Monday, 25 June 2012

Is it secrecy ...

... that makes our tax system unfair, as Margaret Hodge Labour MP wrote in today's Times ...
She believes ... "If the tax-man was made accountable, we could crack down on avoidance with more vigour."

The MP who is Chair of the Public Accounts Committee continued ...
We in Britain pride ourselves on playing by the rules. Yet on paying tax we appear to have a blind spot. Tax demands are seen as an aggravating irritant, not a positive contribution to be valued. We all too easily choose to forget the link between every citizen paying his or her fair share, and the vital infrastructure and services on which we all depend.

Of course there are legitimate concerns about whether the State provides value for our money but these cannot justify individuals or companies seeking out wheezes designed simply to avoid paying their rightful contribution. Some of the practices highlighted by The Times wouldn’t look out of place in a banana republic.

Securing every penny of tax due is especially important when cutting the deficit is the policy imperative. In 2009/2010 Her Majesty’s Revenue and Customs calculated the tax gap as £35 billion — ie, nearly 8 per cent of all tax due is not being collected. In the same year HMRC wrote off £10.9 billion in tax as uncollectable.

The problem of avoidance is not confined to the private sector. Earlier this year we learnt that the head of the Student Loans Company was having his £182,000 salary package paid through a personal company, thus avoiding PAYE and national insurance contributions. Thousands of other public sector employees were doing the same. While the Government responded promptly to close these loopholes for civil servants, there are still people funded by the taxpayer, working in local authorities and for the BBC, who avoid paying tax in this way. This is not on. The Public Accounts Committee (PAC) will report on this issue in the next few weeks. And we will also want to look at the loopholes uncovered by The Times.

This week the vexed issue of how HMRC deals with disputes with major corporations such as Goldman Sachs and Vodafone will return. Large companies owe up to £25 billion and the National Audit Office (NAO) will report on five cases examined by a retired judge with experience of tax litigation. Some of these disputes have been mouldering unresolved for 20 years. While the NAO found the settlements in these cases to be not unreasonable, it remains the case that big companies are let off millions of pounds in interest payments while small businesses are fiercely pursued for every penny.

Everybody has been quick to condemn the tax avoidance scams revealed by The Times as morally repugnant. But actions speak louder than words. We should rip off the shroud of secrecy. There is a strong case for the tax affairs of publicly quoted companies to be opened to public account so that we know about their negotiations with HMRC and don’t just see the final settlement in the company’s accounts. We could then know how Vodafone or Amazon choose to arrange their tax affairs, and that may influence how we spend our money when we buy a phone or book.

We also have to strengthen the accountability of HMRC. Hiding behind taxpayer confidentiality is no excuse for it failing to account for itself to Parliament or the public for the work it does. It was only because of evidence from a whistleblower that the PAC uncovered the Goldman Sachs scandal, in which £10 million was lost to the taxpayer because of an error. The public still doesn’t know why there were only three challenges by tax officials to the K2 arrangements in eight years.

If HMRC was made more accountable, there would be stronger pressure on it to pursue disputes or deal with loopholes robustly and not be swayed by pressure from companies or individuals. Because of the HMRC’s secrecy, a small cohort of tax advisers know much more about its compromises than outsiders do and use their inside knowledge to help other businesses to avoid tax.

We can do more to prevent abuses by companies who benefit from public contracts. For instance, the PAC has identified PFI contractors that are providing hospitals and schools that have taken their companies offshore to avoid tax. A simple rewrite of future contracts or a threat to stop companies that deliberately avoid tax from getting new public contracts could bring this practice quickly to a halt.

Clearly, we should simplify our tax system. Tax avoidance and evasion is less of a problem in Australia and New Zealand, where governments have simplified. And surely we should all be able to understand our tax returns so that we can take proper responsibility for what we do? It’s ridiculous that the present, inaccessible system can only be navigated by tax experts.

HMRC must be properly resourced. The previous Government cut HMRC staff working on avoidance and evasion by more than 3,000, although every pound invested in people secures £10 in tax revenue. It is outrageous that so often rich individuals and corporations are able to outwit the tax authorities because they have well-paid advisers who are better equipped than the HMRC.

When the PAC looked at the Goldman Sachs settlement, we were surprised that the Head of Tax was the only senior person with “deep knowledge” of tax to authorise that deal. The Civil Service tradition of employing generalists means that we have too few specialists who can take on the private sector’s accountants.

A country’s tax system ought to reflect the values and priorities of that society. If the wealthiest pay as little as 1 per cent tax, and corporations even less, that is an offence against the values and sense of fairness of ordinary people. Our tax system encourages morally repugnant behaviour. It must change.
So, according to parliament it is none of their doing, I've met people such as these during my life, this is the "its always someone else's fault" brigade.

Unfortunately for Westminster the taxpayers, the public, the voters, we all know otherwise.  Each and every tax avoidance scheme has the tacit approval of our parliamentary representatives because they have chosen not to fix them.

There is no justice where the poor of Anglesey (these are the poorest in Great Britain) pay a greater percentage of their income as tax than the wealthiest in the land.

Something smells very bad, and it wafts across the Thames ....

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