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Schrodinger’s cat’s loans

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Schrodinger and his cat

Who was Schrodinger?

What was special about his cat?

And did the FCA really give it a credit licence?

“One can even set up quite ridiculous cases,” Schrödinger wrote. “A cat is locked up in a steel chamber, along with the following device …”

Feline lovers should look away now.

Schrodinger’s device

Tip – Always be suspicious of anyone called Schrodinger offering holiday accommodation to your pets.

His device included radioactive material which was placed by a Geiger counter. This was set to trigger the breaking of a vial of deadly acid the moment the vial was compromised by the effect of the decaying radioactive material. The cat would die immediately.

It is worth pointing out that this was a thought experiment rather than a hobby.

It was designed to highlight how silly Schrodinger thought a prevailing theory of quantum physics was. Broadly, that particles in a quantum system existed in a state of superposition until they were observed. At this time, they took their decided state.

In Schrodinger’s ‘ridiculous case’, the ‘undecided position’ of a particle colliding with the counter would both hit and not hit it at any one moment. This would also mean that our unfortunate and hidden cat existed in a state of being alive and dead at the same time as well.

It was only once the cat is observed by the outside world that its state is decided as being dead or alive.

Schrodinger’s cat’s loans

However, neither Schrodinger nor his contemporaries (such as Einstein) considered the following thought experiment.

In addition to the above experiment, the cat (with nothing better to do sitting in the box) issued a number of so-called loans to its cat friends.

These loans are also part of a quantum system and exist in a state of superposition – as loans or non-loans.

The state of the loan, however, in this experiment is determined not merely when it is observed by the world but also by who observes it.

For example, if one part of HMRC looks at the loan then they will determine that the state of the loan is that of non-loan. They will shortly ask the borrowers to pay tax on the amounts using a new piece of legislation called the loan charge. Either using this to collect the cash or as a stick to beat people in to settlement with.

The cat in the box will have lots of angry cat friends.

However, when the capital tax team at HMRC observe the same experiment they conclude that the loans that their colleagues thought were non-loans were genuine loans and ask for money from the cat borrowers.

The cat in the box has angrier cat friends.

However, an older alley cat comes along. Probably with an eye missing. And mange. He has lived in many boxes over the years and, despite the threat of the acid, managed to make a lot of money by making many loans, marketed as non-loans that wouldn’t need to be paid back.

He decides to offer the cat in the box a few quid for the so-called loans. He is fully aware that the others observing the experiment have thought they are both loans and non-loans. He used to think say they were non-loans himself. However, he will write to all those cats stating they owe him money because they now are real loans. But he will take 5%… or 3%… or 2% or whatever he can get.

The cat in the box has lots of even angrier cat friends.

Conclusion

The situation with the loan charge is totally ludicrous. More ludicrous than any torture device concocted by Mr Schrodinger.

Of course, I accept that something can be one thing for legal purposes and perhaps another for tax purposes.

However, can there be such a fundamental difference of the treatment of a payment between taxes? In any event, why would a revenue authority with any pretence of fairness even try to argue this kind of fiscal superposition?

What about the cat?

She’s decided to stay in the box and take its chances with the vial of acid.

[Apologies to any physicists – including GCSE physics holders – who have suffered mental harm as a result of this article.]

If you have any queries about this article, the loan charge, or tax in general, then please do get in touch.

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