2011 September » Tax Research UK

Tuesday at Labour Party conference

Sep 242011

Taxing Times: Is there anything wrong with tax avoidance?

When:: 27th September 2011, 05:45PM
Where:: The ACC, Concourse Fringe Room 9

Demos, Christian Aid and Action Aid are proud to present this panel event at the Labour Party Conference that will examine the effects of corporate tax avoidance on the UK and overseas. We are delighted to be joined by:

Angela Eagle MP, Shadow Chief Secretary to the Treasury

Graham Dale, Head of Public Affairs, ICAEW

Richard Murphy, Director, Tax Research UK

Joseph Stead, Senior Economic Justice Adviser, Christian Aid

Vanessa Houlder, Journalist, Financial Times (Chair)

Given the UK’s role in the G20 and the position of London as a centre of finance, the UK is able to lead the world in addressing the issue of corporate tax avoidance. This event will provide an opportunity to examine how to achieve policy coherence between Government departments to better tackle corporate tax avoidance, whilst also considering the ethics of tax avoidance for multinational corporations.

For more information, please contact partyconference@demos.co.uk

Event address: The ACC, Kings Dock, Liverpool, L3 4FP

Inequality is Great Britain

Economics, Ethics 9 Responses »

Sep 232011

I shamelessly take the above from the web site of Church Action on Poverty who unveiled the newest phase of the Government’s GREAT campaign, launched today.

INEQUALITY IS GREAT BRITAIN is Church Action on Poverty’s contribution to the Government’s Britain is Great campaign – showing off the best of British to the world.

Plans to launch the campaign with the simultaneous unveiling of billboards in Britain’srichest and poorest neighbourhoods: Easterhouse, Glasgow (male life expectancy 73.1 years) and Kensington and Chelsea, London (male life expectancy 84.4 years) were ruled out, but posters have been launched on Facebook and Twitter.

The campaign was launched to mark the fact that income inequality in the UK – the gap between rich and poor – is greater now than at any point in the past 50 years (in fact, since figures were first collected, in 1961).

CAP Coordinator, Niall Cooper, said: ‘Britain’s track record on inequality is truly appalling. If we really want to aspire to being Great Britain, we need to do far more to Close the Gap. And in the absence of a serious lead from our politicians – that is a task for all of us.’

To make your Pledge to Close the Gap, visit www.church-poverty.org.uk

Neither flood nor drought please, just a steady flow where the wells still work

Economics 3 Responses »

Sep 232011

I was on Radio 5 last night seeking to describe why the IMF and others can say at the same time that some states should be putting austerity measures whilst others (such as the UK) should be turning on the taps of public spending.

A metaphor occurred to me which no doubt I will use some time, but which I’ll note down now lest I forget.

Until 2008 it was as if the economies of Europe were flooding: cash flowed like every tap was open and we were awash in debt based money. The trouble was we came close to drowning.

From 2010 onwards almost every tap has been turned off. What was a flood has turned into what’s a trickle at best. We’re suffering a drought of cash. The trouble is we’re now close to dehydration.

What we now need is for those states that have reservoirs they can call on – like Germany, the US and UK who can all borrow right now at what are in effect negative rates of interest – to turn the taps on a bit not so that we have a flood, but to at least put enough in the rivers to prevent drought.

Either / or is what we’ve had and it’s been a disaster.

What we need is a little economic maturity to realise that it’s not paradoxical but is in fact entirely logical that different countries mat have different economic policies all at the same time because those diferences suit their circumstances.

I know that doesn’t work on the neoliberal blackboard which has dictated both the flood and the drought. But that’s why we need courageous politicians able to make big decisions or themselves on what they need to do in the best interests of us.

The real crisis is the shortage of supply of such people.

HMRC and the tax gap: their data just does not stack at all (wonkish, but worth reading)

HMRC, Tax gap, Uncategorized 28 Responses »

Sep 232011

I thought it would be useful to highlight the incredibly small sample base of HMRC’s tax gap data for direct taxes, published this weak.

As I have explained at length here, HMRC have got a reasonable methodology for estimating the tax gap for VAT and other direct taxes and one that is hopelessly inadequate for calculating the tax gap on direct taxes like income tax, national insurance, corporation tax and capital gains tax.

As they note in their report these direct tax gaps are based on:

The main methods used to estimate tax gaps for direct taxes are random enquiries, risk registers and data matching. These are discussed in more detail below. In addition, where robust methodologies have not yet been developed, an illustrative estimate of the tax gap is given based on expert opinion or derived by selecting the nearest equivalent measured gap.

Random enquiry programmes involve samples of taxpayers being selected at random and their returns being subjected to full enquiries by HMRC officers. HMRC has random enquiry programmes for individuals subject to Self Assessment, small and medium-sized businesses subject to Corporation Tax Self Assessment and small and medium-sized employers. The sizes of the samples for the three programmes are shown in Table 7.1 below.

So, the results of findings and errors noted in these random enquiries are extrapolated to calculate the tax gap. This is the table in question indicating the number of random enquiries used as the basis for this work:

Some of the data in this table does itself give rise to enormous questions of credibility.

For example, can anyone, for a moment, believe that HMRC really did exactly 1,649 PAYE audits without ever varying by just one more or one less in each and every year from 2000 to 2008? I candidly simply do not believe them. That is not plausible and to publish date of the tax cut on the basis of such utterly implausible data undermines the credibility of any resulting estimate, completely and entirely.

Second, note that the extrapolation is based on self assessment tax returns received. I have researched this issue with regard to limited companies for a report I published here. Let me show some data from that report, all based on parliamentary answers. First of all this:

In 2009 over 30% of companies in existence weren’t asked for a tax return by HMRC, a rapidly increasing trend. Only 18.5% of companies certified themselves dormant. But note: we don’t know the dormants and the companies not asked are the same, and nor do HMRC. Nor do we know they’re actually dormant and HMRC definitely does not. They have no way of knowing – the data is not available to them (I’ve checked, I’ve asked). All we do know is HMRC turned a blind eye. None of those companies submit a tax return. So they can’t be included in the tax gap data because that’s based solely on those who do submit returns. But what the heck? Why worry about organised crime that abuses this it evade tax, or estimating how much it’s worth?

Second look at this:

Of the companies asked for returns vast numbers don’t submit then – in 2010 over a third ignored the request to submit the return altogether. But they’re not in the tax gap data either because HMRC investigate returns they get to form their view – not the ones they don’t get. But less than half of all companies submit returns.

So now look at this logic which I have extrapolated from the data available here and in the report:

In 2009-10 there were likely to have been a net 1.9 million trading companies in the UK. I stress: I have allowed for near enough half a million dormant companies and companies that are formed and might never trade in coming to this number, or nearly 700,000 dormants in all. 734,000 of these did not submit a tax return. More than half a million probably owed tax.

How many companies did HMRC investigate in the year – who submitted tax returns? Based on the above data, maybe 400.

And you wonder why we have a tax gap?

And you wonder why I say their data is wrong?

And that’s not the only absurd ratio to be picked out from this data. There are near enough 30 million tax payers in the UK and they randomly enquire of 3,200 a year – a number halved when staff cuts began, please note. The result is a person in the UK is likely to get a random tax enquiry once every 9,375 years, or thereabouts. That’s a massive deterrent, isn’t it? And also a far from adequate base for extrapolation of data of this sort.

Let’s put this another way: these estimates show:

a) How inadequate is the work of HMRC due to the shortage of resources;

b) How inadequate the management of HMRC is for agreeing to those resources;

c) How inadequate is the HMRC estimate of the tax gap;

d) How appalling is regulation of small companies in this country;

e) How likely it is that the tax gap is vastly bigger than HMRC say (as I suggest, often).

But still ministers will argue otherwise. What are they trying to hide? Could it be they really don’t want to collect tax from the crooks and the cheats? Is that their reason for denying the truth? Anything else is very hard to imagine.

At the Soho literary festival on Sunday

Blogging Comments Off

Sep 232011

At the Soho literary festival on Sunday:

Where Did Our Money Go?
With the new economics foundation

Sunday 25th September 2011 - 1:00pm.

tickets £8

AUDITORIUM: The Main Theatre

The new economics foundation presents Where Did Our Money Go? And What Can We Do About It? Three money experts, Ann Pettifor, Andrew Simms and Richard Murphy reveal where our money went, and what can be done differently, just over three years exactly from the day that the global economy nearly collapsed and we made billions available to prop up the failing banks….. Read more about the event…

I should be careful what I ask for: sometimes HMRC act on it

HMRC, Tax evasion 22 Responses »

Sep 232011

A few months ago people asked me for examples of people who might be moonlighting.

One of the examples I gave was private turos – cramming children to get their GCSEs.

This was met with howls of derision.

Now HMRC are targeting them.

I should careful of what I ask for. Sometimes HMRC listen.

A mature approach to nationalised banking

Banking, Uncategorized 2 Responses »

Sep 232011

A week or so ago I wrote that if we faced another economic meltdown we should face reality and nationalise banking as a whole for the duration of what, as Vince Cable clearly thinks it is, the economic war. I made it clear that I was writing in a particular context and conditionally i.e. I was only proposing this if and when we saw another major banking failure threatening global economic crisis.

However, those who I might call the usual right-wing suspects through their hands up in horror, seeking examples, as they always do, of banks that might not need nationalisation for some particular and special reason (for example, being owned by a charity) as if that proved that the banking system as a whole was in good order and quite able to survive even if some banks would need another massive state bailout. Candidly, I find that logic bizarre: we have seen the consequences of bailing out banks once without interfering in their structure and without demanding complete and effective reorganisation of the system they use to hold the world to ransom. I can see no reasonable grounds for repeating that exercise and nothing but state control could now result in the reorganisation we need when, as I think almost inevitable, the banks fail again.

Is there evidence to support my view? I think it’s accumulating thick and fast. The IMF is now demanding that 16 banks be recapitalised in Europe at a cost of $300 billion. And that is only the small beer: these are the banks that failed stress tests which did not take the possibility of sovereign debt default into account. We know that debt default is now, for all practical purposes, inevitable. We know as a consequence that many other banks, most of them subject to recent downgrades, are vulnerable. the number is so great that the banking system is a whole (and banking is a system, it cannot be viewed as a series of separate entities each standing independent of the other) is now likely to fail again at some point fairly soon. I am not being melodramatic: I’m simply stating what is an observable, and obvious, trajectory of likely events consequential upon current economic happenings. That’s why having a plan to deal with this situation seems so vital to me.

And I noticed this morning that Samuel Brittan, writing in the Financial Times, is also demanding a fundamental role in the change of banks, and the nationalised banks behave as if they are nationalised banks. As he puts it:

My … proposal [is] for the future of the three UK banks in which the state has acquired a large stakeholding: namely Northern Rock, in which the state holding is 100 per cent; RBS, in which it is 83 per cent; and Lloyds (including HBOS), in which its holdings are 41 per cent. .. The official policy is to privatise these holdings when the time is ripe.

My alternative proposal is to use the state-owned banks as the nucleus of Mr Posen’s proposed state lending bank for small and medium enterprises. Who knows what obstacles well-paid lawyers could think up? But in principle this could start next week. The main thing needed would be a Treasury directive to these banks to replace profit maximisation with a requirement to promote economic recovery. In practice this would mean that they would lend for projects which would be just below the threshold of viability in normal banking terms. To the conventional mind this should surely be more appealing than burying bank notes in holes in the ground for private enterprise to extract, or dropping these notes by helicopter. Anything extra lent by these banks would add to demand in the economy and if there is any value at all in the structures they help to finance, they should add to its supply potential as well. Above all, being bank loans, they would not add to that horror of horrors, the UK budget deficit. And if any European Union officials are disposed to argue the point, the mess they are making in their own euro backyard should soon silence them.

Quite so. Absolutely right: it sounds like he’s embraced my idea of Green Quantitative Easing.

As he adds:

Whether any of this would be necessary in a world with an adult attitude to budget deficits is far from certain. But in the world as it is, it is surely far better than doing nothing or leaving everything to the Bank of England. It is time to remember that banks exist to serve the public and not vice versa. There may be practical objections to my proposal. But its fate should not depend on the reactions of heads of banks or their spokesman.

Two important conditions are noted therein: first that we have an adult debate, and secondly that the banks’ self-interest, and the noisy protests of their trolls who populate much of the internet and media, be excluded from this conversation so that the interests of the people of this country be considered above all else.

That’s not too much to ask, but right now it seems almost impossible to imagine. And yet, give it weeks, and this is what we must do. Indeed, as Samuel Brittan says, giving instructions to the three banks in question to start lending today on the basis of their nationalised status would be a quite extraordinarily simple, effective, and purposive approach to solving our current economic problems.

The trouble is George Osborne is still playing heeding the bankers right now. And until that changes we’re in trouble.

Banking: Seeking a New Paradigm

Banking Comments Off

Sep 222011

I’ve been asked to draw attention to an invitation to attend a free public event at the European Conference on Banking and the Economy (‘Banking: Seeking a New Paradigm’) on 29th September 2011 and am happy to do so.

The conference will involve many eminent speakers, including a keynote address by Lord Adair Turner, chairman of the FSA, and will focus on the following themes:

- Bank regulation and bank reform.

- How can local banking be revived in the UK?

- How to get banks to support sustainable, energy-efficient and low-carbon growth

Hosted by the Centre for Banking, Finance and Sustainable Development at the University of Southampton, the conference will take place in Winchester, 55 minutes by train from London Waterloo.

Co-sponsors include HSBC, Winchester City Council, nef (the new economics foundation), Money Macro and Finance Research Group and the International Review of Financial Analysis.

To book a place in the free public event which runs from 15:30 to 19:00, please email J.L.Hazell@soton.ac.uk.

According to HMRC’s tax gap report offshore tax evasion costs them £3 million (yes, million) a year

Tax gap 12 Responses »

Sep 222011

I am well aware that ministers and HMRC’s senior management like to say my criticism of their tax gap figure is misplaced. After all they say, admitting to £35bn of missing tax is a big deal, so how could they possibly have got it wrong?

Well, the detail shows why. I searched their report for a key word. It was offshore. It comes up once, on page 45 where they say by way of introduction:

By matching data supplied by third parties to HMRC records, it has been possible to produce an estimate of the tax gap relating to income and capital gains of individuals taxed through PAYE but who do not receive SA returns. The income covered would not have been earned from employment and therefore the associated tax liability was not recovered under the PAYE system. As these individuals did not receive SA returns, the income and gains were also not reported through this means and thus additional liability was due.

This is the way in which they estimate the total impact of the hidden economy – of which offshore is, by definition, a part.

So you then turn to table 8.8 to see how much they think they lose to offshore and there’s the number in all its glory:

Offshore bank interest – estimated tax gap – £3 million

Now the UK has just claimed it has signed a deal with Switzerland – just one, albeit significant tax haven – which they claim will recover £5 billion of tax. And then there was the £3bn they claimed they’d get in Liechtenstein. And that’s before we build in the Crown Dependencies and Cayman, the BVI and so on and on and on.

But in the tax gap report they say the total loss from offshore is £3 million a year. OK, they extrapolate that – but put it ion context, they say the loss from undeclared rental income is 47 times higher and from UK interest is 22 times higher.

Who are they kidding?

This data is so obviously wrong it takes seconds to realise the deficiencies and gross under estimates in it. But they put it out as if it’s authoritative and then dismiss criticism of it as if it is absurd they could be wrong. And yet they glaringly obviously are.

No wonder I stick by my estimate of the tax gap. And so should everyone else.