The UK has one of the largest, if not the largest, register of companies in the world. In September 2016 there were 3,795,682 UK companies in existence. 154,685 of these were created in the three months of July, August and September 2016. In the year to that last date 638,518 companies were formed. Just to put this in context, there were 697,852 births in the UK in 2015. We're producing companies almost as fast as we're producing babies right now in this country. And, shockingly, there is almost no effective regulation of these companies in the UK. We have no agency that takes responsibility for this task.
Yesterday the Guardian reported:
Hundreds of people in a former steel town in north-east England have been revealed to be directors of a range of pornography, dating, diet and travel websites.
An investigation by the Reuters news agency found that at least 429 residents of Consett, County Durham, had been or still were being paid to serve as directors of more than 1,000 shell companies.
People in the town were paid £50 cash to become directors, with a further £150 a year for forwarding company mail, in order to provide a range of online businesses with a UK address to meet requirements to trade in Europe.
The result is that the companies in question may have hidden the true identities of those owning or controlling them them. And since it is suggested that the people of Consett paid these tiny sums were not really running the entities in question the implication is that each must have been run by what are really called shadow directors.
The Guardian says that there is no evidence of wrong doing, and I will take their word for it because I have no reason to do otherwise and that is, anyway, not the focus of my interest. That interest is centred on the fact that there is no effective regulator to investigate this issue in any event. I know this from the following email sent by Companies House to a complainant earlier this year. I have edited this to delete details of the particular complaint at the request of the recipient:
Further to your recent emails to ourselves regarding various breaches of the Companies Act 2006, I would like to give you some information about the role of Companies House and the Breaches Team in particular.
Companies House is primarily a registry of public information only. Its main role is to ensure that companies promptly file statutory information required under the Companies Act, and to make this information available to the general public, within the time scales laid down by legislation.
The Breaches Team are a small team of 4 individuals, who look into numerous breaches of various areas of the Companies Act 2006. Of course, some breaches are a lot more serious than others and ... it [is] simply is not physically possible for us to investigate and seek compliance in all cases.
I am sure you can appreciate both the time and financial constraints placed on the UK Government during the current climate, and so we must consider the public interest when taking on a case.
So nearly 3.8 million companies and many more directors are monitored by just four people. That is it. But in that case we should be under no illusion: this is not a company regulator. This is a company registrar. And for the record, no one else accepts responsibility for the regulation of companies either. BEIS effectively washes its hands of the issue and it is not HMRC's job.
The net result is that for all practical purposes the UK's limited companies are almost entirely unregulated. And that is a scandal because if we want free, fair and open competition then all market participants have to play by the same rules. But they are not. Some disguise their affairs. Many do not file their accounts. There is no evidence that new rules on beneficial ownership declaration will be enforced. And they can do this and get away with it. Candidly, this is outlaw territory for all practical purposes. And the UK government tolerates this despite the enormous potential loss of tax revenue it gives rise to. The only appropriate question to ask is why do they do that? Maybe they would like to comment.
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The way this is set up makes it appear that it is encouraging people to set up companies/businesses when in fact the results might well be more like those seen in the Klondike.
So this what ‘inshore’ tax evasion looks like?
I seem to remember Hammond said , in the questions following his budget speech, the tax avoidance gap was the lowest ever. And poked fun at Labour for using different figures. Your post makes it seem even more unlikely to be true.
This is the new century. In the 19th Century we registered births. Now in the 21st we can not only register the birth we could register each child as a new company in his or her own right. The mind boggles, or something.
As many new companies as new people – that is shocking and weird. As you suggest something is not right here.
Well, my take on this is that it is part of the underhand scheme to move people off the unemployment stats. When unemployed, you are encouraged to become self employed or form a one man limited company and do all the paperwork yourself. As such once in that position, you will have great difficulty in registering as a claimant when the reality of finding customers hits home.
I know what it is like because I have done this in the past as it is the **ONLY** way to get contracts through agencies (for legal reasons self employed are not used). Additionally, the trend for the public sector to prefer contract labour over permanent headcount is increasing the numbers. By way of example, my past government permanent position was staffed by 80% contract personnel. A lot of those people were there before I started (10 years ago) and still there when I left 18 months ago. Remember they are on a daily rate of probably 200UKP upwards, some were on 4 figure sums I was told.
There is also a whole area here regarding tax and NI that I shall not bore anyone with.
Richard:
You been bashing off-shore jurisdictions for years, when the real (majority of) tax evasion takes place onshore (which we’ve said for years, but you can always beat up on the small guys).
Finally, you’ve seen the light! It’s even worse in the USA!
Perhaps, you’ll leave us small and transparent offshore jurisdictions to get on with our work!
God does have mercy!
Bermuda
You clearly have not been taking note: I have said this for years
But let’s also be clear that your defence appears to be others also commit your crime. Try that next time you are in court and see how they differentiate it from a guilty plea (hint: they won’t)
Unless you can back up that allegation of criminality, I suggest you withdraw it.
Anyway, what effect do you think the April 2017 changes in the tax treatment of mortgage interest paid by private landlords is having or will have on the number of incorporations?
My piece makes it quite clear that there is no suggestion of criminal wrong doing. I have not said there is.
Tip of the metaphorical iceberg. Two weeks ago, I noticed that the Companies House record for a certain Special Purpose Vehicle (SPV) limited company into which thousands of UK mortgages have been securitised stated that there were no people having significant control (other than the directors). A bit more digging revealed that, in reality, part of an American bank has so much significant control it amounts to total control. Only a little more digging found that one of the SPV’s directors has no less than 237 other directorships, all apparently of SPVs or about-to-be-SPVs for the securisation of UK mortgages. I know that there is absolutely no point in writing to Companies House about this.
No point at all
With the creation of shell companies and shadow directors, this is a very good example of conflict of interest between the government and shell companies in monetary terms.
Does monetary power override the ethics of concealing funds by creating shell companies?
With the complication of tax schemes , tax legislation may enable multinational companies to find loopholes to pay less tax.
However, to what extent is it considered to be tax avoidance or tax evasion?
With the creation of shell companies and shadow directors, this is a very good example of conflict of interest between the government and shell companies in monetary terms.
Does monetary power override the ethics of concealing funds by creating shell companies?
With the complication of tax schemes , tax legislation may enable multinational companies to find loopholes to pay less tax.
where do you draw the line between tax avoidance or tax evasion?
There is no absolute line
It is all tax abuse
SPVS? ‘Special Interests Vehicle’
It sounds to me that the proper acronym should indeed by ‘SPIV’ to be honest.
However, if the company is trading it is likely to be VAT registered and theoretically subject to HMRC inspections, but given the apparent withdrawal by HMRC from much of its former compliance visiting programme, this is unlikely in practice.
At most 1.1 million are registered…..