If commentators were to be believed the tax gap is inconsequential.
Then comes a press announcement from HMRC this morning:
As part of its work to improve tax policy making and the stability of the tax system, the Government published a discussion document on 9 December 2010 setting out a draft Protocol on tax announcements outside scheduled fiscal events. This set out the criteria that Ministers will apply when deciding whether an announcement of immediate change is justified.
In line with that draft Protocol, the Government is making such an announcement today, to tackle an aggressive tax avoidance scheme that has been disclosed to HMRC. By acting immediately, the Government is seeking to protect the Exchequer and maintain fairness in the tax system.
A lessee under a plant or machinery long funding lease can claim capital allowances. Some large businesses have entered into contrived, circular transactions involving the sale, leaseback, and reacquisition of their plant and machinery, over a period of three or four weeks, with the aim of claiming tax relief twice on one amount of expenditure.
HMRC has recently become aware that the scheme has been widely marketed and implemented with associated significant risk to the Exchequer. To date instances of the scheme that HMRC are aware of have involved expenditure in excess of £1 billion, putting hundreds of millions of pounds of tax at risk.
Legislation, which will have effect from today, will be introduced in Finance Bill 2011 to confirm that lessees engaging in transactions of this type are only entitled to tax relief up to the actual amount of their expenditure on plant or machinery. This ensures that the rules continue to apply as intended by Parliament and will protect future losses to the Exchequer.
So we have large businesses putting hundreds of millions of tax at risk, we're told.
And there's an insignificant tax gap?
Sorry: it does not stack. The willing is present; the advisers are present and the companies are willing to commit cash to abuse. The tax gap is very real indeed. But until today this was all part of the 'legitimate' allowances and reliefs I'm meant to ignore when preparing my calculations.
Sorry. I don't buy that. And no one should.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
This is not a particularly new scenario. Announcements such as this have been made regulary over the years and are simply HMRC’s response to particulary “costly” avoidance schemes. The avoidance schemes have, for a few years, had to be declared to HMRC, precisely so that this type of announcement can be made quickly.
Not an indication of a significant tax gap, merely shows that some accountant somwhere came up with a new clever avoidance scheme which HMRC wanted to stamp out quickly. Shows a failure in the Tax Legislation if nothing else.
It is virtually impossible to close all the loopholes in legislation, so whatever your best intentions, this can and will continue. We just have to hope HMRC continue to be “on the ball” in closing them, as it appears they have been here.
What should be happening as part of this announcement, Richard is naming and shaming, including of the organisations (need we guess who) involved in concocting and selling this scheme. While it can be argued that as individual citizens we have a right to privacy that covers our tax affairs the claim for ‘commercial confidentially’ is, lets face it, largely used as device to avoid disclosure and defeat transparency. The public interest should trump that at every turn.
Have you seen, The Huffington Post today, for James K.Galbraith’s post, “Testimony on Sensible Tax Reform” today. ? It has made Mason Gaffney’s day, if not year.
I know this will sound hopelessly economically naive (I’m from the arts) & is not related to this post (actually occurred to me watching your crisis presentation) but has the obsession with decreasing the national debt been partly a process of shifting debt from the state to the individual? Isn’t this part of the ideological basis of late capitalism?
Kaupthing? See my post of today.
@Leonard Zajdek
Agreed
Worth reading http://www.huffingtonpost.com/james-k-galbraith/james-k-galbraith-lloyd-m_b_832959.html
@Gordon
The obsession is about reducing the size of the satte and so the tax paid by the wealthiest
@Leonard Zajdek
Yes, very pleased to see Mason mentioned in dispatches – the land value tax lobby is buzzing. The UK Mirrlees review on the fundamentals of taxation also had a lot to say about moving the tax burden off labour and capital and onto land. There’s a huge revenue source waiting to be tapped.
The PSG knows little about TAX — excepting that a few smart people manage to legally evade it and this has devastating effects on 1st, 2nd and 3rd world economies.
Because oil costs less than bottled water; the major influence on petrol prices is tax. It is said that the Saudi’s offered to supply the UK with free oil. Cameron rejected the deal because it was conditional on the Exchequer giving back half the duty (tax) the UK would collect on it…
Then there is the matter of paying VAT on this duty …
Any fiddles for the Channel islands?
I understand that & the reduction of the state is at the heart of the ideology. But it seems that global capitalism in the form of the global financial marketplace depends on debt to work. Without debt the system collapses? So if a state like Britain has, since Thatcher, steadily reduced its debt doesn’t that create a loss for the international finance sector? Has there been a concomitant increase in personal debt? This while at the same time as steadily reducing manufacturing. The result a shrunken state with a populace of debt ridden, non-unionised, atomised individuals who don’t know how to make anything. Meanwhile the wealthiest members of society pay comparatively little tax while accruing wealth in the same global financial markets.@Richard Murphy
@Gordon
Since all money is debt in a very real sense you hit the nail on the head
Without debt the structure fails