I fear we have an idiot for a Chancellor

The report found that Britain’s 20 biggest tax avoiders have used three main loopholes to legally reduce their their income tax bills by a total of £145 million in a year.

Two thirds of them wrote off business losses in one of their companies against their income tax bill, reducing it by as much as half .

Several of them offset the cost of business mortgages or borrowing on buy-to-let properties against their income tax bill, while others took advantage of relief on donations to charity.

None of these are tax dodging in the least. Not even tax avoidance, let alone tax evasion.

If you are in business and the business loses money this is a loss to you. Of course this should be discounted when calculating the income you have on which you pay tax. Similarly, interest on loans: standard deductible business expense. It\’s a business expense just as much as the widgets which are inputs to your wodget making process is.

And tax reliefs on donations to charity….this is a very silly claim indeed. For you\’ve actually got to, you know, give the money to charity. You can\’t keep it yourself and then claim the tax back.

The analysis convinced Mr Osborne that millionaires must pay a minimum rate of tax equivalent to about a third of their earnings, which has been described as a “tycoon tax”.

Mr Osborne told The Daily Telegraph: “I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.

“I’m talking about people right at the top. I’m talking about people with incomes of many millions of pounds a year. The general principle is that people should pay income tax and that includes people with the highest incomes.

This is insane. Because the whole difficulty comes when we work out what actually is income which is subject to income tax. Captial gains are not subject to income tax, just as one example. So, those buy to let properties. Stick then in a company, the interest is deductible as a business expense there. Don\’t take any dividends and no tax is payable on income that isn\’t being collected. 15 years down the line the rent had paid off a chunk of the mortgage and the company is sold for a capital gain equal to the equity built up in the property. As there is no income there is no income tax.

I\’m sure some of our tax people around here can come up with other examples. It all revolves around what is the definition of income which should be subject to income tax.

Now, if Georgie is saying bollocks to all of that, we don\’t care. If we see you getting £100 and thus we want £30 of it, regardless of the source or type of income then he\’s mad. Entirely stark staring bonkers.

 

19 comments on “I fear we have an idiot for a Chancellor

  1. Oh no, more proof of Continuity Brown :

    All money is the state’s, WE will decide how little you need to continue paying your taxes.

    Alan Douglas

  2. “If you are in business and the business loses money this is a loss to you. Of course this should be discounted when calculating the income you have on which you pay tax. Similarly, interest on loans: standard deductible business expense.”

    Neither are legitimate offsets against *personal* income tax. And that is what is being reported here – not offsets against profits for business tax assessment.

    For a start, mortgage interest relief went years ago.

    “And tax reliefs on donations to charity”

    Similarly you omit the suggestion that the *charities* benefiting here are special overseas vehicles which return the money to the donors.

    What is being questioned is the mixing of business and personal income streams to minimise personal tax.

    Quite right, too.

  3. “Treasury sources say the system is open to abuse as people are giving money to foreign charities which they have often established themselves.”

    That sounds like quite a nice loophole. You could set up a charity dedicated to restoring old villas in Portugal; or set up a charity with one employee, your wife; or just set up a charity in a country with no regulation on such matters and park the cash in a local bank account, with a Visa card so you can spend it in the UK. I know people who will be very grateful to the Telegraph for revealing this loophole to them!

  4. “For a start, mortgage interest relief went years ago”

    On your own personal mortgage for the house in which you live, yes, but then that’s truly a tax relief as there is no income – deriving from the mortgaged property – being taxed.

    Buy-to-Let, No. Absolutely not at all. You deduct allowable expenses – agents’ commissions, maintenance costs, and crucially any mortgage interest – from your rental receipts in order to calculate how much income you’ve actually got.

  5. I don’t understand the charity “loophole”. A charity must be recognised by HMRC as such for personal tax purposes, wouldn’t it? I thought it had to be a UK charity in any case, although no doubt there will turn out to be an EU dimension.

  6. Ironic that the State should complain about people contributing to ‘charities’ for their own gain.

    I mean,this is the same State which funds ASH, Alcohol Concern et all with taxpayers money to lobby for policy the State wants?

  7. It does read as though the Chancellor was being shown things by the Treasury that he really doesn’t understand. In every case mentioned HMRC itself already has plenty it can do about truly illegitimate claims (as in the “charity” case, or for rental businesses).

    Possibly if he hadn’t produced another gargantuan Finance Act (over 600 pages, with a further 550 pages of explanation), he’d stand a better chance of understanding tax in future.

    The writing off of business losses in a company presumably was to account for a loss on investments previously made in that company.

  8. Similarly, the Telegraph article (http://goo.gl/nyBYk) says that “Treasury sources say the system is open to abuse as people are giving money to foreign charities which they have often established themselves”, but that would make sense, wouldn’t it? You’d expect that someone establishing a charity would do the decent thing and contribute to it himself? There is no suggestion in the article that they are somehow beneficiaries, and HMRC would still need to allow the charity status (for tax purposes). As far as I know, the money I’ve given to foreign charities [not even my own!] can’t be claimed, so I’m not sure what the details are here.

    I’m also a bit perturbed at complete individual tax returns, even “anonymised”, being viewed as separate documents by a Minister.

  9. “it’s within the tax laws .. and I don’t think that’s right”

    Quoth the one person in the country who is in a position to do something about it!

  10. Donations to charity in any country can qualify for tax relief, provided that the charity is recognized by HMRC. Apparently HMRC is complaining that those idiots at HMRC have been recognizing fake charities.

    The item here that is genuinely undesirable is the use of companies to convert income to capital gains. The 10% mentioned in the FT article looks very much like the 10% CGT rate given by Entrepreneurs’ Relief.

    Any votes for a simpler tax system? Corporation Tax at 5%, employers’ and employees’ National Insurance abolished. All income, including dividends and capital gains, to be taxed on the same scale (which would have to have high headline rates). Freedom to defer tax on any or all of your income by putting it into a pension scheme, with no restrictions on when it can be taken out, but income tax to be paid when you do.

    That should put a lot of tax planners out of work.

  11. @CHF 10.49

    Yes, it is worrying that the chancellor is looking at returns in this way. I seem to recall from my insurance tax training that part of the complexity of the tax code arises from the use of the different Schedules. Each schedule was reviewed by a different tax inspector as it was considered inappropriate that the full extent of a gentleman’s affairs should be known by one individual.

  12. “Each schedule was reviewed by a different tax inspector as it was considered inappropriate that the full extent of a gentleman’s affairs should be known by one individual.”

    But Polly wants everyone to know the full extent of a gentleman’s affairs.

  13. “I’m also a bit perturbed at complete individual tax returns, even “anonymised”, being viewed as separate documents by a Minister.”

    Its hardly a big secret who the top 30 are so even more worrying.

    I know its a fallacy but this really is a slippery slope issue.

  14. Blimey – what’s even more worrying is that not only do we think that Osborne is an idiot, but so does Murphy (although no doubt not on this point!).

  15. The absolute worst part of all this is that Murphy is now scheduled to be all over the radio & TV this evening no doubt doing the usual self promotion with no-one challenging his idiocy.

    Osborne has a lot to answer for.

  16. Murph was on the Today programme today (Wednesday) and besides other complete and utter nonsense, told us that VCT’s should be replaced by the government picking winners…..

    :headbang:

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