Taxing the multi-millionaires – Stopping companies being used to reduce the taxes paid by the wealthy

Posted on December 15 2021

Inequality in the UK is increasing for many reasons. In a series of videos I am exploring one of these reasons, which is the way in which the UK tax system is biased towards the wealthy.

The wealthy do, of course, have money left over at the end of each month out of their income. That is, of course, one of the reasons why they are wealthy. If this wealth can be kept in a company then it will usually be taxed at a much lower rate than it would be if it was kept in a person's own name. UK corporation tax, currently charged at 19%, is lower than any income tax rate. Putting income into a company does, then, let the wealthy grow their savings at a faster rate than that available to anyone else, increasing inequality as a result.

There is a way to tackle this. We had something called close company rules in active use in the UK for more than two decades, but Margaret Thatcher by and large got rid of them. In this video I explore why we need them back, and why we need to force private companies that accumulate wealth for the simple reason of saving tax to pay an appropriate tax rate upon their earnings, or distribute their profits to those who will pay tax as a result.

This video is one of a series. All of the videos are linked from this page on the Tax Research wiki, which is being updated as new videos are produced.

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7 Responses

  1. Pilgrim Slight Return says:
    December 15 2021 at 7:35 am

    Good stuff.

    There is a film on Netflix called ‘The Laundromat’ directed by Steven Soderbergh with Meryl Streep, Gary Oldman and quite a few big names in it.

    It tells a story that is really about offshore finance centred around a tragic accident that requires a compensation payout.

    It is well worth a look and very well done. But looking at today’s world, and considering films like ‘The Big Short’, ‘Margin Call’ and ‘Inside Job’ etc., you wonder if anyone has been watching!!!

  2. Ian says:
    December 15 2021 at 8:46 am

    Shocker for today – Britain’s top earners are giving less to charities while their incomes rise.

    https://archive.vn/59CKa

    Mind you I’d bet that their idea of a charity is different from most people’s. Eton is I believe a ‘charity’, as it seems are most private schools. So charity really does start at home. The phrase ‘getting blood out of a stone’ springs to mind when tax and wealthy are in the same sentence. Is it even possible to establish a fairer tax system in the UK, more similar to Scandinavia? It would have to be very incremental over time, but even that’s hard to imagine in good old Blighty. A worthy battle but an uphill one for sure.

  3. john boxall says:
    December 15 2021 at 10:22 am

    Richard,

    Just a quick technical point.

    I am watching on (a rather old ) laptop

    The sound is quite low even on full volume so perhaps the sound track on all your video’s needs raising?

    Many thanks

    John

  4. Bernard Hurley (何熊心) says:
    December 15 2021 at 7:35 pm

    Three points.

    First. I like the idea of allowing money to be kept for sound business purposes, however there needs to be regulations as to what counts as such purposes and perhaps these should include Green criteria – i.e. the purpose should not be considered sound if it is environmentally destructive. The reason I like this is because it is often said that taxing the rich reduces the money available for investment This answers that objection.

    Second. I wonder where the magic number 5 comes from. I can see that the rule might seem somewhat absurd if a company had 500 participators. However what if more than 50% of the shares were held by one person. Couldn’t the argument be made that, in effect, the company is accumulating this person’s personal wealth? If the criterion for a company being a close company is solely one of the number of participators the the number 5 seems reasonable.

    Third wouldn’t it be simpler to have two rates of corporation tax, a lower rate for money being retained for sound business purposes and a higher rate equal to the top rate of income tax for any other money retained? Dividends would then attract the same or a lower rate of tax and there would be no incentive to accumulate money in the company.