shop in Asda where the exact same machine is only £55.
The customer is making the effort to be thrifty (and sensible) by purchasing the item - whether rail journey or printer - for the lowest price he can find.
Split ticketing is not a "leakage" because you are simply buying valid tickets priced by the TOC. One must assume that TOC's know what they are doing when pricing individual journeys and so a customer's conscious decision to obtain the lowest possible fare for his journey by any means that TOC's offer is merely shopping around and nothing else.

 

[jb]

To expect any entity to be anything less than maximally tax-efficient is to live in cloud cuckooland. Similarly to expect anyone to be less than maximally fare-efficient on the railways.

Did I miss anything in the thread?

 

[Oswyntail]

.... Similarly to expect anyone to be less than maximally fare-efficient on the railways....

The chief problem with that is the, to my mind immoral, practices that make splitting worthwhile. If, say, three TOCs set the fares for the three sections of my journey, then the overall fare should be for the combination of those three fares, not set by only one of those TOCs. And how does Joe Public a) get to know these unadvertised cheaper alternatives and b) access them? The sites are known in the enthusiast community, but are not much known outside.

 

[telstarbox]

Split tickets have been widely publicised in national media:

http://news.bbc.co.uk/1/hi/6442947.stm (2007)

http://www.telegraph.co.uk/news/ukn...fares-how-to-save-money-on-train-tickets.html (2010)

http://www.moneysavingexpert.com/travel/cheap-train-tickets (2010 and updated)