I have long argued that UK tax avoidance is very much higher than HMRC admits. Even yesterday Philip Hammond took a swipe at Labour for using my tax gap figures rather than those of HMRC.
It was an own goal. That is because HMRC say total UK tax avoidance is just £2.2 billion a year. But yesterday the OBR published data on the cost to the UK Exchequer of small business, which they admit saves them tax. They say this may not be the only reason for incorporating, but the whole thrust of their report is that the growing trend to incorporate may be for just this reason.
And, as they put it, the cost is high:
I stress: this is the additional cost of this trend from now, not the current cost. And the current cost is high based on this data:
If 600,000 additional companies cost £3.2 billion the existing 1 million companies doing this must cost significantly more.
And this is tax avoidance to which attention may need to be given according to the OBR.
In which case the HMRC estimate of total tax avoidance being £2.2 billion is shown for the farce that it is.
It really is time HMRC started telling the truth.
Also remember these costs are based on the corporation tax returns HMRC receive each year: my research has shown they may not get up to one million returns each year. So the cost of incorporation may be very, very much more than is noted here.
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Richard. In discussions with my friends I have been using your definition of tax avoidance as actions that a legislator could not have predicted. How then can you include a loss of NIC from dividend payments as part of a tax avoidance figure? It’s been happening for years. You did it yourself at one time. Do you now have a new definition of tax avoidance? I haven’t been using your last one long and now everyone is laughing at me for using it.
My friends are also saying your claims of a million companies trading in secret and not filing tax returns sounds hokey and made up. Can you point to your evidence of this widespread evasion, with numbers, so I can shut them up?
The definition of tax avoidance I use is that used by HMRC, the OECD and others. The OBR report makes it quite clear that this avoidance was not expected.
I provided a link to my work on companies.
I do wonder sometimes what you’d think of cyclists using the public highway when there is cycle path a few yards over the left. This path is usually bumpy and interrupted by driveways but is marked as intended for cyclists.
You’d probably call it Highway Code avoidance.
Your wit stuns me
Following up what Jason said the government clearly intends cyclists to wear helmets, by insisting new bikes are stamped ‘always wear a helmet’ and making them free of VAT. But the law permits people to still ride without.
Is this also avoidance?
Surely if something is clearly permitted by the lawmakers, and however much they say they don’t like it in their Hodgy committee rooms, they still do not desire to make the effort to outlaw it, then that thing they don’t like is not avoidance.
If you honestly think that is a serious question I think you need to think again
I can imagine a reworking of the famous climb to La Plagne back in ’87. The Podemos rider crosses the line, and a pale Irish figure is following but he is shrouded in fog. As the pale rider gets closer the commentator shrieks “That could be avoidance, it looks like avoidance, IT IS AVOIDANCE”.
It beggars belief that HMRC only now, more than 10 years after the events that kicked off the boom in small company incorporations, recognise the “threat” to the exchequer that it represents.
Those events were similarly born as a result of nothing other than a lack of consideration of their likely effects.
And now the government wants to penalise small companies by making their rather stupid reduction to 17% unavailable to small companies.
What an indictment of HMRC, the Treasury and the government, each sitting in its individual “silo”, utterly incapable of the cooperation that could have avoided the problem in the first place. And what an example to those who went down the incorporation; “the government doesn’t care so why should we?”.
It does indeed, Nick. Unfortunately, the sheer ignorance of the comments in response to Richard’s comments above demonstrates only too clearly that the dumbing down of the Inspectorate resulted in a dumbing down of those in legal/accounting firms who had hitherto to pit their skills against very highly competent people. Once that challenge was gone the reign of the semi-ignorant arrived.
When I first started dealing with the taxation of financial institutions in the early 80s, the charge out rate for the tax senior negotiating with me was £500 per hour. Of course, there were additional charge outs; minions, note takers, bag carriers, and so forth, all of whom would be also charged in one way or another, but the guy (and it was always a guy) doing the negotiating knew very well why his charge-out rate was so high. It was because he knew the calibre of his opponents, myself included.
I was the first ever female Fully Trained Inspector in the City, since the powers that be had spent decades worried that all those numbers with lots of 0s on the end might be too much for our delicate female minds. It became a standing joke when my first ever report showed that I had done very well indeed, leading me to expect that they would concede that women could do this just as well as men. I was wrong. Instead they decided that I ‘have a man’s brain’. This would undoubtedly be helpful in the event of a Zombie Apocalypse, provided I could remove his brain in time, but not much use otherwise.
The posters above who have displayed their extraordinary ignorance are sadly only too common, but there are glimmerings of hope. I’m told by a friend and former colleague that the Department has finally ecognised the catastrophic consequences of abolishing the FT Inspector, and are trying to restart it, but there is obviously a long gap before they come online. It takes a lot of time to train someone to that level.
Thank you for your work on all our behalfs; I’ve just spent 20 minutes thinking about it, and writing about it. I’m happy to proffer it pro bono…
Thanks