@RichardjMurphy finally admits that his tax gap calculations are bollocks

So, we\’re talking about tax avoidance.

No one, of course, denies that business should not claim allowances and reliefs clearly intended for their use. To claim capital allowances and R & D relief is tax compliant in most cases (there can be doubts when leasing is involved in some cases). Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. So let’s leave that issue aside: we can argue whether there should be capital allowances but if there are no one is saying business should not claim them.

Excellent.

But!

The TUC’s Tax Gap report, by Richard Murphy, argued that businesses avoided at least £12bn tax a year through sophisticated tax planning and offshoring of profits. Murphy said in the 2008 report that his calculations showed firms had an effective tax rate of 22.5%.

In Ritchie\’s calculations of the tax gap he does not include those entirely legitimate uses of allowances which Parliament has expressly put into the law so that companies will use them. That is, he\’s not in fact calculating tax avoidance, he\’s calculating some combination of tax avoidance and tax compliance.

This is a criticism I have made before, of course.

But it interesting that Richard J Murphy is now, himself, admitting that his calculation of the corporate tax gap being £12 billion is, as I\’ve been saying all along, entirely bollocks.

4 comments on “@RichardjMurphy finally admits that his tax gap calculations are bollocks

  1. This shows up the huge hole in his calculations.

    He divides tax paid by corporate profits, to get an effective tax rate, then compares that to the statutory tax rate and says that any difference is evil avoidance.

    But the tax system treats some things differently to how they are for accounts so some (possibly all) of his tax gap figure is entirely legitimate compliance, following the rules as everyone expects them to be followed.

    Without adjusting for that, his tax gap figure is meaningless.

    He must know this, but it’s the only number he’s got (and it’s a big one, which his financial backers like) so he keeps on waving it around.

  2. Richard I suspect you (and we) judge his work by entirely the wrong criteria. This issue (to the paying party here) is not “what’s the correct number?” but “how do we best raise the profile of this issue?”.

    By this standard his work is a resounding success. Yes the number is wrong, yes we all know it, and yes, so does he.

    But we all also know that lies can be halfway round the world before truth has had time to put its boots on and, since this is a man of the left he must mean well.

    Spreading known lies because the end justifies the means. What could possibly go wrong?

  3. “No one, of course, denies that business should not claim allowances and reliefs clearly intended for their use”

    I deny it. Our accountant friend seems to have lost count of his negatives.

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