It has for some time been sport amongst the big accounting firms, libertarian groups and certain parts of the Treasury to say I got that report wrong, claiming the gap I identified was just down to ‘legitimate’ tax avoidance. In itself that is an odd claim. By definition all tax avoidance is legitimate. That does not, as George Osborne put it, prevent it being “morally repugnant”.
But the claim those groups have made is also wrong. What they suggest is that what I did was count such things as capital allowances on the purchase of equipment as being a tax avoidance activity. Well, in part, I might have done,
Yes, yes, you did, and the argument was first put forward here, on this very blog. It\’s taken a few years but glad to see that you agree with me now.
The very method that you used, looking to headline rates and paid rates, means that you are ignoring all of those allowances which Parliament deliberately and with forethought put into the tax code. You are therefore not measuring tax avoidance, you are measuring tax compliance.
In 2010 just five companies paid just £19.3 million in tax compared to a reasonable estimate of £685 million that might have been owing. That means that the tax gap with regard to these companies, on my basis of calculation, would be some £666 million. It is quite possible that on HMRCs’ basis of calculation it would be zero.
Now you can see how we came up with such different estimates.
Now I think you can also see who is, very obviously, and very logically, right.
Yes, the Treasury.
Because European Union law, which supercedes UK law recall, is deliberately set up so that a company operating in the EU need have only one company to do so. They\’ve deliberately fixed the system so that you can have one office, one bureaucracy to deal with, one taxman to answer to, and then sell anywhere you like in hte 27 countries. It\’s all part of the Single Market thing.
This isn\’t tax avoidance, it\’s tax compliance: the companies are doing exactly as the EU wishes they would do.