In May I published my updated work on tax evasion in the UK. Entitled 'In the Shade', one of the explanations that it offered for the estimated £47 billion of tax fraud taking place in the UK was the ease with which companies can be registered and then subsequently be removed from the Register of Companies without the company in question having ever filed a set of accounts or disclosed who its real owners might be. Around 400,000 companies a year are struck off the Register each year, with a considerable number of them having never filed any information at all. I have estimated that the annual cost of these ' shadow companies' might be £11 billion.
You would have thought that in the face this evidence, and the evidence that HMRC do not either have the resources or the time to investigate sufficient of these companies before they disappear, that if a change in the law was to be made it would be to tighten up this procedure to ensure that it is harder for a company to disappear without trace, but the exact opposite has been announced today. Section 91 of the Small Business, Enterprise and Employment Bill almost exactly halves time it will take for a company to be struck from the Register, reducing it from six months to three.
Tax fraudsters must be rubbing their hands with glee. It's just become considerably easier for them to get away with a crime without almost anyone noticing.
How stupid can the government be?
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With numbers like 47 gigapounds being slung aound, one can’t help wondering if the correct answer to your final question is “as stupid as they’re paid to be.”
I agree with you, and always have done, that something significant should be done about companies not fulfilling their obligations. Whether that means stricter enforcement or lesser/different obligations is an interesting moot point.
Where I struggle is with the value of evasion that you get from this. I expect that a significant majority of these companies carry on no trade at all, and many more would report no taxable activity or a de minimis level that would not justify the costs of investigation. Note that I accept this is based on no evidence at all, just my supposition, and hence I’m happy to see an investment in a large scale operation to see what’s out there.
But my bigger issue is that I think your assumptions assume that there is significant criminal activity going on in these companies (criminal, often, purely because of the intention to evade tax). Why would someone carrying on that activity do so through a limited company and, to compound that, draw some attention to themselves by ignoring their duties to file and report? I see no possible explination for that happening on the scale you suggest. It’s not that none of this activity exists somewhere in the black/grey economy, it’s just that you won’t find it in the place you’re looking.
Turning, briefly, to the topic of your post.. I’d suggest that making it difficult to strike companies off leads to more phantom companies littering the register. Professionally, I am keen on good housekeeping.. I don’t like messy structures and dormant companies making the place look untidy – but when I finally got the chance to get rid of a load of historic nonsense from the group I work for, the work and costs involved were ridiculous given that the project delivered no economic benefit. We ploughed through it, but I can see why so many people don’t bother.
The reasons for using a company are
A) It can very easily be anonymous
B). No questions are asked
C) The risk dies with the company – it dies not if done in own known
Think if them as licenced identity theft
You clearly do not have a criminal mind – which is good
I look for says to abuse – and see companies as perfect opportunity. Around the world so do millions of others. I just see it though, they do it
“We are at the end of a five-thousand-year-plus historical process during which human society grew in scale while it abandoned the early indigenous wisdom councils and communal decision-making,” he writes in The Open Source Everything Manifesto. “Power was centralised in the hands of increasingly specialized ‘elites’ and ‘experts’ who not only failed to achieve all they promised but used secrecy and the control of information to deceive the public into allowing them to retain power over community resources that they ultimately looted.”
http://www.zerohedge.com/news/2014-06-25/gap-between-those-money-those-knowledge-has-grown-catastrophic