There is general enthusiasm for exposing tax avoidance schemes, and trying to get more people and companies to pay their “fair share” of tax. The PAC has said we should shame tax dodgers.
Those in Parliament keenest on this approach should recognise that the prime source of tax avoidance schemes in the UK is the UK government. It is the laws approved by Parliament. Should they then shame themselves?
The main ways the better off who live and are taxed in the UK avoid tax include
Pension contributions – paid out of gross income
Pension fund investment income and capital gains – tax free whilst in the fund
ISAs and Junior ISAs – offering tax avoidance on all income and gains on the investments
National Savings – they offer a wide range of tax avoidance products which are very popular
The opportunity to give money and property away to others more than 7 years before death to avoid IHT
The opportunity to give money to charity free of tax
Living on expenses when away on company or government business, free of tax on these
Which of these do the anti tax avoiders think we should abolish? Do they agree that means of tax avoidance can be stopped if Parliament enacts a law to stop a particular way of avoiding tax – subject to people still staying in the country to pay it?
The problem with trying to get international companies to pay their fair share, as the Chancellor acknowledged in his recent statements, is the competing national jurisdictions around the world bidding for more of a company’s business by lowering their tax rates. That, after all, is what the Chancellor is doing by cutting the UK Corporation Tax rate from 28% to 21%. He is right to think that a company will undertake more of their profitable activities here if the tax rate is lower than elsewhere.
February 20, 2013
Tax avoidance is actually highly moral as the funds saved are nearly always spent/invested far better by the tax avoided than by the Government. This government would not spot a good investment if it bit them on the nose. What is immoral is having an absurd tax system, too high rates and wasting the money raised like Cameron does.
Just simplify the tax system, lower the rates and get more revenue. This also releases the tax accountants and lawyers to do something more productive. Stop all the pointless expenditure on the feckless, HS2, the renewable religion, the PIGIS, the EU, the energy certificates, gender neutral insurance and the equality agenda, the dis-functional NHS, the wind and pv subsidies, the green deal, the empty bus lanes, …………………
I read that the pension apartheid extends to Judges who also (like MPs) get a 1/40 of there salary per year served without even making contributions. So they can get a pot of over £2M after just a few years work. Meanwhile mortals are limited to £1.25M even when they use their own money.
Still we are all in it together I understand from Cameron. You cannot have a good pension because you have to pay it all to the government to fund the state sector ones of more than twice the size.
February 21, 2013
This government tends to forget that money earned through income belongs to the person who earned it. They should stop thinking it is there right to arbitrarily take others people money and waste it without asking what they intend to waste it on. No taxation without representation. If Cameron and Clegg continually fail to keep to their manifesto pledges/promises they have no mandate from the public to as they please. Accepting they think they can, people will vote them out of office. The same applies to the equally squalid situation with the EU who take our money that we earned without asking and waste it. Enough is enough. Three years in office- where are the cuts? 299 tax rises, another broken promise by Cameron and Osborne on IHT, a promised used to get in office. The BRown economics have not changed a bit. From reports it appears Brown spent more time in the Treasury than Osborne. No wonder the grey suites run circles around him.
299 tax rises, a report yesterday where a woman on benefits is having a £400,00 home built for her 11 children and two grand children. Could I have a house built for me for free?
February 24, 2013
They spend it on roads and infrastructure like education and healthcare? No they do not and without any infrastructure they cannot make any money. Often they waste their money on imported goods and hoard it in banks who lend it to house buyers and not productive industry. Silly fantasy based on the whole of the UK becoming a tax haven with no industry and poverty for the indigenous population. If you like this idea of a wealthy elite paying little in taxes go and live in Russia. You fat fantasists would not last a day.
February 20, 2013
If you want people to pay tax have sensible tax laws, low rates and show that the money is being spent well. Also make sure “charities” are actually real charities many are nothing of the sort.
February 24, 2013
You make tax sound like charity which it is not though many would like it to be.
February 20, 2013
Mr Brown rather corrupted the tax system didn’t he by joining all the various bits together and spoiling the tradition. The pictures in the Telegraph at the time were shocking and very far removed from the old idea of men in bowler hats with tightly rolled umbrellas.
There is nothing wrong in tax avoidance.
There is a lot wrong with coveting other people’s possessions though and that is what Mr Cameron seems to be doing to court our votes at the next election. He ought to be reforming the thousands and thousands of pages of tax instructions which Mr Brown wrote.
February 20, 2013
On the judges worse still it seems this £2M pension is even for part time judges.
February 20, 2013
I think you are being a little disingenuous listing these ways of avoiding tax. They have been enacted into law specifically to allow people to reduce their tax because there are seen to be benefits of doing so. e.g. Encouraging saving and charitable giving.
These methods af avoidance are not the issue. Jimmy Carr, for example, took part in a scheme where his salary was put in a trust in Jersey and lent back to him. The loan, which was never to be recalled, was not subject to income tax (see http://www.telegraph.co.uk/news/celebritynews/9341797/Jimmy-Carr-tax-avoidance-scheme-investigated-by-HMRC.html). This is not a method enacted by Parliament to enable people to reduce their tax rate to virtually zero. It’s an unintended consequence of other laws.
With international companies, it isn’t “competing national jurisdictions … bidding for a company’s’ business”. Their business is still in the UK. e.g. Compare Starbucks with a UK-based coffee shop chain. They both have their business in the UK. They both charge the same for coffee and pay the same rents and salaries. Starbucks (charged royalties in the UK which were legal and accepted by the tax authorities-ed). We aren’t just exporting our tax revenues, we’re allowing foreign companies to compete unfairly against local ones.
I think the man on the street has a clear understanding of what sort of avoidance is legitimate and what isn’t. You just need to ask a simple question: “did Parliament create laws to allow this to happen for the purpose of reducing tax?”.
February 20, 2013
Pension contributions are tax deferral not tax avoidance.
Savings rates are below the level of inflation, so money in these schemes is being taxed by money printing.
You should be focussing entirely on cutting spending rather than stopping people saving.
February 20, 2013
“You should be focussing entirely on cutting spending rather than stopping people saving.”
Hear, hear. Bugger off for those who are trying to ‘move the goalposts’
February 20, 2013
Well the 25% tax free lump sum is avoiding but the 75% is deferral. The tax incentives taken with the negatives of investment restrictions, running costs, enforced duff annuity purchase and the like mean they are not really worth it for many. Perhaps just for those getting 40% relief but only paying 20% in retirement.
Also government keep changing the rules to mug pensions. G Brown and now the, £1M IHT threshold ratter, George Osborne. Invest on this basis and we will mug you later!
Reply You might also take money out of the pension fund at a lower tax rate than you were paying when contributing.
February 20, 2013
Indeed if you get 40-50% relief but then only pay 20% when pensioned. But at this rate with Osborne all will be on the 40% very soon anyway.
February 20, 2013
Or 55% if your investment strategy is successful and your Conservative chump Chancellor reduces the lifetime allowance for private sector individuals still further.
February 20, 2013
Excellent reminder about pensions and tax. It IS only deferred income; something that is rarely explained by those organisations and IFAs selling all manner of funded retirement schemes to the unsuspecting and unwary.
They take your contribution, they invest it – to go up or down, they charge you a fee for the advice, you pay a fee for annual charges. On retirement the government – as a so – lets you take a modest percentage from the fund tax-free and then taxes you on the monthly pension income you receive.
At 75 the government forces you to buy an annuity with your remaining funds on which you receive an income that is at a derisory rate of interest. If you’re lucky you might, just might, live long enough to earn back more than the total pension pot.
Pensions, as we know them, have no future. Save to buy yourself a nice seaside cottage that you can rent out, use for yourself and then sell and re-invest when and where you can over the years.
Keep as much of your own savings away from government and HMRC control as much as you can.
Reply The 25% tax freee lump sum is a tax break
February 20, 2013
“The 25% tax free lump sum is a tax break”
indeed it is but the price is you are locked in long term – to an expensive package, with many investment restrictions and end up having to buy a duff annuity (enforced lending to governments at duff rates). Further you are capped at £1.25M unless you are a judge, MP or similar.
February 20, 2013
Reply to reply
Permitted investments are a tax restriction
February 21, 2013
I agree with you. Paying into private pensions is a con. Having just taken my private pension and the derisory annuity rate I’m very disappointed. If it wasn’t for my cash savings and owning commercial property my wife and I would be looking at a bleak retirement.
We now have in this country, I believe, three types of pensioner.
1.The wealthy with sufficient capital, pension pot and investments to see out a very comfortable retirement.
2.The lifetime public sector worker on a final salary, index linked pension, who should have a comfortable retirement.
3.The private sector worker who may have a company pension or a private pension (not final salary) who may have a less comfortable retirement.
Pensions are going to become a serious problem for our politicians in the future!
February 20, 2013
It’s kind of funny that Mr. Osborne thinks that a cut in corporation tax is what the economy needs to boost it, but that it’s fine and sensible to raise all manner of personal taxes when the bulk of the economy depends on personal and household expenditure. The reduction in CT is fine, but the economy would benefit far more if the government took its hands out of people’s pockets a little bit and learned to control its spending addiction. There was an article a few days ago about the amazingly high rate of staff turnover at the Treasury and how difficult it is for them to recruit anyone clever who will stay. So it’s probably no wonder that we end up with this sort of crazy, mixed-up tax policy.
February 20, 2013
All that will happen if the Govt reduces personal taxation is that rents will go up .
They need to build some houses with UK only labour and crash the housing market back down to sensible levels .
February 21, 2013
Maybe the high turnover is due to the way the management treats their employees.
February 24, 2013
Revolving door recruitment policies are common to lower the wage bill and prevent the employees from having any rights.
February 20, 2013
Mr Redwood your post is appealingly tongue in cheek.
The measures that you highlight are deemed acceptable in the eyes of most as they are available to all and benefit all to varying degrees based upon means.
Those schemes that attract greatest ire are specifically set up to avoid paying one’s way and are ultimately only open to those with much disposable income. Methods open to all – good; available to the few – bad.
With regard to international competition for corporation tax rates, a transaction tax on all companies paid by the company not the users becomes a cost of doing business in the UK (England and Wales?) and not subject to competition. I sudpect that if introduced it will be adopted by other countries. While we remain a large economy companies will wish to trade here. Companies can choose to absord the cost or pass it on, those absorbing it will do more business.
February 20, 2013
The general principle is well understood, if you want more of something, tax it less. Presumably this is the idea in cutting the corporate tax rate to 21%. On the other hand, there are clear benefits to the state in schemes that enable individuals to be self-sufficient in old age, particularly in view of the UK’s massive unfunded state pension liability.
And it’s never too late to start a private, portable and fully funded pension scheme as Australia did over twenty years ago. The pool of assets therein is now equivalent to Australia’s GDP. Such a policy does however require an attitudinal shift in which the citizenry is not only prepared to be independent but also trusting in the financial institutions that will manage their accumulated wealth.
How would the UK rate on these points?
February 20, 2013
What’s fair when you are planning on defaulting on the state pension?
The official line from the OBR, is there is a less than 50% chance of the state pensions being paid?
February 20, 2013
I suspect state pensions will indeed not be paid in full it seems fairly certain. I even paid for some extra years too some years ago.
February 20, 2013
I am pleased that you have highlighted the contradictory nature of the government’s attitude towards tax avoidance which is perfectly legal. Yet again we witness politicians so desperate to get their spending fix that they are seeking more ways to confiscate our money. I fear they will not be satisfied until they have taken claim to it all. Your party was once the one we looked to for sound economic management and the smaller state. Alas, that is no longer the case. Under the present leadership there is little difference from Labour and the LibDems. Increasingly, we are seeing the government and state against the people rather than being their servants.
February 20, 2013
Living on expenses when away on company or government business, free of tax on these
================
What about that? Imagine MPs tucking away at the end of a pensions bill a clause that exempts their expenses from taxation and from any investigation by HMRC.
Nothing like voting for your own self interest a tax evasion clause is there?
How many MPs have set up trusts like (named MP-ed) to avoid tax?
Lets face it. MPs are just angry because other people are doing the same as them.
Reply Most MPs pay full UK taxes and have to be onshore for all purposes for obvious reasons.
February 20, 2013
MP’s mortgage interest expenses were never taxed, and they ‘flipped’ their houses to further avoid tax. All tis while they implemeted policies that had the effect of maximising the returns on their massive short sterling/sterling interest rates – long house price bets.
February 20, 2013
Most of these schemes are a form of social engineering, like most schemes dreamed up by the political class. Sometimes, like the ISA scheme, they are there to counter the effects of more punitive taxes which have discouraged savings. People are, for the most part, smarter than the schemes that politicians devise. That seems clear from the historical inability of the state to extract more than about 38% of GDP as taxation.
The smart move would be the introduction of flat or flatter taxes and lower taxes so that the incentive for tax avoidance were reduced, if not removed. But that is too much to ask. The self-selecting political class is there to interfere with the lives of others, to control what they do and what they think according to their gospel of what counts as acceptable and unacceptable behaviour. The consequences are clear. They are the decline of self reliance, the decline of initiative and risk taking and a decline in the wealth of the nation.
February 20, 2013
Well set out. The more complex the tax system the more loopholes and avoidance there will be. Under Labour a huge industry of tax avoidance re-emerged specifically in response to Labour tax measures (avoidance for investing in films eg). All the above deductions should be abolished in return for a simple low and flat rate of tax on income and gains. Corporation tax is a nonsense and should be abolished – companies are not people. Inheritance tax should be abolished & the idea that some politicians want a wealth tax now beggars belief. We are not going to be able to tax ourselves to prosperity, no country has ever managed that before.
February 20, 2013
Tax avoidance has been increasing because the HMRC is being undermined, not because of high taxes.
Corporation tax is essential because it’s one of the few taxes that companies can’t avoid. Inheritance tax is also useful because it prevents the wealthy hording their wealth.
During the great depression the USA was able to tax themselves to prosperity by raising the upper tax rate to 90%. Perhaps the UK should enact similar measures, rather than giving millionaires tax cuts which won’t result in them paying more taxes.
February 20, 2013
Your points do not stand up to scrutiny. HMRC is not being undermined, it receives robust support and spends huge and growing amounts of taxpayers money enforcing one of the most complex tax systems in the world. Corporation tax is easy for large companies to avoid, as we have seen, but nor small companies. Your argument for Inheritance tax is about enforcing equality not raising taxes. I think tax should be about raising revenue not social engineering. Others can decide. Re the US in the 1930s, do a bit of reading. There was no recovery in the US until the late 1930s, unlike the UK which recovered from 1933, after successful cuts in public spending. I have seen no analysis of the US’s eventual recovery which linked it to imposing a 90% tax!
February 20, 2013
Uni,
Interesting rewriting of history again with your eccentric view that 90% top tax rates taxed the USA into prosperity
February 24, 2013
Bush’s tax cuts took then into deficit for little or any gain other than making the rich even richer.
February 20, 2013
unanime–Irrespective of any particular overall level of tax take, so far from Corporation Tax being “essential”, a very respectable case can be made that one shouldn’t tax something so abstract at all, with the take just attaching to people as one might expect. I reckon your comment is motivated by your very obvious socialist hatred of large corporations–what with them greedily riding roughshod on the backs of the workers blah blah blah.
February 20, 2013
“Corporation tax is essential because it’s one of the few taxes that companies can’t avoid.” – I thought many PLC were not paying it and that was what all the fuss was about?
“Inheritance tax is also useful because it prevents the wealthy hoarding their wealth.” You cannot really “hoard” wealth you either
put it under the bed (which gives it slowly to the state)
put it in the bank (which lends it to others)
invest it
give it away
or spend it.
IHT actually just deters wealth creation in the first place – by preventing you passing it on.
February 24, 2013
Wealth is created by demand not by the wealthy as they cannot spend enough to crate this. They do not create jobs and to say they do is a fantasy. Demand creates jobs and if there is no demand then there is nothing to invest in thus if one person hold all the wealth there can be no demand. Are you going to tell me squirrels invented evolution next? As for giving it away I suppose you are going to cite warren Buffet or bill gates who’s fortunes would not even sustain the American healthcare budget for one year. Not much demand there.
Another aristocracy apologist fantasy and a religious belief as you will read this and have no reply but will still believe your fantasy.
February 20, 2013
Corporation tax is essential because it’s one of the few taxes that companies can’t avoid
A truly absurd statement, in the current system it’s VAT and duty that they can least avoid. Land value taxes are the hardest of all to avoid though.
February 21, 2013
I see you haven’t responded to the comments against the fatuous hoarding statement you made on Feb 18th.
Where is your evidence that the wealthy hoard their wealth as opposed to investing it? Why should someone have to buy 20,000 (items-ed) that you are employed to make rather than say a painting by Lowry which appreciates in value and gives them pleasure?
Besides, inheritance is about passing wealth to other members of the family who then spend or invest it You yourself have advocated this should be done while the donor is alive but there really is no difference if they arrange for it to be done after they are dead.
WRT Corporation Tax, a problem (if you are inlcined to call it that) for the government is that companies can easily avoid paying it – haven’t you been paying attention to the news in recent months concerning Amazon and Starbucks?
Where is your evidence that tax avoidance has been increasing as opposed there simply being more chatter about it in the media?
February 24, 2013
The wealth is horded in the painting as you say and then try to refute, or it is hidden in offshore accounts. Or can be horded in property and most of the British population do this. In its extreme inheritance of vast wealth is like an aristocracy, an elite that prevents others from becoming wealthy. Do you defend this?
February 20, 2013
Companies should bear the lion’s share of the country’s tax burden, they operate within the infrastructure provided by the country and make profits from it (or not in the case of some of our large international organisations).
I would remove PAYE from the statute but make companies pay a tax on each employee’s remuneration. My gross would of course reduce but I could live with that.
Income tax on unearned income or self employed would need to be similarly revised.
We could then reduce corporation tax but increase the tax on earnings through companies. Companies reducing their staff levels to compensate would inevitably get into difficulty either through productivity or service levels.
February 20, 2013
In the case of one big multi national tax avoider it doesnt even have a registered company in the UK. Its main operating company running in the UK is registered abroad, in a tax haven where it doesnt need to publish its accounts. Yet this same company is readily able to avail itself of the perks of the British state, its staff get national insurance and tax perks here, it gets fast track access to work visas for its foreign staff, it has a top table in negotiations with ministers. It really wouldnt be difficult to bring companies like this back into the realm of paying similar tax to normally setup UK businesses.
February 20, 2013
I agree with you that that sort of behaviour is distasteful .
How do authorities prevent it though ?
If you ban them from operating in the UK they will only operate through agents .
You can try educating such people by showing them the effects of their actions on the care afforded to the most vulnerable in society like children in residential homes but somehow I don’t think the Channel Islands cares about them .
As with many things , the people of the UK need to start helping themselves by avoiding such companies and buying British from outlets that employ British workers .
February 22, 2013
the company I have in mind is not a retail organisation, it provides services to other multi-nationals, there is no scope for end consumer action forcing this issue.
February 20, 2013
My understanding is that all these big companies who are “avoiding” tax are fully complying with the law. The law was made by our civil servants and endorsed by MPs. If they made things simpler instead of making them increasingly complex, there would be less loopholes for companies to exploit. In fact, most of the companies are paying their full taxes in the countries where they are based, when you buy from Amazon your credit card payment is taken in Luxembourg, where presumably tax is lower. You can hardly blame companies for paying the lowest tax possible if the law allows, which it does. Most individuals would do the same if they had the chance, they’re hypocrites if they claim otherwise!
February 20, 2013
I get very fed up with this daft moral crusade. Paying tax is not a moral issue, it is a legal issue.
If the government are not happy about people avoiding tax, then they need to change the law.
That is their job and therefore their problem.
If they have a problem with this, then they should leave politics and go and work for a charity if they want to preach moral issues…..
February 20, 2013
Andy H–Extremely well said
February 20, 2013
“Pension contributions – paid out of gross income”
❄This is just deferal of tax.
“Pension fund investment income and capital gains – tax free whilst in the fund?”
❄ Gordon Brown already removed dividend tax credits when he raided private pensions.
“ISAs and Junior ISAs – offering tax avoidance on all income and gains on the investments”
❄Not income, just capital gains.
“The opportunity to give money and property away to others more than 7 years before death to avoid IHT”
“The opportunity to give money to charity free of tax”
❄Heaven forbid one should be able to give anything away, without first giving a share to the Treasury.
February 20, 2013
My reference to ISAs above applies to stocks and shares, not cash obviously.
February 20, 2013
The government are not going to solve the debt and deficit problem by chasing away the wealthy, they just need to focus on better control of spending.
The huge increase in foreign aid could have been deferred until we get the budget under control.
Tuition fees are virtually just funding extra foreign aid.
UN Agenda 21 in action?
Google agenda 21 for dummies
February 20, 2013
How many wealthy people left after the 50% tax rate was introduced and how many are likely to return when it’s reduced to 45%? If you don’t know then why do you think the wealthy have been chased away?
Also how many wealthy French people are likely to come to the UK after the French 75% tax rate is introduced?
February 20, 2013
It is early days to answer both questions. But the indications are that talented and entrepreneurial (especially young) people are leaving and planning to leave France in droves. It will be an interesting test case. It looks like M Hollande will be an unmitagted disaster, though it is also likely that, like Mitterand in the 1980s, he will make a U-turn before the full effects are felt.
February 20, 2013
The French constutional court decided that the proposed 75% rate was illegal didn’t it ?
http://www.reuters.com/article/2012/12/29/us-france-tax-idUSBRE8BS05M20121229
Nevertheless quite a few aspirational French people have got the message that Hollande is going to persecute them and have already left .
Foreign investors have got the message too and are giving it a wide berth – France is going back to being a banana republic .
How long before youth unemployment in France hits 75% and they decide to leave too ?
February 20, 2013
Wait till Hollande starts nationalising everything .
I’ve given up on the UK but France really had an opportunity to come through the current crisis .
To squander that opportunity like they are doing is a tragedy .
February 20, 2013
unanime–Nonsense as usual–Not being able to put a precise number on something (especially in advance) as an argument against its existence when it is intrinsically obvious is so much junk. Obviously you do not have any rich friends or you might understand better how they think. Paying huge sums of tax in this now benighted country (This was England) when they can go abroad I assure you is not quite how they see it and definitely not when the ingratitude of people like you is factored in. I do not believe there is any sum or any percentage that would be high enough such that you wouldn’t scream for more. It must be frustrating for you, real life getting in the way as it does.
February 20, 2013
Uni
Over 250,000 a year are leaving the UK for nations like New Zealand,, Australia, Hong Kong and Canada.
London has enough expat French to be equivolent to the sixth biggest French city, and numbers are rising fast as higher French taxes kick in, so wrong again as usual.
February 20, 2013
“Pension contributions – paid out of gross income”
“Pension fund investment income and capital gains – tax free whilst in the fund”
– but you pay tax on pension income. You’re not avoiding income tax it, merely delaying it until you receive the income.
“The opportunity to give money and property away to others more than 7 years before
death to avoid IHT”
– gifts being tax free is hardly avoidance of tax. The government does’t tax what I get for my birthday, after all. This is actually an extra tax on gifts given less than 7 years before you die to _prevent_ avoidance or IHT.
“The opportunity to give money to charity free of tax”
– it’s worse than that, unless the government has now limited it, you can end up paying almost no tax at all if you give enough to charity. Given the weak charitable nature of many institutions with that tax status (some have been little more than vehicles for shifting money out of the country, or to political campaigns) then this is definitely one I’d tighten.
“Living on expenses when away on company or government business, free of tax on these”
– on the other hand, all the extra VAT and duties paid by those expenses, and the fact that you have to continue paying your rent / mortgage, this probably doesn’t make much difference.
You missed one: approved investment schemes. You can invest in a company that falls into an approved sector, and get tax back from every penny you invest. Invest £100,000 in one of these schemes, and you can get £45,000 back from the tax man. Borrow another £400,000 and invest that as well, and you can get £225,000 back from the inland revenue. The bit that makes this so attractive is that the £400,000 can stay in the bank as collateral for the loan, and repayment comes from the same borrowed amount. The company you are investing in gets £100,000, you get £100,000, the bank gets £25,000 in interest, and the taxpayer provides all the cash.
These schemes are allowed simply to provide the government a vehicle to invest in sectors that would otherwise be disallowed by EU law.
February 20, 2013
Maybe they should think about the people who pay no tax at all – i.e. the benefits brigade.
When you have a single mother of eleven kids being provided with a £400,ooo eco home, you know the system is broken. I now hear that said family keep a horse at a cost of appx £200 per month.
These people have never paid any tax into the system, so why are government picking on the people that are paying large amounts of tax?
The spending needs to be brought under control before we look at new ways to tax an overtaxed economy.
February 20, 2013
Those on benefits still pay VAT on many things they buy, so they are tax payers.
The rest of claim is grossly misleading. You cannot expect someone who is unemployed to pay the same level of tax as someone with a job.
February 20, 2013
@uanime5
If a person is on benefits, then their money was taken from the tax kitty, so any vat is not a contribution to the tax system, at best you could call it a claw-back.
February 20, 2013
unanime–No comment on the horse??
February 20, 2013
When they spend their giro in the off license on cider and cigarettes, they pay duty of course.
February 21, 2013
@uanime5
“Those on benefits still pay VAT on many things they buy, so they are tax payers.”
No – the tax payer pays the Vat on the things they buy too – those on benefits clearly earn no money of their own. So how can they pay any tax? Unless they are black marketing on the side perhaps.
February 24, 2013
Many Benefits are classed as taxable income including the dole whether you agree with this or not.
February 20, 2013
Perhaps the Public Accounts Committee (PAC) should concentrate on shaming the government and MPs in general over the fact that state sector wages (including pensions) are 50% higher than the wealth creating sector and their notional pension pots are about 5 times the size. Furthermore about half of the time they do nothing useful anyway.
Even the tax rules on pensions and expenses actively discriminate in favour of some such select people over and above those just paying for and carrying them.
The state of Cameron’s UK can perhaps be seen by 1700 people applying for just eight jobs at Costa Coffee in Nottingham. When on earth will he start to cut the state sector and taxes down to a sensible size and abandon his mad, totally discredited, green energy religion? £75 Million more wasted on charging points for electric cars that no one is buying I see, despite the silly subsidies and tax discrimination. People simply do not want dangerous toy cars and (named car-ed) with its extremely dodgy claims of 348 mpg. Not until the limited and expensive technology is sorted anyway.
February 21, 2013
The pension pots in the “wealth creating sector” are so low because these companies didn’t give their employees a pension so they could keep their costs low. This is the fault of the private sector, not the public sector.
Also Osborne already tried cutting the hundred of thousands of public sector jobs to create millions of jobs in the private sector and the result was barely enough jobs being created to provide employment for those who had been fired, the public sector not being able to function because they lacked the staff, and an increase in unemployment because the jobs market suddenly had a lot more people looking for jobs. So lifelogic cutting the public sector has been shown to make the problems worse, not better.
February 21, 2013
@uanime5
“The pension pots in the “wealth creating sector” are so low because… “ Gordon Brown raided them to get money for his public sector clients.
Gordon destroyed a very healthy private sector pension system.
February 23, 2013
Indeed and furthermore the UK state sector is so large and so inefficient that the private sector has little choice but to keep wages and pensions low. The alternative is simply to go out of businesses or move out of the UK – in very many cases.
February 20, 2013
It is wrong that earned income should as a result of NI contributions be taxed at a higher rate than unearned income. NI should be combined with income tax so that everyone pays on the same scale.
Pension contributions should only receive tax relief at basic rate but the lower boundary for the 40% tax band should be raised to balance some of the extra tax paid.
February 20, 2013
I agree – given that McRuin raided the NI fund for whatever it may as well now be part of the same pot and taxed once as income tax so we can all understand it without having to spend hours working it out or paying accountants
February 21, 2013
Brown raided pension plans with the 10% dividiend tax and now you want to increase taxes on pensions in payment by 50%? – Pensions don’t pay NI.
February 20, 2013
If NI and income tax were combined people might realise that they’re paying a similar tax rate to the very wealthy because NI is reduced to 2% for high earners. For those interested the NI + income tax bands are 32% (20% + 12% NI), 52% (40% + 12% NI), 42% (40% + 2% NI), and 52% (50% + 2% NI).
February 20, 2013
unanime–Not noticed any comment from you on the insanity of charging Employers instead of paying them for the enormous workload they perform on behalf of the Government–pensions, maternity leave, tax collection etc. A payment for each employee would make all the sense in the world to me with about a million obvious knock-on benefits.
February 20, 2013
Uni,
Yes but….its based on how much you earn so your percentages dont tell the whole story which is, the higher income earners end up paying more NI in money terms than lower earners.
February 21, 2013
I’m pretty certain you are not qualified to give financial or tax advice. In any case you are wrong – hint: take a look at the HMRC tables on NI contributions.
February 23, 2013
If you only got basic rate relief it would make little economic sense for anyone to put money into a pension. Especially if you had to pay 40% in retirement you would be increasing you tax paying, and locking you money into a costly, restrictive investment regime rather vulnerable to state sector mugging and rule changing.
February 20, 2013
We won’t get a rational discussion about these matters till we ban the word FAIR!
February 20, 2013
@backofanenvelope
So you can’t come up with a rational argument and wish to censor those who can. Don’t expect to get much support.
February 20, 2013
Why not close the loophole that lets Ken Livinstone pay very little tax as he created a company.
The BBC pays many employees by using a tax effecient dodge.
All you as MPs need to do is to close the loopholes, but you don’t.
February 20, 2013
Don’t forget about all the private sector employers who use the same tax loophole.
February 20, 2013
I dont know how you can close this “loophole” because Uni, if you had several different income streams eg book sales, TV work, record royalties, speaking engagements, radio work, profits from films and voice over work, etc etc, you would normally form yourself into a company and pay all the various income streams into it and then pay tax on the profits the company makes.
Otherwise they would be paying tax multiple times and then having to claim it back
You would end up back where you started but only after much greater work for HRMC and the individual.
February 20, 2013
A point well made! I remember the last time we had a reforming government under Mrs Thatcher were simplification of the tax codes and other measures enabled the government to both lower tax and collect more revenue.
The Labour Party complicated everything – eye catching initiatives etc.
You made one error I think, “Pension fund investment income and capital gains – tax free whilst in the fund” – Gordon Brown taxed dividends in pension funds, adding to the plight of private pension funds, (not, of course, the largely unfunded pensions of his supporters!)
February 20, 2013
Indeed G Brown was largely a private sector pension mugging tax. This despite the fact the state sector pensions are many times larger and paid for by these mugged.
February 20, 2013
REPay–Agreed–We should look again at what Thatcher and Lawson (before he went wrong) did, which remember had the debt all but paid off if I remember aright
February 20, 2013
A taxation system that is so complicated forces individuals into the hands of those who spend the whole of their time making a living out of it . I have not submitted a tax return since 1961 without the help of a professional . Of course they will find loopholes and , of course , their advice will be taken up . A tax on purchases is the simplest and most straightforward way to obtain revenue . Inheritance tax is the most wicked imposition of them all and should be immediately abolished .
February 20, 2013
Having a high tax culture eventually will destroy the Company.
VAT recently increased from 17.5% to 20.0%, and is likely to increase further, but Corporation Tax is likely to drop. Many MNCs park their profits in Offshore Low Tax Jurisdictions and so long as they do not move them into a particular Tax District, Avoid Paying Tax.
People who benefit from this System are those who can advise others of how to put their money into Tax Efficient Investments, usually involving Offshore Accounts, ETFs, Subsidiary Companies, Nominee Companies and alike.
I believe we are all paying way too much tax. VAT, CGT, Income Tax, NI, Road Fund Licenses.
Why is it that only a small proportion of Road Tax actually goes into Roads and Transport?
The United States did not have an Income Tax prior to 1913 – so why did they introduce one – to get the Economy Going?
An out of control M4 Money Supply and Loss of Seigniorage is one of the Casues for an inblanaced and disproportionate Taxation System.
Your list of “Tax Avoidance” is completely misleading as you failed to recognise the differnece between “Tax Compliant”, “Tax Evasion” and the grey world of “Tax Avoidance”, which hides and defers payment of Taxes.
An ISA is NOT a “Tax Avoidance” scheme like an Offshore Hedge Fund or Offshore ETF.
(untrue allegations removed-ed)
February 20, 2013
The USA didn’t need an Income Tax prior to 1913 because they provided almost no infrastructure or welfare.
February 20, 2013
unanime–Never thought to see you argue against infrastructure (daft word) and welfare but all contributions gratefully received
February 21, 2013
In 1913, Woodrow Wilson forced through Congress the 16th Amendment to enable the Federal Government to collect Taxes based on people’s Income.
Prior to 1913, Taxes were mainly collected on: Property, Excise and Tarriffs. There were banking crisies in the 19th Century (unlike in Canada during the same period) as the banking system was badly and overly regulated, demanding that Banks hold only Government Securities as reserves rather than Corporate Bonds. The Canadian Free Banking Model was able to expand during the non harvest months. There was no Central Bank in either the U.S. or Canada. The U.S. debt was being paid off – in fact there was a surplus unlike today where there is a deficit. The reduction in Government Bonds resulted in a reduction in Bank reserves creating a reduction in the money supply and subsequent currency crises.
But the History of American Income Tax goes back to 1862 when President Lincoln used Income Tax (as well as Greenbacks) to raise Funds to fight the Civil War. After the War, the Income Tax was dropped, and was only inteneded to be a temporary measure.
Income Tax was not adopted to pay for Welfare and a Socialist State – it was introduced to fund War. Soon after the 16th Amendment was ratified, WWI started. Americas Combat involved didn’t start until 1917, but it’s Financial Involvement started right at the Start by Funding France and England’s War Loans.
British Income Tax was always about paying for War’s – it was never about paying for Welfare or Public Services. The English War Debts were so large in the 18th Centrury that it caused the British to prevent the Americans from using their own Currency and they were forced to use only currency backed by Gold, and minted or printed by the Bank of England.
Working Americans kept what they earned. People who didn’t Work didn’t get anything. The ill and the elderley had to rely on their friends and family for support. There was no such thing as Housing Benefits for the fat and idle.
U.S. Income Tax is still voluntary, as it is still regarded as unconstitutional. About 20% (and rising) of Income Tax goes to pay just the interest payments alone of the U.S. National Debt. Income Tax is merely a symptom of a dysfunctional system.
February 21, 2013
Yes, that’s true – they provided almost no Welfare or Infrastructure FOR BANKS.
Now – with Income Tax, the U.S. Government has provided a “Lender of Last Resort” and FDIC Deposit Insurance, AND 20% of the new income tax (new in 1913 anyway) get’s thrown at Interest Payments on the Natoinal Debt.
February 21, 2013
It’s probably useful for me to provide some documentation to illustrate that ISA Savings Accounts, Pension Funds and National Savings are not considered “Tax Avoidance”.
From HM Revenue & Customs document:
http://www.hmrc.gov.uk/about/briefings/briefing-avoidance.pdf
“Tax avoidance is not the same as tax planning. Tax
planning involves using tax reliefs for the purpose for
which they were intended. For example, claiming tax
relief on capital investment, saving in a tax-exempt ISA
or saving for retirement by making contributions to a
pension scheme are all legitimate forms of tax planning.”
So what is “Tax Avoidance” according to HM Revenue & Customs:
“Tax avoidance is bending the rules of the tax system to
gain a tax advantage that Parliament never intended.
It often involves contrived, artificial transactions that
serve little or no purpose other than to produce a tax
advantage. It involves operating within the letter –
but not the spirit – of the law.”
Certain Savings Schemes are used to attract investors through Government intended Tax Advantages. The Government effectively encourages certain behaviour by the Public such as saving for their Retirement which will help reduce the need for Government Help when someone retires. This is my interpretation.
February 20, 2013
The questions are very simple. Whose money is it to begin with? Is taxation intended to redistribute or meet agreed expenses? Should the state be entitled to take by way of administrative measure? Should the state be entitled to take by way of legal and democratically endorsed sanction?
The answers to these questions determine whether we live in a free or repressive society.
February 20, 2013
‘Fair’ is a weasel word beloved by most politicians – it means whatever the listener wants it to mean. Before Cameron starts on again about the ‘morals’ of taxation he should answer as the ‘morality’ of the high levels of taxation imposed by the Coalition. MPs should disclose in full their own tax affairs before criticising the ‘fairness’ of others’.
February 20, 2013
Tax avoidance is legal. We should worry about and strongly challenge the moralising and creeping criminalisation of legal activities by redefinition. We should attack those who are destroying our words and giving in to the baying mob. If we loose our words and their clear meanings we loose our freedoms.
February 20, 2013
Legal does not mean moral or acceptable. Also all activities were legal before they were criminalised but that didn’t make it wrong to criminalise them.
If we loose our words and their clear meanings we loose our freedoms.
Loose: not firmly or tightly fixed in place; detached or able to be detached: “a loose tooth”.
Lose: be deprived of or cease to have or retain (something): “I’ve lost my appetite”.
If seems you have already lost your words to poor grammar.
February 20, 2013
Pedant alert…
I knew what he meant as I suspect all the other readers did.
February 20, 2013
If only we were all as clever as you think you are Uni.
February 21, 2013
uanime5 “If seems you have already lost your words to poor grammar.”
Well it is not poor “grammar” is it just bad typing or bad spelling. Rather like the “If”
“Legal does not mean moral or acceptable” indeed not nor does illegal always mean immoral quite often the laws themselves are immoral.
February 20, 2013
To echo what others have said, it is politicians that have created the complexities in the tax system that have contributed to this problem in the first place.
Of course we have to have taxes but make the whole thing simpler for all to understand and spend public money wisely so they don’t need to collect as much tax in the first place.
These witch hunts are totally self defeating, if there are tax avoidance schemes which are unacceptable you cant blame companies or individuals for using them, simply close them down.
It seems we have idiots in politics who are always looking for scapegoats – if we had politicians that stood for their own country’s true interests, spent and taxed sensibly and stopped signing (EU) treaties which have largely damaged our economy and means to recover then we would not be hearing these conversations.
February 20, 2013
(false allegations about MPs’ interests removed-ed)
Your answer to my questions regarding Monetary Reform was “the Banking Industry is not ready for such radical reform “. Really? Not even a reform back to a 20.5% Bank Reserve Requirement and over 15% Government created money supply by the Government where the public gained both Seiniorage and reduced taxation back in 1968.
Now there is no enforced Bank Reserve Requirement and Taxtion is Increasing.
Do you still not understand the effect of a zero percent Bank Reserve Requirement?
Do you still not understand that Banks create more money in a boom, and less and less money in a bust?
I thought you understood Banking better than Gordon Brown. I thought you understood Economics better than Gordon Brown. But then – I’ve been wrong before.
Reply: My comment about bank reform was a judgement of the Establishment view today about banks. Yes of course I understand the credit creating process, and the way banks can power a boom.
February 20, 2013
Nabbing tax avoiders should be regarded as icing on the cake, not a primary source of revenue.
The more aggressive we are in trying to get the money, the more determined will be those accused of avoiding it.
This has become a bette noir, because of, you’ve guessed it, cable, clegg and their naive libdem buddies. Miliband, always happy to jump on the latest bandwagon, especially if it hits ‘the wealthy’, supports the libdems, so the tories feel they are under pressure to keep babbling on about it.
When are Cameron and Osborne going to tell the libdems to take a running jump, and if that is unacceptable electorally, then just shutup about it.
The fact is that libdem ‘policies’ are the extremes of a permanent protest group. Nobody ever took them very seriously but now they are in government and what a disaster they have turned out to be.
Libdems would happily accept failure in exchange for their student union style ‘fairness’ agenda.
So we are also in prospect of the lights going out because of the wretched ‘green’ agenda, although Cameron cemented the tories in that particular hole too with his stupid huskies photoshoot and the ludicrous tree logo.
The really wealthy people and companies do have choices and it is not difficult for them to move their money, themselves or their companies if the UK becomes too hostile to wealth or too aggressive in pursuit of more and more tax.
These are the facts of life that all real tories surely understand.
When does our government, the tory part of it, assert itself?
February 20, 2013
As far as I can tell the BBC is not reporting this!
Austerity strike in Greece, as Bulgaria’s government falls
Bulgaria’s PM announces resignation after another night of protests
24-hour protest is under way in Greece against the country’s financial programme
February 20, 2013
Both stories are available on the BBC’s website. Next time try searching for them.
Greece has 20th austerity strike regarding the financial programme, which is unlikely to be any different from the previous 19.
http://www.bbc.co.uk/news/world-europe-21515012
Bulgaria’s Government resigns due to protests against high energy prices and austerity. I wonder if this will spread to the UK.
http://www.bbc.co.uk/news/world-europe-21516658
February 20, 2013
They need to produce more of their own energy .
Let’s see if their electorate votes for a party which promises to lift their ban on hydraulic fracturing for a start and embrace nuclear .
Maybe their desperate situation will lead to action .
I hope they get an honest election .
February 21, 2013
Yes but reporting them properly where they will actually be seen!
February 20, 2013
Mr Redwood, you make a coherent, reasonable case.
But for those consumed by ideological fantasy, truth and reason can play no part.
February 20, 2013
Just because some people use avoid paying taxes on a small percentage of their income doesn’t justify wealthy and large corporations abusing the tax avoidance laws to avoid paying any tax.
The Government can easily limit tax avoidance by putting a limit on how much tax you can avoid each year. This was proposed recently but there were howls of protests from the wealthy as it would mean that they might actually have to pay taxes.
The corporation tax rate is only one thing companies consider; others include the levels of infrastructure, technical expertise of the population, the legal system, electricity supply, levels of disposable income, and tariffs. So even if the UK was to cut the corporation tax rate to 0% many companies wouldn’t relocate to the UK simply because other countries are more suitable for their business.
Let’s not forget that the entire service industry can’t relocate if they want to do business in the UK, for example if a supermarket relocated to India they’d be unlikely to get many UK customers.
February 21, 2013
But with an average income around 25K these schemes (eg ISA at £11,800) offer a means for the average person to save all their disposable income in such a ways as to avoid tax. They can avoid far more tax in proportion to their income than the same schemes offer those on higher incomes. Sounds like a progressive tax effect to me.
In which case, removing the above schemes would hurt the less well off far more than the rich and Increasing the existing limits would benefit the lower paid even more.
WRT to supermarkets (which are not part of the service industry) not being able to move, you do realise that corporation tax is paid on taxable profits don’t you?
February 20, 2013
There is of course a very well known case on this and it is entirely typical that Cameron should feel it appropriate to muddy the water that was previously so clear. Instead of grovelling for a putative higher tax take he should cut the size of government. Nothing could be more obvious. What a surprise BTW that we are running out of energy.
February 20, 2013
I am surprised that you of all people have put all the blame of what is legal tax avoidance on to the UK. The EU has a large part to play in it as well especially when it comes to large corporations operating out of low tax member states and doing business in higher taxed states. I am at a loss to understand the mentality of people who are bemoaning the legal tax avoidance of businesses and individuals when if there is a problem then it purely a legislative one and the ones at fault are the politicians. The problem as I see it is that the largess and gravy train that governments inspired by the left has set up is running out of other peoples money and the scramble is on to keep the train on the tracks.
February 21, 2013
Firstly it’s not the fault of the EU when a company avoids taxes using a country which isn’t in the EU.
Secondly given that the choice of paying for the state sector is taxes, borrowing, or printing more money is it any surprise that politicians from all parties favour taxes.
February 22, 2013
unanime–Best usage is to start not with “Firstly” but “First”–see the Book of Common Prayer
February 20, 2013
Do I take it that any mention of the tax arrangements of (named MP) is not allowed on your blog?
Reply: I do not have time to check out an indivudal MP’s tax arrangements and do not wish to get embroiled in a long row over it
February 20, 2013
Okay John.
Can I frame my comment is this way then:
Should the members of the PAC publicly declare if they have taken steps to avoid tax themselves, such as setting up Trusts for their children for example?
An honest and open question, no names mentioned, no accusations made, just a pertinent question.
February 20, 2013
Like many of us I pay a monthly sum to a charity I want to give to. If that charity decided to place a high minimum say £100pm then I wouldn’t pay anything. I set my payment at what I can afford. The tax is setting too high a minimum and people are opting not to pay at all.
February 24, 2013
Taxes are like charity in the fact that many do not believe they should pay anything and this is where your arguments wheels fall off.