Tax tosh of the week: 50p tax rate to STAY

Another day, another report about how the 50% top rate of income tax is BAD for the British Economy. This week it is the respected UK Centre for Economics and Business Research (CEBR). In September it was a group of 20 high profile economists.

Let me be clear I don't WANT to pay over half my income away in taxes - who would. (It's over half, by the way, as most high earners also pay an extra 2% NICs). I don't think the 50% rate is a good thing. BUT equally I cannot, for one moment, imagine that the Coalition Government are going to abolish the 50% rate any time soon. The CEBR report is balanced and fair but it's clearly intended to influence the Chancellor and the Coalition Government. In this it won't succeed.

Now, if someone were to be rather more imaginative, a different campaign might have more chance of success. How about showing what the impact would be of raising the income level at which the 50p rate starts from £150k to say, £250k? Clearly this would reduce the tax take but not by benefiting the 'super-rich' - by definition. It would however reduce the concerns of the vast majority of 'ORDINARY' business owners who MIGHT otherwise feel demotivated by the prospect of paying 50% tax. Remember that the rate is actually higher than this for many people earning between £100k and £150k.

As I've said before though at this stage NO-ONE yet knows how much tax the 50% rate is generating. All the reports, letters in the press and campaigns are based on speculation. The CEBR report admits as much.

I have explained the rationale for my observations and predictions before (see below). So today I will simply present the CEBR with my Tax Tosh of the week award.

Related posts

17/8/11 - Why we will have at least 3 years of 50p tax

29/7/11 - Tax tease of the week: Cutting the 50p top rate tax

5/4/11 - 50% tax rate announced in Budget 2009 but 2 years on and the self employed haven't paid it yet

12/1/11 - Tax tease: Fallacious demand to "Abolish the 50p tax rate"

After 400 TaxBuzz blog posts - what now?

That last blog post was the 400th I've posted here. I thought I should recognise the fact as no one else will do so.

I started this blog around 4 years ago by offering comment, explanation and analysis of key UK tax developments. I made a classic mistake in that I was inconsistent. Sometimes I wrote for the general public. Sometimes I wrote for accountants. (Both can use the Tax Advice Network to source specialist tax advice). The blog was intended to help optimise the Search Engine attractiveness of the Tax Advice Network website.

Two years ago I wrote a Review of TaxBuzz blog 2009 in which I explained my thinking and explored the types of issues that had featured on the blog.

I have long enjoyed writing and sharing ideas and tips. Years ago I was complimented on my ability to explain complicated issues in an understandable way. I will let my readers be the judge of whether I have continued to exhibit that skill.

Two of the most common topics for my blog posts have been tax quirks benefiting MPs and explanations about the complexity of tax avoidance and tax evasion. I like to think I have adopted an even hand as regards the latter issue although I have not hidden my dislike of artificial and abusive avoidance schemes.

Sometime during 2009 I decided to focus the blog on debunking tax stories in the media. I felt this was a worthy service but I have received limited feedback and started to question who was I doing this for? In September 2011 I got bored and went for almost 2 months without posting any new items to this blog. I realised that much as I had enjoyed the blogging it was taking too much time and for no discernable benefit.

The nonsense written in the media about Vince Cable's VAT situation brought me back at the end of October. having written two posts on the topic I want to avoid slipping back into my old ways. Throughout the month of November I have been posting a new style of TaxBuzz in the form of, typically light-hearted, tax related awards. These rarely take much time to write. I have had little feedback to date ;-(

Whether I will continue posting an average of 2 items a week for the next 4 years I canot say. But 400 tax related posts is quite an achievement and I'm rather proud of myself.

Do let me know your thoughts.....

Tax scheme warning of the week - from the GAAR study report

I was especially taken by para 5.43 of the GAAR study report to which I referred in my last blog post:

I [Graham Aaronson QC, the author of the report] therefore see no unfairness in applying the GAAR to an arrangement which is not yet completed before the date when it comes into force; and it would in my view be appropriate to do so.

Is it just wishful thinking on my part? This strikes me as a warning to anyone who continues to promote 'abusive', 'artificial', 'egregious' or 'unacceptable' tax schemes (as referenced in the report).

The General Anti-Abuse Rule (GAAR) has yet to be finalised or to enter the staute books. However the GAAR's guardian has set out a clear warning that it should be capable of operating retrospectively. You have been warned!

Do you agree?

Related posts

• Do you have to organise your affairs to pay the maximum tax?
• The beginning of the end for structured tax avoidance schemes?
• Naive promoters of tax avoidance schemes
• Five facts all accountants need to know about tax avoidance schemes
• Five more facts all accountants need to understand about tax avoidance schemes

Top ten tax understatements in GAAR Study report

Regular readers will know I have long awaited the outcome of Graham Aaronson's review. I have been referencing it on this blog since July 2010.

The Report has now been published and the media is awash with commentators rushing to offer their immediate conclusions. Suffice it to say that, as expected, the report offers an intelligent, practical and commercial way forwards. I look forward to hearing how the Government propose to move things on from here.

In the meantime I have identified my top ten tax understatements in the GAAR study report dated 11 November:

1. [A GAAR] would deter (and, where deterrence fails, counteract) contrived and artificial schemes which are widely regarded as an intolerable attack on the integrity of the UK’s tax regime. Para 1.7(i)
2. Judges inevitably are faced with the temptation to stretch the interpretation [of tax law], so far as possible, to achieve a sensible result; and this is widely regarded as producing considerable uncertainty in predicting the outcome of such disputes. Para 1.7(iii)
3. The tax rules in many areas have become extremely complex and in practice can give rise to very anomalous results. Para 1.10
4. In some cases the Courts, under the guise of purposive interpretation, have been prepared to stretch the interpretation of tax legislation in order to thwart tax avoidance schemes which they regard as abusive. Para 3.13
5. It is still early days to determine the value of the DOTAS scheme as a whole. However, it is plainly a useful source of information for HMRC. Para 3.17
6. It is clear that purposive interpretation, specific anti-avoidance rules and DOTAS are not capable of dealing with some of the most egregious tax avoidance schemes. Para 3.20
7. [A GAAR] should target those highly abusive contrived and artificial schemes which are widely regarded as intolerable, but that it should not affect the large centre ground of responsible tax planning. Para 5.1
8. The UK tax rules offer, and indeed in many instances positively encourage, the opportunity for taxpayers to reduce their tax liability. Taking advantage of this can be described as a form of tax avoidance, but clearly it is not something to be criticised and therefore it should not be counteracted by a GAAR. Para 5.14

And my two favourite tax understatements:

9. There are some areas of taxation, such as trusts, where the present statutory rules are extremely complex and can give rise to many anomalous consequences. Para 5.30

10. The UK’s tax legislation is notoriously long and complex. In many places it is virtually impenetrable. Para 1.7(iv)

Have you identified any other understatements in the report? Do add your observations as comments below.

Titillating tax story of the week - was stripper employed or self-employed?

This true story concerns a young lady (29) who originally trained for accountancy but then chose a more adventurous life. She worked as a stripper and lap dancer, allegedly earning upto £200k pa at Peter Stringfellow's London club.

Ms Quashie has been trying to prove that the self-employment contract that she signed when she began work was a sham. She is claiming that she was unfairly dismissed by the club even though she was ostensibly self-employed when she worked there. The corollary to this claim is that the 'employer' was avoiding employment taxes and payroll taxes on the sums paid to Ms Quashie.

Although Ms Quashie lost her original claim, an Employment Appeal Tribunal has awarded her the right to appeal that decision.

It seems that the nature of the relationship involved a number of factors suggesting that she was employed rather than self-employed. According to Ms Quashie, these included:

• she was rostered to work for Stringfellows and there was an obligation on the club's part to allow her to work on set dates and pay her accordingly;


• she was required to give free lap dances whenever a certain song was played;


• the club did not allow her to work anywhere else;


• the mutual obligations prove she was a Stringfellows employee.

This report provides further details and notes that, unsurprisingly, Stringfellows denies her claims , apparently stating that that Ms Quashie signed a contract saying she was self-employed, so cannot go to a tribunal for a job she never had.

As is well known however employers cannot evade their obligations simply by requiring employees to agree that they are self-employed. The dividing line, for tax purposes, between employed vs self-employed can be quite fine. Stringfellows is likely to win the case if they took top advice as to the wording of their contracts AND the facts support the terms thereof. In practice many 'employers' of self-employed workers fail on one or both of these tests. I would expect HMRC to take an interest in this case - for various reasons! ;-)

Anyway, given the nature of Ms Quashie's activities, this story has to receive my inaugural award for titillating tax story of the week.