Monday, August 8, 2011

Tax rant of the week: Taxing the phonehacking bribes

The Guardian has reported that:
"Police officers who allegedly took payments from newspapers and private investigators could face hefty fines and criminal prosecution after it emerged HM Revenue & Customs is reopening personal tax records to check if payments were fully disclosed."

As I read further though I began to doubt the truth of the newspaper story. (Not for the first time).

Of course such bribes are taxable income and should have been disclosed. But it's hard to imagine anyone would have asked for a tax return and volunteered to pay tax on the bribes they received. So what would be the point of 'reopening personal tax records to check if payments were fully disclosed'? Of course they weren't.

The 'story' seems to derive from the reply provided when HMRC were asked whether there would be an investigation. The "HMRC spokesperson said he could not confirm the nature or extent of any investigation into a private individual's tax affairs. But he confirmed that HMRC will act on any new information and that illegal earnings can still be liable for tax."

I think the journalist may have been excited to learn that "Under HMRC rules any payments earned in connection with an individual's employment are required to be disclosed for tax purposes, even if the payment is deemed illegal." It is of course tax law and not HMRC rules that determine whether or not any sources of income are taxable. But either way it is correct that any monies derived from your job or business are taxable - unless there is a specific exemption. The fact that the sums were illegal bribes is irrelevant.

I'm not at all sure that the police officer's tax returns will be reviewed or that they will be asked to pay tax by reference to the bribes they received. After all, how many MPs have been asked to pay tax on all those non-existent expenses they received on top of their MP salary?

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