Monday, December 20, 2010

8 fallacies that undermine the UKuncut tax protests

Those who know me and those who read this blog will know I'm no fan of aggressive tax avoidance. I'm also critical of those in the media whose attempts to comment on tax issues reveal a woeful lack of knowledge and understanding of our tax system.

The protests outside big companies' stores around the country derive from this invitation set out on UKuncut's website:

"At the same time as making massive cuts to public services, this government is letting rich individuals and corporations avoid billions of pounds of tax. Join UK Uncut’s Big Society Revenue & Customs (BSRC) and become part of an army of citizen volunteers determined to make wealthy tax avoiders pay."

I do understand the need to simplify complex issues so that these can be understood by the man in the street. Equally I deplore the way that some people use the need for simplification to manipulate their readers and viewers. It seems to me that this is part of the background to the recent tax protests.

Part of me really wants to admire what UKuncut has achieved in recent weeks. Leaving aside the anarchists who have joined in, I'm in awe of the level of genuine support UKuncut have secured for their protests. In this regard I heartily reccommend a recent article by Alan Finlayson writing on The philosophical significance of UK-Uncut.

BUT I'm also saddened by the confusion caused by conflating different issues. And also by what some might see as cynical manipulation of public anger. In this regard I have identified 8 fallacies that seem to me to undermine the tax protests.

1 - Who is to blame for the UK's complex tax system?

It's long been complicated but it was Labour who layered our tax system with complexity upon complexity over a 13 year period in office. It was Gordon Brown who resisted calls for effective consultation - and instead rushed new tax rules into law with loads of anomalies and gaps. The Coalition Government have promised a new approach and the evidence todate is that they will do as they have promised.

2 - Who let the Big Companies reduce their tax bills?

The unpaid taxes that UKuncut complain about relate to the 13 years that Labour were in power. You can't blame the Coalition Government for tax avoided before they were elected.

3 - The Coaltion Government are taking action to reduce aggressive corporate tax avoidance

The Coalition Government has announced numerous anti-avoidance tax rules to further reduce the opportunities for aggressive tax avoidance. They aren't ignoring the issue.

4 - Who is the bad guy here?

Either UKuncut is protesting about the Coaltion Government's cuts or about tax avoidance being allowed to continue. Either way the complaint is against the Government rather than against the workers and customers of the stores being attacked by the protests.

5 - There is a degree of naivity at stake here - especially by protesters who don't pay tax

Only a minority of the protesting students have ever paid tax on their earnings. Most employees who pay tax through the PAYE system are understandably frustrated at how much of their pay goes in tax. They want to pay less. If they could, they would. The tax rules for employees make this more difficult than for the self employed and for business owners. But it's still a natural reaction. Those who've not paid tax to date seem not to have conisdered what their reaction will be to the payment of tax.

6 - And there are clear double standards too

Almost every self employed person and small business operator in the UK expects their accountant or tax adviser to help them pay less tax than they otherwise would do so. I wrote a piece recently: Doesn't everyone try to avoid or evade taxes? Common requests are "What can I do to pay less tax?" "What can you do to reduce my tax bill?" and so on. As long as such tax avoidance is within the rules they break no laws. Why should big businesses be held to a different standard?

7 - What about tax avoidance by footballers and football clubs?

Not only do top players receive outrageously high salaries but their contracts invariably entitle them to payments for 'image rights'. Substantial amounts of tax are avoided (legally - most of the time) but no one seems to care, except HMRC who regularly petition Governments (old and new) to change the rules to limit the capacity for such tax avoidance. However it seems no one wants to protest outside football clubs though to make these "wealthy tax avoiders pay".

8 - No one pays tax unless it is due

If an individual or a company arranges their affairs so that less tax is payable than would otherwise be the case, that is all they will pay. Paying more than this isn't an option. If there was a way in which you could change things and be liable to pay extra tax in future years, it's likely to take some time to make the necessary changes to your business structure etc. Simply stated, no one should be expected to make excessive payments to the taxman. And even if they did, HMRC's computers would simply show such sums as overpayments and then refund them at a later date!

Wednesday, December 15, 2010

The Pre-Budget Report that we missed....and what it means

Many people were surprised by the publication last week of a wealth of Treasury and HMRC documentation which included draft clauses for the Finance Bill 2011.

We should remember though that this is all in line with the promised 'new approach to tax policy making'. Much of the Bill was published in draft, back in July when the Government launched an informal consultation on 32 separate technical tax measures. These had all been inherited from the previous government.

We have now been given the promised eight weeks for comments on the draft Finance Bill legislation.

This is all to be applauded and, as I have said before, if the Government continues to keep its promises re the 'new approach' there will be fewer shock surprises and less poorly drafted tax legislation.

Some people are concerned that we have a new Finance Bill but that this was not preceded by a 'Pre-Budget Report'. This also explains the absence of the traditional 'Budget' summaries produced by accountants and the supplements normally published by financial journalists. This is no great loss as such summaries and supplements have decreased in value in recent years.

For those who want to continue the tradition, Budget summaries and supplements will no doubt return after the Budget next March. In the meantime we have more notice than ever before of all key income tax and NIC figures for 2011/12. These were announced on 2 December.
The question though is whether the 'new approach' means that accountants are as uptospeed as ever with all the new tax laws and when they come into effect. I'm wondering if this might increase the demand to defer to tax specialists who, by definition, have to keep on top of such things.

What do you think?

Related posts on this blog:

Wednesday, December 8, 2010

There are two types of tax consultation...

It was pointed out to me recently that there are only two types of tax consultation...

One - "We're doing it regardless"
That is, where HMRC, the Treasury or the Chancellor have every intention of introducing new legislation. In recent years (indeed for at least 13 years!) there were plenty of examples of where the consultation process was almost a farce. Certainly it typically wasted a lot of time given the legislation that was subsequently published with undue haste before responses to the consultation could have been properly considered. Almost as if the outcome was a forgone conclusion....

Two - "We don't really want to do this"
This is where there is no real desire for change but there is a political rationale for exploring how best to introduce a change. The tax law equivalent of kicking a ball into the long grass.
It has been put to me that the Coalition Government's proposed study into the possibility of drafting a GAAR falls into this category.

Such a view of course will be familiar to fans of Yes Minister. And it may be telling that the person who shared this view is an ex civil servant.

It would be nice to think that the new approach to tax policy making we were promised in June will involve a third type of tax consultation. The genuine one. Undertaken with no pre-determined preferred outcome. Or maybe that's just naive. What do you think?

Tuesday, December 7, 2010

Get Aware And Realistic. There are NO proposals for a GAAR (yet)

This week has seen reports of 'Government proposals' for a GAAR - General Anti Avoidance Rule. I have seen headlines reporting, for example, that: 'Experts slam avoidance rule'. And 'experts' all but queuing up to comment on these 'proposals'.

Just one problem.

There are no proposals. There are no new rules. Indeed, if we read between the lines of the latest announcement, we might perceive a different picture altogether.

A General Anti-Avoidance Rule (GAAR) was identified as a possible way forward in the June Budget document: 'Tax Policy Making - A New Approach'.

Now, David Gauke, the Exchequer Secretary to the Treasury, has announced the appointment of Graham Aaronson QC, one of Britain's most respected tax barristers, to lead a study into a General Anti Avoidance Rule (GAAR).

A 'study' to
"establish whether a General Anti Avoidance Rule (GAAR) could be framed that would be effective in the UK tax system and, if so, how the provisions of the GAAR might be framed"
I'm pleased that this 'study' is being undertaken in the open and with no inbuilt Treasury or Revenue bias. I do think that's a good thing.

The Lib Dem's manifesto committed them to the introduction of a GAAR. (Mind you it also contained a pledge to vote against an increase in student fees). The promise of a study followed by a consultation seems to be further evidence of the 'new approach' to tax policy making that the Coalition Government promised in June. Indeed, the terms of reference for the Aaronson study contain the following assurance:
"Ministers will consider the outcome of this work as part of the Budget decision-making process, and would not introduce a GAAR without further, formal public consultation".
The study is required to report by 31 October 2011. Given the 'new approach' it is possible, but I would have thought unlikely, that a consultation could then take place and the outcome be determined in time for an GAAR to be included in the 2012 Budget. So we're probably looking at 2013 - if at all.

Unlike the headline writers and many commentators I tend to think that this development REDUCES the likelihood that a GAAR will be introduced. After all, given the known views of most accountancy and legal commentators, it's hard to see how such a study and subsequent consultation could conclude that a GAAR would provide the desired certainty etc. I've also heard that HMRC are not keen.

Time will tell.

Related items on this blog:
8/10/10 - What view would Tax Counsel take of a General Anti Avoidance Rule?
19/7/10 - Would a GAAR mean less work for accountants?
16/10/09 - Too many marginal tax products are sold to too many unsuspecting people