Budget » Tax Research UK

The new tax avoidance strategy is reiteration of old policy – to disguise the massive boost for tax avoidance inside Osborne’s budget

Budget, Conservatives, Tax avoidance Comments Off

Mar 242011

I’ve read the government’s new anti-avoidance strategy for tax. It’s not a good read. For that reason I think a translation is needed.

First of all, as I’ve already noted, the government has a massive problem in agreeing how big this issue is. That does not help them politically, and undermines much of the forward.

Whatever the issue then is, the strategy is laid out in four parts, each being allocated a chapter in their paper.

Chapter one says there is a strategy. It’s a little hard to work out what it is due to use of a weird graphic, but in summary HMRC says it will (to quote the report):

‚Ä¢ prevent avoidance at the outset where possible;

‚Ä¢ detect it early where it persists; and

‚Ä¢ counter it effectively through legislative change or challenge by HMRC.

And if I’m candid I’m having real problems spotting the changes from anything I’ve heard in the last decade or so.

So. Let’s move to chapter 2. This says HMRC will work on:

‚Ä¢ a new proposal to reduce the cash flow benefits that taxpayers can gain from using high risk avoidance schemes;

‚Ä¢ a new rolling programme of reviews on high risk areas of the tax code;

‚Ä¢ work in hand on a GAAR; and

‚Ä¢ the targeted tax measures that sit alongside this strategic work to address specific avoidance risks that have emerged.

The first is good – it basically says a taxpayer can’t string a dispute out to simply avoid paying. That’s neat – but is it compliant with natural justice? Wait for that to go to court, I suggest.

The second one simply means there’s going to be more consultation.

The third is a consultation already in progress – but indicates welcome support for a general anti-avoidance principle which I have long argued for and which is in the Coalition programme partly at least because I persuaded the Lib Dems of its merits, whilst the fourth means that, as ever, loopholes will be closed as spotted.

So in this chapter the only real change is bullet point one. Worthy, but not exciting and open to dispute, in summary. And all a long way off in legislative terms by the way. Years away in some cases.

Does chapter 3 offer more? No, none at all. It says H M Revenue & Customs will challenge avoiders and litigate where necessary. I won’t mention the word V***f**e in this context. OK, there’s welcome stuff about working on high risk cases. But let’s also be blunt, this has been going on for years with the result that those working on medium and small business have been deprived of resources – with consequent increases in tax evasion. I really don’t see much new and the fact that much of the chapter is used to summarise the focus of past litigation suggest the authors don’t either.

Finally, there’s chapter 4. And this says the government will publish as much of the Finance Bill as early as it can to allow for consultation – something they’re already doing. And it says they’ll try to limit the number of changes to the law made between budgets – restricting them solely to cases where it is necessary to protect revenue, just as now.

In other words, bar the first, rather minor and challengeable bullet point in chapter 2 there is nothing new of any consequence whatsoever in this so called strategy.

Instead what the government did do yesterday was provide a massive boost for the tax planning industry. It really makes me think Osborne really should rename the Treasury the Ministry of Truth.

The budget: the biggest boost in the arm for the tax abuse industry that it’s had in a long time

Budget, Conservatives, Tax avoidance Comments Off

Mar 242011

From the Guardian this morning:

George Osborne has been accused of making “token gestures” in his attack on tax avoidance after the chancellor pledged in his budget speech that a crackdown would boost receipts by £1bn.

Richard Murphy, a director at Tax Research UK, said: “I can’t remember a chancellor who didn’t say in a budget that he was going to raise £1bn by tackling tax avoidance. £1bn is the average raise. These are token gestures. If he was really serious, he would give HM Revenue & Customs a couple of billion a year to tackle this. I reckon they could raise £20bn.

In the 2009 budget, the then chancellor, Alistair Darling, said: “We have identified loopholes and schemes which, when closed, will result in £1bn of extra revenue over the next three years.” In the run-up to last year’s general election, the Liberal Democrats promised to find more than £12bnby cracking down on tax concessions and loopholes.

Tax avoidance cost HMRC £14bn in 2008, Osborne said as he announced a clampdown on tax avoidance by the better-off. Measures to bring in higher tax revenues to close Britain’s budget deficit include plans to close down three forms of stamp duty land tax avoidance, reforms to capital gains tax and an assault on rarely repaid lifetime loans handed out by companies to their key executives.

The chancellor told the House that his measures would “raise £1bn and £4bn over the parliament” in the harshest attack “on tax avoidance in any budget in recent years”.

The £1bn figure follows Osborne’s announcement in December that he would boost tax receipts by £2bn over the next four years. He now believes tougher enforcement by HMRC and additional measures will double that figure.

Tax experts say there are many areas in which HMRC could claw back duties. In a report published this month, Tax Research UK stated that the country is missing out on £16bn in taxes because little is known about more than 500,000 companies that were dissolved in the year to March 2010, which often “disappeared forever”.

To quote another part of the Guardian this morning:

Chancellor George Osborne has been accused of providing a “boost” for the UK’s tax avoidance industry despite announcing a crackdown on the practice that would raise tax receipts by £1bn.

Richard Murphy, a director at Tax Research UK, said: “Will this budgethelp beat tax avoidance? No, it won’t. It’s the biggest boost in the arm for the tax abuse industry that it’s had in a long time. Osborne knows who his friends are. I can’t remember a chancellor who didn’t say in a budget that he was going to raise £1bn by tackling tax avoidance. A billion pounds is the average raise. These are token gestures. If he was really serious, he would give HM Revenue & Customs a couple of billion a year to tackle this. I reckon they could raise £20bn. I am completely underwhelmed.”

Murphy fears that “tax planning opportunities” will have increased almost “endlessly” because of changes in the budget such as the taxation of money being brought onshore by non-doms and tax cuts for businesses’ foreign operations.

To list the new opprtunities:

a) Massive will rewriting required for gifts to charities to abuse Inheritance tax;

b) There will be a proliferation of small new charities – and HMRC and the Charity Commission have no resources to monitor them. Expect evasion to increase dramatically – it’s already a problem;

c) Increase in enterprise incentive scheme allowances – and a big new marketing push for them (which helped create the dot.com boom);

d) New rules for non-doms to bring in cash;

e) Massive overseas opprtunities for planning under new controlled foreign company rules;

f) A rush to exploit the new 5.75% offshore treasury function rules for companies.

Oh, what happy days George has made for the tax avoiders.

This mornings email from the FT damning George

Budget, Conservatives Comments Off

Mar 242011

I loved the email summary of the budget from the FT this morning. It said:

In spite of rising inflation, lower short-term growth and higher medium-term borrowing, Mr Osborne said his plan to cut the deficit was on track

So that’s what the FT thinks – Osborne has blind faith in the face of the evidence of his failure.

I suspect there are many who share that view this morning.

A budget for tax avoiders everywhere but the Channel Islands

Budget 4 Responses »

Mar 232011

I have the following comment on the Guardian site this afternoon:

George Osborne said this was a budget to tackle avoidance. How wrong he was. Lawyers and accountants all over the country must be jumping for joy this afternoon – unless they’re in the Channel Islands.

Employee benefit trusts – often based in Jersey – are going to be hit hard by this budget, and rightly so. These are last remnants of the age-old pursuit of avoiding PAYE. If they’re consigned to history Osborne’s done at least one thing right.

And Osborne gets full marks* for tackling another abuse long overdue to be abolished – which is the absurd industry shipping CDs, DVDs, computer memory and other items from the UK to the Channel Islands and then straight back again simply to avoid VAT. At least £200m a year was lost in this way – and countless fuel wasted. This is a reform that will cost consumers a little, cost Jersey and Guernsey a lot, and which will put jobs back on the high street.

But after that it was almost all good news for tax avoiders. The new charity rules sound open to massive abuse – and the Charity Commission and HM Revenue & Customs will need massive resources to police them, which they haven’t been given.

The inheritance tax rules on gifts will be keeping will writers in business for years.

A new 5.75% tax rate on the treasury functions of large corporations in tax havens (yes, you read that right – 5.75%) will see corporate money flowing out of the UK faster than it will be possible to count.

And big business gets more tax cuts for its foreign operations which will increase their tax planning opportunities almost endlessly.

The same will be true for non-domiciled people – now able to bring money into the UK tax free through a new loophole for investment.

Will this budget help beat tax avoidance? No, it won’t. It’s the biggest boost in the arm for the tax abuse industry that it’s had in a long time. Osborne knows who his friends are.

* Written before I’d read all the detail – now reduced to 5/10

The great tax heist is worse than we dared fear – 5.75% tax rate for big business

Budget, Conservatives Comments Off

Mar 232011

The budget has announced that:

New rules will include a finance company partial exemption that, in broad terms, results in an effective UK tax rate of one quarter of the main rate on profits derived from overseas group financing arrangements (equivalent to 5.75 per cent by 2014). This will be preceded by interim improvements to the current CFC rules in Finance Bill 2011 for accounting periods beginning on or after 1 January 2011 to make the rules easier to operate ahead of full reform;

Let’s be clear what this means.

First it means large companies can shift large amounts of their profit offshore and pay just 5.75% on them. This is a massive tax cut for big bsuiness.

Second, note this encourages multinational corporations to move functions and emplyment out of the UK – not bring them to the UK. Which is in itself amazing.

Third, this is a massive boost for tax havens.

Fourth, the opportunities for avoidance will, no doubt be legion.

I can only presume Osborne intended to kiss large parts of big business corporation tax revenues goodbye. Because that is what he will be doing.

And let’s also be clear what this also means – if you’re big enough this says you can hold this government to ransom and demand one of the lowest tax rates we have ever seen on anything.

So much for standing up for the UK.

So much for supporting small business who will pay much, much ore.

So much for ‘we’re all in this together’.

It’s none of these. It’s one rule for the rich…..

Channel Islands’ VAT abuse – good news but not good enough

Budget, Conservatives, Guernsey, Jersey, VAT Comments Off

Mar 232011

The Budget says:

The Government will reduce the Low Value Consignment Relief (LVCR) threshold from £18 to £15 from November 2011. In addition, the Government will explore options with the European Commission to limit the scope of the relief so that it can no longer be exploited for a purpose it was not intended for. The Government will also revisit the level of the LVCR in Budget 2012, if discussions with the European Commission do not produce a workable solution to the problem of exploitation of the relief.

That’s good news.

But it’s not good enough. This allows vast amounts of abuse to continue – on almost all music for example.

Unless the government is intent on stopping the round tripping of goods in the next year then this is token gesturism.

I sincerely hope that is not true.

The budget – an overall summary – an admission of Osborne’s failure

Budget, Conservatives, Economics Comments Off

Mar 232011

This was a tedious budget marked by repetition after repetition of the little that Osborne had to say – much of which will add enormously to the complexity of tax law.

But the most important point is the simplest – that this was an admission of failure. Growth forecasts are down. Unemployment and inflation are already up. And a man who set his stall on clearing the deficit has now admitted that there will be £29bn left at the end of the parliament. What an extraordinary admission that his policies aren’t working.

And it will get much worse. This is just the beginning of the disaster he’s unfolding.

What are the worst things Osborne can do today?

Budget, Conservatives Comments Off

Mar 232011

I’ve said what I’d like from the budget. But what are the things I fear from it?

Sicking to Plan A is, of course, the worst thing George Osborne can do. Cutting the public sector when there is no chance o a private sector recovery – in no small part precisely because he’s cutting the public sector – is the recipe for economic disaster for this country – and rising unemployment, borrowing and inflation matched by lower growth are the proof of it.

Next, his plan to privatise everything is a disaster. It opens up all government services to competition – competition the private sector can always win because it cherry picks and will never budget for training and investment. There will be no level playing field. The destruction of much that we value will inevitably follow whilst the public services and tax revenues of this country will be looted for offshore gain.

After that he will, of course, confirm h=commitment to destroying the NHS.

I strongly suspect he will announce Northern Ireland will be allowed a new 10% corporation tax rate – something that I am not at all sure would be legal. It will also cost the people of Northern Ireland dear in grants that are essential to their well being – but which will be foregone to make a tax haven within the United Kingdom. As indication of his real priorities this might be totemic.

Big business will, of course, get its tax cuts and they may be speeded up. And he will confirm that he is letting them move as much of their profit offshore as they want (given that after Vodafone HMRC has basically thrown in the towel in arguing with them). The new rules on controlled foreign companies will be one of the biggest tax cuts ever announced in the UK – simply by removing so much income from tax.

He may well announce plans to merge tax and national insurance – but don’t buy the simplicity line. That’s not what this is about. This can’t be done without harming pensioners – who don’t pay national insurance now. And the plan is, of course, to cut tax rates. The aim is to ensure that private medical insurance and reduced pensions become the norm. This is the backdoor route to destroying the welfare state – and delivering US style health care provision which costs twice as much as the UK and leaves 25% unprovided for. And nothing will be simplified as there will have to be a new payroll tax to replace NI – one tax in, one tax out then.

It’s rumoured he’ll help new home buyers. But subsidies just increase land prices. An empty property tax would force property onto the market and push prices down, whilst releasing what are in effect brown field sites for renovation. That’s good news all round – except for those who hold such property for speculation. So why won’t he do it?

And for small business there will be enterprise zones – which have only ever been used by tax avoiders and never by real entrepreneurs. At best they merely relocate what will happen anyway. At worst they provide a marketing opportunity for those selling tax avoidance.

Anything else? I’ll welcome an increase in the personal allowance. But for those on the margin VAT increases and benefit cuts will have reclaimed it all already – £120 a year saved is nothing compared to the costs he’s imposing.

This is a budget by a desperate man – desperate to get his destruction of UK public services in place before he’s driven from office by the failure of his economic policies. We’ll all pay the price for that.

What I also want for the Budget

Budget, Conservatives, Country-by-country, Tax avoidance, Tax evasion 2 Responses »

Mar 232011

I wrote yesterday about what I wanted for budget day.

Let’s add some more:

1) The end to Channel Islands’ VAT abuse

2) Reform to the domicile rule

3) £2 billion dedicated a year to closing the tax gap – with a yield of up to £20 bn and 30,000 jobs

4) 25% of all pension contributions to be invested in employment creating investment in the UK as a condition of tax relief

5) The adoption of Caroline Lucas’ Tax and Financial Transparency Bill as government policy – meaning we would have country-by-country reporting in the UK and that all bank accounts of all limited comanies would have to be notified to HMRC – meaning those who are trading would be known so they could not avoid their liabilities;

6) A general anti-avidance principle

7) An investment income surcharge to stop national insurance avoidance – so much simpler than merging it with income tax

50% tax at £100,000 of income – proceeds used to raise personal allowance at basic rate AND take people out of NIC on low income

9) A restriction on tax allowances available to all with income over £100,000 to a maximum of £5,000 a year – so that the poorest in this country don’t subsidies the savings of the richest as they do at present. Reallocate revenue raised as for (8)

10) Require beneficial ownership of all companies in UK on public record and that all directors prove their identities to Companies House

11) Create a public register of trusts

12) Demand (11) and (12) of the Crown Dependencies and all British Overseas Territories

13) Full UK support for the extension of the EU Savings Tax Directive, Common Consolidated Corporate Tax Base and full country-by-country reporting.

14) An empty property tax

15) Reform to the residence rules.

And now I’ve got a train to catch so I’ll stop there.

What do I realistically expect?:

a) Local authority bonds

b) Reform to Channel Islands’ VAT rules

c) Reform to domicile rule

d) Mention of tax residence