Tuesday, November 09, 2010

UK is open for tax-dodging business

George Monbiot, writing in the UK's Guardian newspaper, opens with the question: Did Vodafone avoid £6bn of tax? This is an issue we have covered a fair bit recently. We would answer with reference to the Golden Rule
who has the gold, makes the rules
Vodafone did a deal with the UK tax authorities - whose permanent secretary, Dave Hartnett, said recently: "We are sometimes too black-and-white about the law;" from now on the tax service "will adopt a less combative approach to resolving tax disputes with businesses".

TJN has heard exactly this, and worse, from senior officials inside the UK tax authorities, who are furious about what has been happening. One official told us how they would go after a big company for its tax affairs, quite properly -- but then find that their superiors would reach in to the case over their heads, and stop the investigation.

This is tax haven London at work - about which we will be writing a lot more in due course.

Private Eye, the source of the £6 billion figure, is one of Britain's best and most authoritative sources on tax, and its contacts are impeccable. The £6 billion figure is undoubtedly a real one.
Monbiot is right in his conclusion, too:
"HMRC's inability or unwillingness to pursue big tax avoiders means that taxation shifts from the rich to the poor. As corporate payments fall, either the poor must pay more or services must be hit even harder. Regardless of the exact amount Vodafone avoided, the protesters are right to picket its shops (and they might have a go at Boots while they're at it)."
And there is a comment under the article, and a lot of more foolish ones underneath it, reflecting a misunderstanding about what tax avoidance is. Here it is:

"I have a few quid in an ISA cash account. I thereby avoid tax on the interest - Is this included in the £25b identified by Richard Murphy ? Should I take it out and pay HMRC ? Am I a bad person ?"

The answer is no. (An ISA is a special kind of account set up by the UK government to allow a portion of one's savings income to go untaxed.) This is not tax avoidance. It is, instead, akin to progressive taxation, whereby the first slice of one's income goes untaxed, then the next slice gets taxed at a low rate, and the next slice at a higher rate, and so on upwards. Same with the ISA: the first slice of the interest income is untaxed, and the rest of it is. This is just a kind of progressive taxation of interest income. There is no tax avoidance involved, just as you are not avoiding tax by not being taxed on the first few thousand pounds of your salaried income.

Or, as commenter JohnElliott notes further down:

"An ISA is tax exempt and therefore, by definition, you cannot avoid paying tax on ISA interest earnings since there is no liability."

Quite correct.


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