The Parliamentary Accounts Committee has said today that there must be a detailed review of errors made in tax settlement cases by HMRC, and that is welcome.
It also says that there needs to be a thorough review of governance at HMRC and that is more welcome. That is a matter of even bigger concern than the errors made because this is an organisation with enormous responsibility for the economic well being of the country that has clearly lost its way. That is profoundly worrying. Only real change, including of many on the Board, can rectify this fault, and those coming in need to demonstrate first that they know about tax and second that they are committed to collecting it.
More important than either issue though is the issue the PAC missed. This is the need to reform how we assess and collect tax on this country. Easy, lazy and simply flawed arguments for reform from those who have never been near the sharp end of tax are easy to propose, as we saw in the Guardian yesterday, and they serve no interests bar those of the elite that usually promote them. What we do need is a thorough rethinking of the whole tax system.
I do, of course, address some of these issues in The Courageous State, and I will be going much further in my next book - which will be solely dedicated to tax. For now let me address some of the key issues.
First, we need to reform the legal structure of small business so that it is distinct from large businesses. Only that way can we deliver the appropriate tax systems designed to meet the needs of each of them.
Second, the idea that a group of companies is made up of entirely separate units for tax - which hands all the weaponry of tax abuse to companies, has to be shattered. Unitary taxation has to come into play. Unitary taxation has a role here.
Third we have to rethink the concept of tax residence in a globalised era.
Fourth accounting to meet the needs of tax authorities has to be a priority - and as much so as accounting for shareholders who have no interest in the company in which they hold shares. This is where country-by-country reporting comes in.
Fifth, we need to ensure tax is not lost t tax havens. Withholding taxes need to play a much bigger part in tax than they do now.
Sixth, wealth taxes undoubtedly matter, but we have to shatter tax haven secrecy first.
Seventh, we have to ensure Revenue authorities can access data easily on those who abuse. Why shouldn't the power to investigate be granted to tax agencies that need it to protect honest tax payers from abuse?
Eight, Companies House has to work if tax is to be collected - and it is a miserable failure right now due to our obsession with deregulation.
I could go on. My point is all this is possible and the right direction for travel. What is needed is the will to collect tax and a belief in what tax can do - both of which seem to be lost to a ruling leite in this country. And it's that belief we have to restore as much as the technical ability to collect tax.
It's a big deal.
It can be done.
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Surely if we apply the correct income, corporation and capital gains tax there is no need for a separate wealth tax? I also agree with some sort of land tax, separate from council tax and I wholeheartedly agree than tax havens should be smashed.
Hope you have a good Christmas Richard.
Mike, the wealth tax is needed as a sort of “windfall” action, to try to redress the gross imbalance – something which, as Richard has frequuently pointed out (and as the authors of “The Spirit Balance” and copious research demonstrate) distorts the efficient operation of a society in the interests of ALL. In truth, we are, in the end “all in it together”, when viewed from the viewpoint of the planet as a whole, and we will all either float together or sink separately. The problem is that the 1% are short-sighted enough to believe they can cheat even the ecological odds – only possible if they are rich enough and technologically advanced enough to find another planet (which they would then proceed to trash just as they have this one). This is a solution of very ancient provenance, basically all the way back to Solon, in 6th century Greece. He brought in what was called the “seisachteia”, which was the cancelling of all peasant indebtedness, when the peasant farmers had become so indebted to the rich landlords they were unable to function. This “seisachteia” was in the interests of both sides, and so would a wealth tax be, which could be abrogated, or at least amended, once some sort of fair balance had been restored.
Andrew, Noted, but surely the tax system is designed to address the imbalance of wealth (i.e. the less well off pay less tax and the wealthy pay more)? An extra tax on wealth would not only discourage entrepreneurship and business, something that we are trying to promote to put more people back into work? My problem is that another tax would just encourage people to avoid more when a better income tax system would be fairer?
There is no evidence more tax discourages entrepreneurship or less tax discourages tax evasion and avoidance – which is rife in low tax stakes
Policy is best based on fact, not myth
Part of the comment by the PAC today was on HMRCs insistence that the tax affairs of large corporates are confidential. Why? They are not natural persons, they can manage with a bit less privacy than the rest of us. Why don’t PAC members bring forward a bill to limit corporate tax confidentiality?
I have some sympathy with the appearance of a cosy relationship with large corporates. The same Inspector has to deal with a large and complex group for a number of years and because of the natural reticence of the “customer” they have to try a forge a relationship to get any serious information out of them. Naturally this is completely wrong but this is the way consultations showed that the customers liked it. I seem to recollect it was Hartnett that pushed this through.
In reducing confidentiality the first thing that should be published is HMRCs risk rating for each corporate they deal with, together with a list of the unresolved issues by tax at stake for each. Let the markets and investors decide on how worthy these activities make them for both investment and as commercial partners. It would give CSR a real boost too. The outcome of the tax at risk should also be published so we can see how good a job HMRC do in turning their enquiries into cash for the exchequer.
One thing that would cut alot of avoidance crap would be to tax quoted companies on the profits declared in their accounts and to prohibit a tax deduction for remuneration for all employees paid over £150,000 per annum each, oh and prohibit “corporate debt” and forex deductions too.
You’re right that hartnett created this idea
And I agree with the solutions
I will blog some today