Your equation of the dayDecember 21, 2011 Tim WorstallTax12 CommentsL x s – (1-L) x S > C previousComplete bollocks Sir SimonnextNo, not the right way to do it 12 thoughts on “Your equation of the day” PaulB December 21, 2011 at 12:49 pm That’s not an equation, it’s an inequality. It seems to me that there’s value in establishing what the law is. If there’s a general expectation that the law will be made clear and applied equally to everyone, people and companies in general will be more content to pay their taxes. We do not want to be like Russia, where tax law is used as a weapon to keep the wealthy on the side of the government. Nor Greece, where it is considered normal not to pay tax. Grumpy Old Man December 21, 2011 at 4:01 pm Like wot Paul said. kronos December 21, 2011 at 4:40 pm the likelihood of a guardian reader jumping to the wrong conclusion when fed a diet of bull form the bbc? Or was it the taxman just cant be arsed again formula? diogenes December 21, 2011 at 4:56 pm the easiest solution would be to burn all UK tax law and start again with a clean sheet of paper. For those people who think that it is possible to understand it as it exists, I suggest you get hold of the various compendia of tax law and try to read it. kronos December 21, 2011 at 5:09 pm diogenes I did … Gave up at the first word. I had more success with law which I actually passed! Now I spend my time teaching companies how refurbish factories. That was a good career over GlenDorran December 21, 2011 at 5:21 pm PaulB points out it’s an inequality. Surely this means the Guardianistas will want to analyse it and understand it? Although their ultimate aim will be to equalise it….. Richard December 22, 2011 at 12:59 am PaulB (#1), the Revenue are supposed to collect the “right” tax, but in practice they try to bring in as much as possible. Oddly this current row is a result of them trying to collect too much tax. Otherwise, as you say, they would have taken the case to court in order to find out what the correct amount was, rather than settling it to maximise their likely collection figures. John77 December 22, 2011 at 1:36 am The definition of S is not quite right – it shouldn’t be the total amount claimed by HMRC but the amount it would expect to collect if it didn’t take the case to court. Which gets back to the real flaw – good illustration but mathematically tripe. The inequality should contrast the expected increase in receipts following success with the expected decrease following failure and the net legal costs. Christie Malry December 22, 2011 at 10:55 pm John77 I disagree, and stand behind my (admittedly grotesquely simplistic) algebra. UKuncut types like to pretend that the only money at risk in a case such as Vodafone’s was the amount that Vodafone got ‘let off’. But that’s rubbish. If HMRC went to court and lost, they would potentially face a raft of copycat claims from other companies who had previously accepted HMRC’s ruling in respect of their schemes. If HMRC thinks such an outcome is reasonably likely, it’s better to take a small amount from Vodafone than go for a slightly larger amount but risk losing everything and more from other companies. That’s the point I was trying to make, because it’s totally ignored in the fatuous UKuncut and media coverage of these cases. John77 December 23, 2011 at 1:16 am HMRC can choose to settle or not to settle. If it settles it gets part of its claim – and expects to get part of the similar claims it makes against other companies. If it refuses to settle it gets all or nothing. So you have to compare the EXTRA it gets from winning against the EXTRA it loses from losing. You *seem* to be comparing the extra it gets from winning with the *total* amount at stake from losing, which isn’t like-for-like – unless all the other companies who have paid high-powered lawyers to draft these schemes roll over and play dead as soon as HMRC challenges them. I agree with your point, just not your definition of S diogenes December 24, 2011 at 2:33 am the bigger point is that all this profound ratiocination is a waste of time. If the government wants to raise tax revenue, they should use methods that are not so difficult to define and measure and which are therefore harder to avoid. Corporation tax raises very little net tax revenue for all the effort expended in computing, assessing and debating it. Business rates is a much more effective way of getting money into the coffers. Land value tax is almost impossible to avoid/evade/obfuscate. John Galt December 24, 2011 at 1:50 pm Going back to the original point, this is very much a case of balance between the stated view of HMRC – specifically that it is looking for ‘correctness in law’ of tax returns and the reality, that it is looking to maximize the tax return within the boundaries allowed by law. Although it might seem that we are arguing over the number of angels that can gather on the head of a pin, the reality is somewhat different. In this reality, the one in which Dave Hartnett lives, the aim is to maximize returns within the boundaries of the law. If this means that HMRC makes a settlement at a discount with a counter-party rather than lose a case that could have significant effect upon historically collected (and already spent) taxes then HMRC must take advantage of this. At the end of the day, Nash’s Game Theory is more relevant than straight forward algebraic equations. Leave a Reply Cancel replyYour email address will not be published. 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