Well, we all know about the wonderful little spat going on between Richard Murphy and HMRC over the tax gap, don\’t we?
Well, here\’s one reason why Ritchie keeps getting such different results from everyone else. He\’s got tripped up by his own definitions of tax avoidance, tax planning and tax evasion.
Just to remind you. Murphy says that tax planning is paying what everyone meant you to pay when they passed the law saying that you had to pay the tax. The spirit of the law if you like. Tax avoidance is when you look at the letter of the law, do what that says and thus breach what the spirit of the law said. Anything and everything from, say, using a limited company with the £10,000 no tax allowance on profits then paying that to yourself as a dividend so that there\’s no income tax either, nor NI.
You know, like he did with his own company.
To, say, counting the carried interest as a venture capitalist as a capital gain and thus paying capital gains tax on it, not income tax.
These are, to Ritchie, tax avoidance, for while they are currently legal that\’s not what Parliament meant and dang nammit you shouldn\’t do that!
Tax evasion is the illegal stuff.
To give an example here. Ritchie says that this is tax avoidance:
That tax avoidance of income tax, Capital Gains Tax, and national insurance combined is just £1.4 billion when George Osborne admitted that avoidance of CGT alone was more than £1 billion in his June budget speech? So there’s almost no income tax avoidance at all then?
Well, in Ritchie\’s definition of tax avoidance, yes it is:
Some of the richest people in this country have been able to pay less tax than the people who clean for them.
That is not fair – and it stems from the avoidance activity that has exploited the wider gap between the rate of capital gains tax and the top rates of income tax.
These practices are costing other taxpayers over £1 billion every year.
However, let\’s go and look at what HMRC defines as the tax gap:
Tax gap overview
1.1 This section discusses the tax gap across HMRC–administered taxes2.
The tax gap is defined as the difference between tax collected and the
tax that should be collected (the theoretical liability). The theoretical
tax liability represents the tax that would be paid if all individuals and
companies complied with both the letter of the law and HMRC’s
interpretation of the intention of Parliament in setting law (referred to
as the spirit of the law). The tax gap estimate is net of the
Department’s compliance activities.
D\’ye see the difference yet?
Yes, HMRC defines people obeying the letter of the law as not indulging in tax avoidance!
Avoidance is, rather, those people doing what HMRC thinks is not either the letter of the law nor what HMRC regards as the spirit of the law.
And, as I hope you won\’t need reminding, HMRC hasn\’t challenged any of these peeps paying CGT on carried interest. They might not like it, they might think that the law should be changed. Indeed, Osborne doesn\’t seem to like it and seems to be thinking about changing the law.
Both of which are really admissions that these people are in fact obeying the law as it stands. Thus HMRC regards this £1 billion not as tax avoidance at all but as tax planning: however undesirable they think such tax planning is, however much they think that the law should be changed to make such tax planning into tax avoidance (or even evasion).
So here\’s at least part of the reason that Ritchie keeps coming up with such different answers. He\’s fallen flat on his face over his own definitions.
His definition of tax avoidance is different from that of HMRC. So, of course, he gets different numbers using his different definitions.
How could it be otherwise?
As one R. Murphy opines:
I could (and will – I have no doubt) go on but for now let me draw the obvious conclusion – that this data is ridiculous. Those putting them out are either incompetent or deliberately mis-stating the truth. I know that’s harsh, but I have to be. The issue is too important to say anything else.