As I am on a train from Paris right now I'm only just catching up with this morning's news about HMRC showing George Osbone 20 anonymised tax returns revealing that just 20 people in the UK have avoided £145 million of tax between them.
The story should not be news. I warned in 2008 that the scale of tax avoidance was far higher than HMRC calculated. This was in my report 'The Missing Billions' published by the TUC that year, in which I said there was at least £13 billion of personal ta avoidance in the UK and a further £8 billion of excess reliefs granted to very wealthy people. http://www.tuc.org.uk/touchstone/missingbillions/1missingbillions.pdf (apologies - links are harder on the iPad).
I have always maintained, hard that such estimates are, this extrapolation of HMRC's own data (much of it hardly updated since then) was a reasonable guide to what was really happening in the UK economy. HMRC always said otherwise - vociferously, and rather personally, taking at face value the absurd observations of the libertarian right and, to some degree, the Oxford Centre for Business Taxation on such issues. This is reflected in their last estimate of tax avoidance. In that report, published last September, they said total tax avoidance by individuals of income tax, national insurance and capital gains tax combined was just £1.5 billion. http://www.hmrc.gov.uk/stats/mtg-2011.pdf Now we can really see how ludicrous that estimate always was. HMRC knew all along that 20 people accounted for almost 10% of that sum.
I have long maintained ministers have not told the truth on this issue, and that HMRC have quite deliberately misinformed on this issue, both to ministers and the public. Now it is very clear that I was right about that. I don't expect, and know I won't get an apology. But what I do expect is action to tackle this issue at long last, and much greater honesty in future, plus a willingness on the part of HMRC to dismiss the very obvious and ludicrous claims of the economic far right which they have been far too willing to embrace.
If all Orsborne has done is issue an interview to support his cap on tax reliefs at £50,000 that's not enough. That ignores altogether abuse via capital taxation. It also ignores the massive abuse possible via companies. Real change is needed. Having let the cat out of the bag that tax avoidance really is much higher than official estimates Osborne has to do three things.
The first is re-estimate the issue. I'd suggest that involves talking to the very few people who have been right about it to date, including me.
Second, definitions of abuse have to very clearly be redefined. The mantra, too readily accepted by HMRC 'that it's legal so it's acceptable' has to be confined to the bin.
Third, we have to have comprehensive action to tackle this abuse. Now. Nothing less will do.
Will he do those three things? Let's wait and see. But don't hold your breath.
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How do we know that this £145bn is explained by “tax avoidance”? If they are using the domicile rule, investing in EIS, VCT, giving to charity etc, as no doubt many of them are, then this cannot be said to be tax avoidance, but tax compliance.
Of course 10% tax paid on total income looks very low, but neither you nor Osborne cannot simply shout “avoidance” without looking at the Returns and understanding what has been claimed (which Osborne no doubt doesn’t).
And what is £8bn of “excess reliefs granted to the very wealthy”? Excess according to you? Maybe. But hardly scientific to lump all these numbers together and deliberate misinform people.
Excessive now according to HMRC…..
How is that misinforming anyone?
I’m seeking to change the law – and am succeeding in doing so. Is that what you don’t like and continue to misinform?
Where does HMRC say it is “excessive”?
My problem is not with you seeking to change the law – anyone should be able to call for a law change – it is with you describing these 20 people as having engaged in tax avoidance when the fact is no one knows what reliefs, allowances and exemptions they have claimed.
Ah, I get it
You think an average of £7 million of tax relief each is not excessive
Now I undertand
Your work on the tax gap is mentioned in a Guardian piece by Polly Curtis, Richard (whose been talking to John Christensen). What intrigued me – if Osborne is as naive about tax avoidance as he says he is (which I find hard to believe) – is what he thinks to a quote from Francis Maude cited by Marina Hyde in Saturday’s Guardian (Tax, that unlikely window on our politicians’ souls).
‘”I recollect 20 years ago,” began Maude’s trip down memory lane, “I was taking a finance bill through parliament, [and] a Labout MP said indignantly to me: ‘You are trying to turn Britain into a tax haven’. To which my response was: ‘Thanks very much, I appreciate the compliment’.”‘
Ivan, you know and I know Maude was telling the truth
And you know and I know what Osborne was telling
As Larry Elliott has suggested, Osborne may well come to seriously regret his feigned surprise
One has to read between the lines of course; by saying this, Osborne has now admitted that the wealthiest percentage of people will avoid tax no matter how low the official rate of taxation. Yet Osborne, instead of legislating against the tax avoidance practices that people are using to avoid the 50% rate, dropped the 50% rate because too many people were avoiding the tax rate. So by dropping it to 45% he’s allowed people to get away with avoiding tax, who will continue to avoid the 50% rate until it’s dropped and will then take measure to avoid the 45% rate, as they were avoiding tax on the 40% rate and would do so no matter what the official rate of taxation.
“The report found that Britain’s 20 biggest tax avoiders have used three main loopholes to legally reduce their their income tax bills by a total of £145 million in a year” which means that that particular problem is limted to a few people, who will probably move off-shore in any case. “From next year, the total amount of tax relief that any individual can claim will be limited to 25 percent of their income or £50,000 — whichever is greater.” So 25% of £8million (an average senior bankers pay package) is £2million; no small sum.
“However, the proposal has sparked controversy as it will lead to restrictions on philanthropic giving — which charities have claimed will cause major donations to stop.” But the Big Society Bank’s intention, apart from using up unclaimed money in personal account, is open up to ‘ordinary investors’ via ISAs. Presumably, under EU rules, this will also mean that larger investors, such as the super-rich and corporations will also be allowed to invest in the Big Society Bank loan stream. If so, investment funds run by the ‘Big Society Bank’ will enable wealthy privarte and corporate investors to make many times more money from investing in NGOs, charities and social enterprises than they currently get from tax relief, meaning only those organisations that can promise to make investors a mint will get cash. Interesting to not that A4E is appears to be classed as a social enterprise and uses charities to deliver ‘on the ground’ meaning that A4E and many other private sector organisations who use charities to deliver services like that will get ‘Big Society funds’ that are presently going to smaller charities.
http://www.mya4e.com/A4e is a social purpose company with one sole aim
(http://​www.telegraph.co.uk/news/​politics/9184142/​David-Cameron-unveils-Big-S​ociety-bank-to-help-savers​-invest-in-good-causes.htm​l
See comments by hcdevine in particular.)
One has to read between the lines of course; by saying this, Osborne has now admitted that the wealthiest percentage of people will avoid tax no matter how low the official rate of taxation. Yet Osborne, instead of legislating against the tax avoidance practices that people are using to avoid the 50% rate, dropped the 50% rate because too many people were avoiding the tax rate. So by dropping it to 45% he’s allowed people to get away with avoiding tax, who will continue to avoid the 50% rate until it’s dropped and will then take measure to avoid the 45% rate, as they were avoiding tax on the 40% rate and would do so no matter what the official rate of taxation.
“The report found that Britain’s 20 biggest tax avoiders have used three main loopholes to legally reduce their their income tax bills by a total of £145 million in a year” which means that that particular problem is limted to a few people, who will probably move off-shore in any case. “From next year, the total amount of tax relief that any individual can claim will be limited to 25 percent of their income or £50,000 — whichever is greater.” So 25% of £8million (an average senior bankers pay package) is £2million; no small sum.
“However, the proposal has sparked controversy as it will lead to restrictions on philanthropic giving — which charities have claimed will cause major donations to stop.” But the Big Society Bank’s intention, apart from using up unclaimed money in personal accounts, is to open up to ‘ordinary investors’ via ISAs. Presumably, under EU rules, this will also mean that larger investors, such as the super-rich and corporations will also be allowed to invest in the Big Society Bank loan stream. If so, investment funds run by the ‘Big Society Bank’ will enable wealthy private and corporate investors to make many times more money from investing in NGOs, charities and social enterprises than they currently get from tax relief, meaning only those organisations that can promise to make investors a mint will get cash. Interesting to note that A4E is appears to be classed as a social enterprise and uses charities to deliver ‘on the ground’ meaning that A4E and many other private sector organisations who use charities to deliver services like that will get ‘Big Society funds’ that are presently going to smaller charities.
http://www.mya4e.com/A4e is a social purpose company with one sole aim
(http://​www.telegraph.co.uk/news/​politics/9184142/​David-Cameron-unveils-Big-S​ociety-bank-to-help-savers​-invest-in-good-causes.htm​l
See comments by hcdevine in particular.)
Osborne: “I’ve come up with a budget that has reduced the 50p rate to 45p, so we don’t have the highest income tax rate in the world”
Does the 50% rate mean we have the highest income tax rate in the world? Or even using this calculation of effective 60%? http://www.wealthprotectionreport.co.uk/public/Effective_60_rate_of_tax.cfm
Might not be…http://en.wikipedia.org/wiki/Tax_rates_around_the_world
Where does avoidance start and compliance end?
– Using a limited company and paying dividends is that avoidance?
– Registering for VAT if below the threshold or using the flat rate scheme?
Are you including this type of avoidance in your figures?
Depending on motive yes, of course
Registering for VAT whilst below the threshold is certainly not avoidance. Nor is using the flat rate scheme.
The problem with your “definitions” of tax planning, compliance, avoidance and evasion, is that someone who forms a company and takes out dividends is not being tax compliant according to you. Clearly nonsense. This kind of thing has been going on for so long now that the fact that Parliament has not deemed fit to change the rules (i.e. by seeing through a service company) must be seen as evidence that Parliament’s will is not being twisted, so it can’t be tax avoidance. Not even HMRC consider low salary/high divis to be tax avoidance.
Oh yes they do
They just haven’t dealt with it yet
You have a very short memory
Keep up the pressure and the good work.
The sooner the goverment collects the correct amount of tax from all sources
… the sooner the debt can be paid down, the budget balanced and taxes cut.
And the runner up for the ‘Captain Renault’ award for badly feigned incredulity is…Nick Clegg….
http://www.dailyrecord.co.uk/news/politics-news/2012/03/11/nick-clegg-says-he-is-shocked-at-tax-dodging-mega-rich-86908-23784429/
Actually, these politicians must think that the electorate is stupid. Osborne knows that the majority of people who take an interest in these matters will see his feigned shock for precisely what it is. We also have Clegg and his FibDems expressing horror at the latest snooping proposals. All this is being orchestrated by the Coalition to distract us from the real issues, such as more contracts for A4e, the continual onslaught on the poor and today the spectacle of Cameron on a sales mission for defence goods to Japan (although Rtcom highlighted our apparent willingness to deploy the navy in support of US military ambition in the Far East). Such matters are seldom discussed by our media and we have to turn to foreign media to obtain a counter view. Actually we are not unlike many US citizens who also have to do this to obtain some kind of news balance.
Just had a look on the TaxPayers’ Alliance website. Nothing on Osborne’s avoidance revelation nor on the abuse of charitable donation. Instead, articles on evasion of duty (beer, ciggies etc) and the “high” cost of UK democratic institutions. Er, wonder why the slant? Has anyone got a copy of the TPA’s latest accounts and list of donations.
Abuse using a limited company such as the notorious Ed Lester Issue happens quite often, people think that ‘getting away’ with it makes it legal. Too many of these occurances point to HMRC bad practice .. there has been more than enough of this with Mr Harnett and it needs stamping out .
On a NI avoidance subject, if Ken Livingston really has paid himself £63k in dividends and £5,700 salary in 2010/11, which bit do you find most objectionable, that he avoided NI on his dividends or that he paid himself above the LEL but below the earnings threshold thereby being credited with a contribution year for pension and benefits purposes but not actually paying any NI?
Let’s depersonalise this
The issue is that such arrangements reduce our UK tax base – and that is a price we cannot afford
My aim is not to nit pick the current arrangements – it is to radically transform them to ensure there is a level playing field in future