Wikipedia defines a loophole as “an ambiguity in a system, such as law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system”. Thus a loophole contravenes the INTENT of the law without breaking it so exploitation is not illegal but can offer an unfair advantage to the non -taxpayer. Tax avoidance as opposed to tax evasion is therefore legal. Historians will tell you of 17th century householders bricking in windows to avoid a window tax which was levied on the number of windows in a dwelling. Tax avoidance is therefore nothing new.
In order to deal with the mischief caused by loopholes, the burden falls on the legal draughtsman to produce law that is equitable and collectable and therein lies the rub.
The UK’s VAT laws have to be compatible with EU Directives and member states have some discretion but the recent draft proposals to charge VAT on all hot food show the difficulty of challenging a loophole to provide equity of treatment. As it stands HMRC proposals are unworkable in practice and must be revised to provide certainty for the taxpayer ( one of Adam Smith’s canons of taxation) and the tax collector.
An HMRC consultation exercise is underway with a closing date of 4th May so let us hope for common sense to prevail!