Fox (n): carnivore of genus vulpes; crafty person; scavenger; (vb) to confuse; -ed (adj): to be drunk.

Tuesday, 19 June 2012

Missed the taxman.

SET a speed limit, and most people will break it.

Tell us booze is bad, and we'll drink it anyway. Tax our pay, cars, fuel, heat, clothes, food, feet and pensions and most of us will wriggle as much as we can by dabbling in the black market and paying tradesmen in cash to keep things off the books.

And despite the fact Jimmy Carr's not very funny, enough of us want to see him that he earns £4million a year from us. As a result, and in much the same way I would if I had £4m a year, he asked an old school friend who's now an accountant to look after it as well as he could.

The net result was that £4m a year turned into a £100,000 salary and the rest of it became a 'loan' from a Jersey company on which he did not have to pay tax. Niiiiice.

There are two problems with this which raise it above what any of us would do given the chance. Firstly it's not the first time Mr Carr's done it - a previous tax avoidance scheme he invested in was shut down by ministers who denounced it as "highly abusive and completely contrived". And secondly he earned some of that money for lampooning bankers who did much the same thing.


Seeing as Jimmy 'Didn't Think It Through' Carr performed the above sketch two years after that first "abusive and contrived" scheme was shut down, his hypocrisy is nearly as breathtaking as the fact he gets £4m a year for such limp gags.

It is also inevitable. If you're in the public eye and you do something on the edge of legality - and tax lawyers reckon those 'loans' border on evasion - then you're bound to be found out eventually. It's a fact of life, and one which no doubt Mr Carr is hoping Brian Leveson will find a way to stamp out and most of us hope he won't.

But then tax is something that only seems to apply to most of us. There are some for whom it barely exists at all.

If you are in a job earning £25,000 a year you're taxed at source and end up with £19,176. Your employer has to pay some National Insurance and your take-home is further whittled away by VAT, a tax from your local authority, tax from the police, from the road agencies, excise man, and so on.

If you have a few million a year, you wouldn't want to see it cut by half and would probably ask an accountant to help you pay as little tax as possible. If you have a few billion, then tax is something that happens to other people.

If it were possible to be an ordinary employee and be paid via dodgy loans from the Channel Islands we didn't get taxed on, we'd all do it. The fact is that we can't, and because we can't we're just about keeping our heads above water as a nation with government debt reaching almost 70 per cent of GDP.

Greece, by comparison, has 150 per cent debt, about the same as Britain had after the First World War. And just like Britain its biggest firms are granted special exemptions from the taxman which save them billions.

So their shipping magnates are still rolling around in tax-free dividends while ordinary Athenians are eating in soup kitchens. Meanwhile British businesses like Vodafone and Barclays, and foreign firms which do business here like Google and Amazon, get a handshake and a wink from the taxman while special needs teachers are being laid off, respite care for the disabled is being cut, and unemployment has risen 42 per cent in a decade.

'Sir' Philip Green, the man who runs TopShop and a string of other firms, on paper works for his wife who owns everything and lives in Monaco where there's less tax. He's been working since he was 15 and created thousands of jobs, but he ought to be paying more than he does and didn't ought to be telling the government how to save money when he is so good at not giving it his.

None of us like being taxed but if the workers didn't pay it no-one else would do it for them. We'd be just like Greece, without the sunshine and with no-one left to bail us out.

Which is why the taxman comes after the humble drones and taxes them at source - it's easier. It's why Gideon Osborne denounces tax avoidance as "morally repugnant" on Budget Day and a day later Jimmy Carr's accountant announces: "We're delighted to inform you that most of the powerful tax-saving opportunities survived unscathed."

It's why official figures show individuals avoid £4.5bn of tax out of an annual £7bn missing from the Treasury, when campaigners say the real hole is nearer £25bn deep. Tackling all of that will cost time, effort, money, staff, and those nice big donations which political parties get from big business, so let's not do it.

The true hypocrisy is not to be found in unimportant, unfunny Jimmy Carr and his couple of mill. It's sitting behind a desk in the Treasury, pilfering the pockets of the lower orders and stroking the egos of big, fat men with big, fat bank accounts.

It is the rules that are at fault, and therefore the people who write them. MPs claimed expenses 'within the rules' and it was a scandal. Bankers gambled with more money than they had 'within the rules' and now everyone else is paying them back. If Her Majesty's Revenue and Customs are "fully aware" of all "legal tax avoidance vehicles" then it's HMRC that are the real tax dodgers.

No-one will sort them out, of course, and they'll say it's all very complex and how can poor little worker bees understand it. But in truth the solution is ridiculously simple, and that is to get rid of most of our taxes altogether.

Scrap VAT. Bin stamp duty. End the raids on pensions. Most of them are only there to fill up the coffers because rich people are busy avoiding tax anyway. Lower income tax to something low and inoffensive and make sure everyone pays exactly the same - billionaire or worker you pay, say, 10 per cent on your earnings and that's that. Everyone will, when the rate's so low.

And instead introduce the only tax which is fair - a tax on consumption. A sales tax is something no-one can avoid. Jimmy Carr has to eat and buy petrol, same as the rest of us. If he drives a rich man's car with a rich man's fuel consumption he pays more. A sales tax gets Philip Green every time he eats a steak dinner, it gets drug dealers and criminals and people who operate off the books. Everyone has to buy and spend, and if you tax at the point of sale everyone pays their share. The exchequer's big hole would start to fill up, the housing market would improve, and there would finally be a point to buying the same frock as Kate Middleton wore.

It would mean a little old lady buying a can of beans for her supper doesn't pay any more than she has to, and that Gideon would have nothing left to say.

Everyone's a winner, frankly.

41 comments:

Anonymous said...

Land tax is the way forwards. Would hammer the super rich who own most of the land, is totally unavoidable and most people as renters wouldn't pay it.

Foxy said...

I disagree - it would hammer people who are land-rich and cash-poor, older people who've lived in a home all their lives while its paper value has risen and their income has fallen, and people who live in the countryside (many of whom are very poor).

Anonymous said...

I dont think flat taxes are the way to go.Sales tax which is another way of paying VAT hits the poorest of our society .Land rich older people can always downsize.Poorer people may have to decide on what size of beans they buy.

Anonymous said...

Not to mention the "most of us" such as my parents who worked hard all their lives to own the property they live in because they were brought up to believe it's better than renting.

Anonymous said...

Heavens above, you sound like a right wing republican in the US; this is exactly what many of the more libertarian right argue in the US. Never expected you to be lining up with them!! But agree some kind of radical thinking along these lines needs to be done.

Tony H said...

An excellent article - wonder how many other 'celebs' steal from their followers? A few years ago I remember 'The Eye' ran articles about scottish fir trees - which also robbed the tax man. Instead of curbing the press they should be applauded when they get it right.

petesc said...

Might this not result in rich people earning money here, then spending it somewhere else - in a country that doesn't tax its citizens in this new way? The raised prices would also discourage tourism.

Unless every country has the same or very similar tax guidelines it seems very hard to stop tax avoidance. I think it would be lovely if the millionaires and billionaires paid anywhere near what they were supposed to.

Foxy said...

It's not the same as VAT. At present land-rich older people who downsize have to pay tax to do so. People with less money who spend less would get taxed less. How is that not better?

Foxy said...

They don't 'argue' it because the sales tax system already exists in the US. Seems to work pretty well, too.

Anonymous said...

Not sure how you can say scrap VAT and then advocate introducing a Sales Tax. They're essentially the same thing. You're also probably missing the point that the super-rich don't just sit and look a their money. They do spend it – and in large quantities. When someone like Harry Redknapp buys a Jag he pays VAT, and he probably pays the wages of a driver too (which the driver then spends and pays VAT on). Not saying that makes it OK, but your argument that Sales Tax would solve the problem is miles wide of the mark.

Anonymous said...

Then they can sell their land without selling their house? Have the land go to more productive uses.
And let's be honest, most of the land in the country is owned by the aristocrats still.
Not to mention land was once held in common then taken in the feudal times. Effectively it's another form of consumption tax.

Anonymous said...

There is only a minor difference between a sales tax and VAT; Steve Forbes was one of early Republicans to advocate a flat tax, actually at 17%. Not sure tax system works any better in US; see Buffett stuff about paying less tax than his secretary and Romney tax rate.
Appreciate a little irong in comment about being republican!! #whatcocks.... as I said you raise interesting points so no need for abuse.....

Foxy said...

VAT is not the same as a sales tax. VAT is charged at 20% and only 12.5% goes to the taxman. The remaining 7.5% goes to the person who sold you the service. If you are selling it to another business, that business can claim the VAT back from the taxman. So as far as businesses are concerned, VAT is just a way of moving money around rather than making it.

Individuals don't get to claim it back. So the poor get taxed more than, saying, a self-employed businessman.

Mike Fleming said...

We would have to pull out of the EU because having VAT rather than sales tax is a condition of membership.

Anonymous said...

Trouble is a sales tax regime can lead to higher prices, much less good for poor, due to "cascade" effect. Most see VAT as much more transparent. but effectively this is nitpicking. The basic idea of tax being more based on consumption is interesting; what would make it more "progressive" is to have higher rates on non essential items and luxuries. This is an interesting discussion....

Foxy said...

Bugger.

Leonard Martin said...

Only if you're registered in the flat-rate VAT scheme (and then the rate varies depending on industry - I pay at 14.5% for example), and then you can't reclaim VAT on any purchase under £2000. If you're not flat-rate registered then it's the whole 20%.

Anonymous said...

less income tax = more spending/jobs = more vat/sales tax

Anonymous said...

I must be missing something but where do you get "the remaining 7.5%" goes to the person who sold you the service" from? If I charge £20 VAT to a customer then the whole £20 is paid on to the Revenue. I don't get to keep £7.50 of it.

I agree with everything else you say about income and sales taxes, just confused about the 12.5%/7.5% split

Anonymous said...

"They don't 'argue' it because the sales tax system already exists in the US. Seems to work pretty well, too."

Having lived in the US, I can say this is not the case.

US tax is organised thus: income tax that goes to the Federal government, sales tax that goes to the state, and property tax (like council tax) that goes to the city or county. Some states, like New York, add a state income tax atop these. Some cities, like New York City, add a city income tax too. As a result their service infrastructure - public transport, public universities, roads and so on - are strikingly better than places which don't add these, such as Florida.

Speaking of Florida, the state found itself in such a hole revenue-wise from only applying sales tax that it found it needed a new source of income. But on the other hand it was loath to anger the retirees who move there en masse specifically to avoid paying taxes in places like NY. So they implemented a controversial 'tourist tax' on things like amusement park tickets, hotel rooms, and car hire. Guess what... that hasn't raised the cash they need either. The retirees have also begun to start their own towns, like Sun City Centre, so they can avoid paying property tax that in normal towns would go to things like schools which being retirees they don't need nor feel the need to support any longer. As Sun City et al don't have hospitals it's no surprise that the costs of aging don't hit these communities proportionally. Win/win for old NIMBYs, lose/lose for communities with families, schools, and hospitals.

While agreeing with you in principle that the tax system is very broken and that Carr is a knob, I doubt sales tax is going to save us. As others upthread point out, there are certain things like fuel which will always proportionally hit the poorer people harder. Carr might well drive a "rich man's car," but unless he's chucking over to Moscow and back every day, he's not going to pay proportionally what a working man has to on his daily commute.

Anonymous said...

I dunno Foxy, the danger is that the impact on the poor might be worse than you think (or at least no better than the current situation), and the rich, who can generally defer expenditure or spread it around overseas would just have a different wheeze to go at. It could seriously fuck tourism as well. Maybe if more essential items were zero-rated (like certain clever wing-incorporating ladyproducts) and a low rate for the items we all buy every day and a 'special' rate for luxury stuff might work.

Alternatively, we could all pile into a van, go round Carr's house followed by all his K2-using mates and politely offer him the opportunity of paying his fair share.

Anonymous said...

Not sure I follow the 12.5% and 7.5% argument. As a business I charge VAT on everything I sell at 20% and all of that goes to the taxman, I don't keep 7.5%.

If I buy something including VAT then I can claim the purchase VAT back.

Anonymous said...

Yep. The 20% VAT comes in every time I am paid for a service and the same 20% goes straight to the taxman every quarter. Never heard of it being any other way (at least not from my accountant!)

Anonymous said...

In 2007 I worked faor a bed company, guess what the owner was paying in tax,,,6% and guess who taught him how to pay that amount,,,yep another Bed company owner, these people own 2 of the biggest bed companys in the uk earning millions every year, while as a normal employee I was paying the standard rate of Tax,, it really is a shocking world we live in, its now 2012 and these two company owners have probably learnt new ways to save even more Tax because of so called loop-holes,,,, the old saying "The Rich get richer while the poor get poorer" well now we all know How!!.

TamsinLisa said...

Maybe rich people getting a conscience and paying their due to the society they live in would be a good start. Or do you sell your conscience the minute you get pennies? The finer details of the comments scare me. You are all relying on the fact that the rich don't want to contribute. Which is true. The whole situation is rotten to the core.

Christie Malry said...

"[Sir Philip Green has] been working since he was 15 and created thousands of jobs, but he ought to be paying more than he does"

Says who? Do you know how much tax he actually does pay? Do you know what his earnings are? Is there anything other than green-eyed jealousy behind your statement?

Because I suspect there isn't.

Anonymous said...

Does this suggest that reducing the top rate of tax from 50 to 45% isn't going to encourage the obscenely rich to increase their voluntary donation to HMRC?

Anonymous said...

I've heard this argument a lot and just don't buy it. Why would having a flat rate of tax at, say 20% stop Jimmy Carr moving 3.9 million into an offshore company to receive as a loan and avoid paying 20% on that money in exactly the same way as he has done? Mr Carr, Mr Green, Amazon all clearly want to pay zero tax and reducing the rate or making it a flat rate for all isn't going to change that.

Heather Jean said...

Well some do pay their way. I really disagree with the argument that it's somehow inevitable. J K Rowling has written about how important she feels it is to pay her taxes and contribute to this country. I'm certain she's not the only one. I know lots of people who don't mind paying tax in principle, I personally feel strongly about contributing to the NHS and education, as do many of my friends, we only resent it when reading these stories. I can't see why we, who will never earn a million in total in our working lives, should somehow have more morals than people who do earn the millions.

Anonymous said...

Simple solution. The tax of anyone who earns over 150k a year should be made public, not their earnings but their total tax, be very interesting to see how many of the BBC luvvies pay their fair share of tax.

Love to see if Polly Fatbee pays hers.

Anonymous said...

Wouldn't matter how much I earned, I'd always pay tax. Along with the NHS, police and education system I like knowing that my money might go some way to keeping our nuclear arsenal active, and as such keeping us nicely in the top 5 powers in the world. Doesn't matter if our economy is shot to hell and that our conventional military is limping along, so long as we have enough warheads to destroy the world a couple times over we will always be more powerful than any nation after the US, Russia and China, and that's no bad thing.

Chris said...

Do a quick Google for numerous tax avoidance articles on him.

UKHamlet said...

Sales taxes are a weapon against the poor. The burden of taxation would be placed firmly on the less well off as the rich go laughing to the bank again. The fact is, like many things, there-is-no-simple-answer.

I think a land tax, as suggested earlier in this thread, could go a long way to making the rich pay their fair share, but it's not a solution. Sooner or later complex lease back arrangements would occur where the wealthy don't actually "own" anything, it will all be held by offshore companies who allow the wealthy to use it.

The real problem is the flow of money, where is the money going and why? Tap into that and tax non-retail transactions and you may start to close the avenues of escape. If money is paid (or any transfer of wealth is made) to someone or an organisation then tax it. Place the onus on the payer to pay the tax. Add to that a wealth tax, then remove the right of the banks to create money and charge them for it and you might be getting close, but STILL they will find a way to avoid it.

Your suggestion of a sales tax is just plain stupid, to be perfectly honest.

Anonymous said...

The only problem I see with the sales tax argument is the black market problem. You can't avoid it on daily essentials such as groceries, but when buying a new laptop, why not just buy it abroad?

sean said...

It's pretty obvious that some people will keep their morals no matter how rich. But the majority get a swift introduction to the greedy ways of the uber rich. Sadly it has. Been and always will be the way. Unless gid et al stop them. Vote yes in 2014.

Rob Pinnington said...

If you like this article you might like this epetition
http://epetitions.direct.gov.uk/petitions/34725
1000 richest people pay off the debt

Responsible department: Her Majesty's Treasury

According to the annual Sunday Times Rich List, the richest 1,000 persons in the UK now sit atop of £414bn, a sum more than three times the size of the entire budget deficit. This petition advocates a one off off tax to take a third of their wealth to pay off the deficit. Any one of the 1000 richest disagreeing will have all their wealth confiscated. Any of the 1000 attempting to relocate their wealth will have all their wealth confiscated

Darren said...

A flat tax is unfair. If the rate was 10% and I earned 10k a year that a large wedge of my money in comparison to the cost of living. If I earned a million and paid 10% although a large amount I n relation again to the cost of.living it would be nothing to me...but If I didn't give a shit and didn't want to contribute to the country I lived in I would still find ways to avoid it.

Raise the tax threshold to 15k, bring tax and national insurance together as one. Remove car tax and increase duty on fuel...and of course get these loopholes closed for company and man alike.

Anonymous said...

Ironically, calling Jimmy Carr unfunny is a very good joke. You've clearly never seen his stand-ups or you wouldn't write such a stupid comment.

Foxy said...

I have seen it, and that's why I said it. Isn't it marvellous the way we're allowed to have different opinions?

Anonymous said...

Great post but on the specific point of a land tax, the land-rich cash-poor argument is just a smokescreen which allows land to remain duty-free in the UK except when it changes hands ie stamp duty. For anyone wanting to read up on the social justice issue involved here's a good place to start

http://www.wealthandwant.com/docs/Tideman_SVR.html#The%20Social%20Justice%20of%20Site%20Valu

Anonymous said...

Really enjoyed reading this post - thank you. But I'm troubled by the perception in the comments here and in many other forums that "the filthy rich pay no tax." Or general words to that effect. Worth watching this BBC clip with Nick Robinson: http://www.bbc.co.uk/news/business-15819873. The headlines: 47% of UK income tax is contributed by the first 90% of income earners (ie from the lowest paid upwards.) So the richest 10% of earners contribute 53% of all income tax. Those on under £10k a year contribute 0.5%. There are clearly some flagrant abuses going on - including a whole world of cash-in-hand activity at all levels - but, on balance, in light of these figures, it's hard to blame "the rich" for the hole in the country's finances.

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