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!


  1. Hmm, I'm not sure what to make of this post. You say there is no need to simplify a complex issue, but surely you can understand the rationale behind doing so? As an 'Uncutter' myself, I don't think half as many people would take notice if I stayed at home and cold-called people asking for half-an-hour of their time to discuss tax avoidance.

    You might consider simplifying issues a bit "Bernays-esque", but if it raises awareness of the underlying issues, surely it's a good thing.

    You also seem to be confusing a few of the protests. I have been to both the student demos and the UKUncut demos. They are different things. The anarchists showed up to the student demos. The UKUncut demos passed off without a hitch. No truncheons were wielded, no fences thrown.

    Your fallacies are very good, and no one is blaming the coalition for the existence of tax avoidance. We are however blaming them for allowing these avoidance schemes to continue on one level, and make drastic cuts to public spending on another. Before making cuts to spending and running the risk of prolonged recession, why not make chasing up tax avoiders a key issue, and be seen to be doing so?
    Can I suggest you visit false economy dot org dot uk for more information on this?

    We make it clear from the outset that we aren't attacking staff, we speak to managers in store and when we leave, we do take time to speak with the workers. As for customers, there is an overwhelming public support for these protests - in the three UKUncut demonstrations I've taken part in, only one person was upset about Vodafone being shut. We politely explained why we were there and pointed him in the direction of another Vodafone down the road.

    As for your double standards and footballer fallacies - these are non-starters. I pay my taxes, I'm self employed and I understand that trying to get off lightly is just as bad as an MP with their expenses or claiming allowances 'because they're there'. Yes it's legal, but it's immoral. As for the footballer thing - presumably as the loopholes are closed, footballers will pay up too, as will anyone else (I'm not sure why you chose footballers over media tycoons or anyone else?). One loophole at a time, lets get the ball rolling.

    Ultimately you support raising awareness, yet you sit on the fence writing this blog. It would be good to chat about this with you - perhaps on Oxford street, with a number of shoppers, in front of Topshops closed shutters?


  2. I rather like the following quote by the influential US Judge Learned Hand
    "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."
    Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

  3. Hi Anonymous (Seb)
    Thanks for taking the time to read and comment.
    My comment re students and anarchists was re those who attend UKuncut led protests.
    Coalition is doing just as you ask re tax avoidance but the issues are more complex than you seem to think. And HMRC is going after tax avoiders who they think have broken the rules. As the rules change so there are fewer opps to adopt aggressive tax avoidance schemes etc.

    You ask for something unachievable. For HMRC to be SEEN to chasing up tax avoiders. They do it all the time. But this can only become public when they win in the courts - and in most cases they secure settlements without needing to go that far. And that's a good thing.

    You seem to think that all UKuncut protests are organised as well as those with which you have been involved. Seems unlikely to me. But if you're right, I agree that's a good thing.

    I've addressed the legal/immoral issue on this blog before. We're not as far apart as you might think.

    I see nothing wrong with raising awareness AND staying on the fence. Some issues are so complex that there is no easy solution. I prefer to leave it for those better informed than me re potential solutions to lead the way. But when those less informed seek to do the same thing I speak out.

  4. The real answer if for the UK Tax system to be simplified - cut out all the allowances - such as mortgage relief, childrens allowances, capital allowances etc - and increase the exempt allowances and thresholds accordingly so that the changes are slightly in favour of the taxpayer - corporate and personal - or at the worst tax neutral. According to Laffer, the effort of avoiding tax would become more expensive than paying tax and revenue should increase. Also, the system would be simple enough for even non tax paying students to understand!
    Sadly, there would be a lot of unemployed tax accountants and lawyers but hey! that's life!

  5. sorry - it should be" The real answer is.."
    Too much cold weather for typing!

  6. @DizzyRingo
    Thanks for commenting.
    The Laffer curve is only one theory (although I tend to think it makes sense too).

    If the Treasury and HMRC thought for one minute that the 'real' answer was feasible they would have promoted it - but they don't as it isn't. ;-(

  7. " cut out all the allowances ... mortgage relief, childrens allowances"

    Err, yes. They're gone. Long gone. Unless you mean that Child Benefit isn't taxable?

  8. Wich reminds me - @DizzyRingo suggested removing capital allowances which would mean businesses getting no tax deduction or relief for any business related capital expenditure. Not good or fair. The alternative is to simply allow tax relief for depreciation at a pre-determined rate to match the charge in the accounts.
    This is a side issue as compared with the main thrust of the blog post but also further evidences that it's all more complicated than it at first appears. Much like life!

  9. Hi Mark, me again (anonymous Seb) - I'm not sure if you've seen but both Dennis Howlett and Richard J Murphy have posted fairly robust and coherent counters to this post, might be worth a look? They reiterate the points I was trying to make in a way you may understand.

  10. Thanks - despite the patronising tone of your message.
    I commented on both pieces yesterday.
    Richard, in his response to my comments added:
    "It’s very hard to argue with that - which illuminates your original comments and contextualises them in a way that the original blog failed to do"

  11. Tax avoidance in football IS an issue! See Christian Aid's report:

  12. Here is how the scam works.

    Companies that operate in the UK pay tax upon their UK profits, they pay VAT, they pay national insurance on their UK staff's salaries and those staff pay income tax. They will pay local business rates on their premises.

    Where the company is headquartered if it is a multinational determines what happens to their earnings once taken out of each country they do business in. It is generally a good thing to have multinational headquarters as you will gain extra tax revenue, but also because they use lots of other expensive goods and services, and employ the well paid staff. If the headquarters of a firm is in the UK then they will likely use a UK law firm, a UK accountant, UK IT consultants etc etc

    The issue many people have is with tax rules that basically allow you to massively reduce your tax liability in the UK (and elsewhere) by various methods, often involving loans. Loan interest payments aren't taxed (quite sensibly) but this can be abused by using an offshore headquarters. So the owning company is based in the British Virgin Islands "lends" lots money to its UK subsidiary which makes regular interest payments back to the owning company. Those interest payments happen to coincide with the profits the British subsidiary makes, which basically reduces its profits to 0 and therefore reduces its tax liability massively. The BVI company has very healthy profits but in a country that doesn't tax them. It gets much more complicated but that is basically the idea. Google "sold" various technology rights to their European subsidiaries and receive interest payments back, hence their low tax rate.

    The real kicker is that these Headquarters that are making all the profits and pay zero tax are often held under nominee directorships, so you cannot find out the real private owners..

    The bank address for the offshore Headquarters company can be anywhere. It does not have to also be in the off shore country.
    The company nominee directors have direct access to this bank account to do what they want.
    This is because the offshore havens do not require the accounts to be audited or even for accounted to be submitted in general.

    Ironically the "EU Tax savings directive" passed in 2008 stopped the ability of private individuals to do this. They did this by forcing all countries banks to expose all persons accounts everywhere to the other governments. This was lead by the main progressive tax countries of course to stop personal tax liabilities moving off shore and to avoid paying tax in high tax countries.
    Just what companies are stil allowed to do.

    Its painfully ironic what is going on. Think about he scale of the damage this causes and the ripple effects it has and its staggering.

    Talk to any London accountant you have known for 5 or more years and they will tell you this in detail. If you don't have a long standing relationship with them then they are unlikely to discuss this dirty laundry with you.

  13. @DF
    Are you disagreeing with any of the 8 fallacies in my post or just commenting on a related issue?

  14. Hi Mark thanks for the considered discussion but one point resonates and it's point 6 where you challenge uncut's double standards by asking why big businesses should not enjoy the same standards as small ones.

    I tend to think that given that 20 of the 22 participents of the PM's advisory group are big businesses, thus securing an inordinate amount of influence on those very standards, then they can and have shaped them to favour themselves too much and badly need reining in.

    Interested on your thoughts.

    All the best, Paul

  15. Those may well be fair observations Paul but I was commenting on the double standards of those who seek to criticise others for seeking to keep their taxes low (through legal means) when they do the same thing themselves - or may not even be paying any tax.