Kerching! Fixing Our Tax System

Sep 5, 2012   //   by Keith McDonald   //   Breaking News  //  Comments Off on Kerching! Fixing Our Tax System

Kerching! TUCRegular readers of our Finance Blog will know that I’m a fan of the Ombudsman News bulletin. And with complaints against banks soaring in 2012, it’s becoming an increasingly tasty read.

But it’s been knocked off the perch today by the rather unexpected Kerching! – a spoof gossip magazine published by the TUC to humiliate the government into acting against high-profile tax dodgers, who, it says, are depriving the public purse of £25 billion per year.

Written by respected economist and anti-poverty campaigner, Richard Murphy, the satirical mag purports to advise high-earners and celebs on how they can avoid tax, to highlight the considerable loopholes that remain available.

The use of a ‘comedian’ to highlight the use of offshore trusts in From Luton to Liechtenstein points not-so-unsubtly at Jimmy Carr, who had allegedly profited from such a scheme via the Channel Islands. With funds deposited in an offshore tax haven, they are then lent back to the depositor at nominal rates of interest.

Sports stars that are fortunate enough to include ‘image rights’ amongst their vast revenue streams can pay much lower tax than their main salary, the report suggests, by siphoning this income off through family or through offshore accounts.

It also reserves a sharp dose for the domicile rule: “a tax dodger’s best friend”. If you can claim not to live in the UK, you’re only taxed on what is earned in the UK (which can also be dodged by other means).

The rather flatulent rules on tax and non-domicile residence mean that somebody could be spending up to four days a week for over 40 weeks of the year in the UK and still be exempt from tax. There are also pointers about how personal service companies are used to avoid PAYE and National Insurance.

“Travelling First Class is Really Hard Work!” the mag jokes. It has me thinking: not long ago, I was working in Switzerland and jetting back to the UK every week. I just really preferred the scenary in Essex. Try marking scripts on an RJ-85!

Kerching! Luton to Lichtenstein

Cheating

Kerching! concludes by describing tax avoidance as ‘cheating’, and says that saving into ISAs, for example, should not be seen in the same way, because it is a legally permitted encouragement to save rather than the manipulative reduction of a tax bill.

It ends with a series of recommendations for tackling tax avoidance:

  1. The introduction of a no-nonsense law called a ‘general anti-avoidance principle’, which allows all avoidance to be legally challenged.
  2. Keeping HMRC staff to ensure adequate resources.
  3. Abolishing the domicile rule to stop dissimulation about residence.
  4. Making tax residence rules statutory rather than based on guidance.
  5. Ridding unnecessary tax reliefs used by the wealthiest, often for further loopholes.
  6. Adjust tax relief for charities to stop manipulation of the system.
  7. Taxing investment income over a threshold to discourage limited companies as NI avoidance measures.
  8. Introduce a minimum rate of tax for £150,000+ to prevent undue exploitation of reliefs.
  9. Liaising with other countries to provide information on UK residents with offshore accounts.
  10. An overhaul of the way small limited companies work to cut the risk of abuse.

The magazine highlights a system littered with loopholes which can easily be exploited by savvy opportunists, often aided by specialist accountants who are plying their trade by facilitating this for the wealthy.

Also problematic is when the government’s own departments start paying staff off-payroll, which allows them to make these alternative arrangements. Executives in the NHS were ordered recently to stop paying senior staff as contractors.

Unfair

The TUC’s General Secretary, Brendan Barber, said that a system already rigged with unfairness was being rendered even more so while the consequences of lost public revenue were being borne by the least well off:

The overwhelming majority of people in the UK have little choice over the amount of tax they pay and unlike big corporations and super-rich celebrities don’t have the means to employ expensive accountants to help them avoid paying their fair share of tax.

Each year billions of pounds which the super-rich should be paying in tax leaves the country and is lost to the public purse. Meanwhile the government’s insistence that rapid spending cuts are the only way to reduce the deficit, no matter what effect austerity is having upon the UK economy, means that it is ordinary families who are suffering, while those most able to afford to pay more get away virtually scot-free.

On the recommendations, he added:

The Chancellor has said he finds tax avoidance morally repugnant – so do we and that’s why we want him to act. Closing down the multiple loopholes which super-rich celebrities and their accountants jump through on a regular basis could make a huge difference to our public finances and take the pressure off the little people who are bearing the brunt of the government’s austerity measures.

Barefaced Cheek

One would have thought that the advocators of a system so clearly held up as corrupt might want to lay low. Apparently not. Mr Murphy reported that his sardonic publication had prompted a rather shameless reply from a Mayfair-based tax practice which appears to specialise in exactly the sort of practices that are being admonished.

From tongue-in-cheek to barefaced cheek. But then, it’s only this brand of impropriety and impenitence that gets us in this kind of mess in the first place.

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