And now Ritchie on the tax gap

First, because HMRC choose to ignore it none of the tax avoidance by Google, Amazon, Apples, Starbucks, Facebook and others is in here: that’s done with official sanction so it’s not going to be counted even though the world at large can see what’s happening. If you want the clearest example of why the numbers are wrong, this is it.

But none of those things are tax evasion or tax avoidance. They\’re the way that EU corporate taxation is meant to work. One base to sell to all from. Thus our answer: they\’re not in estimates of tax avoidance or tax evasion because they\’re not tax avoidance or tax evasion.

They are, quite simply, by Richard J Murphy\’s own definition, tax compliance.

Third, let’s consider the likelihood that tax avoidance by people on PAYE costs just £400 million a year. You mean all those bankers on all that pay only avoid £400 million? Oh please, pull the other one.

I would doubt very much that there\’s any bankers at all avoiding PAYE. It\’s an extraordinarily difficult tax to avoid: especially since all the NI dodges were closed down.

Fourth, let’s note that this tax gap loses records nothing at all resulting from the maybe 1 million or more personal service companies in use in the UK at the moment, even though they have been subject to much scandal of late. HMRC does not recognise this as tax avoidance so the several billion lost due to avoided employer and employee NIC and tax lost due to income shifting to partners and spouses all misses this estimate. Amazingly, despite the political scandal attached.

Well quite. Because it\’s not tax avoidance. If you are running a company (and thus no protection against being fired, as you would as an employee, and no unemployment pay etc) then you are taking the economic penalties of the structure you\’re using to do business. Thus it just ain\’t evasion.

And let us not forget that the man who doth protest has a) run his own affairs in this fashion and b) promoted the idea in The Observer. Forked tongued toad.

Oh, and I\’ve only just noticed the error in this one:

And then I’ll ask do you think this has anything to do with the fact that HMRC have reduced the number of employees available to chase tax cheats from 100,000 in 2004/05 to about 65,000

That\’s not actually what has happened.

Gordon Brown decided to merge Customs and Excise with the Inland Revenue. That means that we can go from two management structures to one. There should be cuts in headcount if such a thing is done. We\’ve also had significant investment in computerisation. That should reduce headcount again.

In fact, whi

20 thoughts on “And now Ritchie on the tax gap”

  1. Isn’t this a wider question about whether the EU taxation thing should work the way it does, rather than that it works the way it does? And that question comes to you, on a eurosceptic blog with mostly eurosceptic commentators, from the resident fanatical europhile. Who is nevertheless a fan of international competition in taxation because it demonstrably keeps tax rates down.

    I’d sure as hell like to pay my income tax somewhere else than Germany, but I can’t as I’m resident here, and generate my income here. The same does not however apply to the evil neoliberal capitalist bastards.

    And why don’t all companies move to, say, Luxembourg or Estonia and book their profits there? Why isn’t there an army of service companies doing the paperwork for every plumber and caff in high-tax jurisdictions to do just that? Not even all the big boys do as much of this as they could.

  2. JamesV – I’ve sold stuff from France to Germany, from Germany to both France & Spain and from Italy to Britain. Not liable for tax in those countries as based in Britain though the companies I purchased from may or may not be.
    If you were working or selling across borders then the issue of where you become liable for tax would be when you gain from the EU rules.

    If Britain became more of a problem to trade from than it was worth, other countries would look more attractive for basing out of. Relatively easy for companies to move, whether its worth all the associated costs is another matter. Make the costs here higher and elsewhere lower, could see some movement.

  3. ‘why don’t all companies move to, say, Luxembourg or Estonia and book their profits there?’

    I run a business which doesn’t require me to be resident in the UK.

    I could move somewhere low or no tax tomorrow.

    I’d actually like to, but my wife insists on staying here. (And I quite like her.)

  4. I run a business, which is international, billing out of the tax haven of Labuan where the company office and permanent resident officers are based.

    We invoice primarily into Switzerland, but have no permanent residence or staff there.

    Company pays no corporation tax as none is due, all payments are to directors in dividends and since we are permanently resident (including homes, families and schools) in Malaysia, no additional tax is due as foreign income is exempt.

    Net result is that customers receive good, cheap service, partners receive good untaxed pay and THE BEAST IS STARVED!

  5. “They’re the way that EU corporate taxation is meant to work.”

    It’s not just EU tax. Dual-taxation treaties with the US mean that UK businesses with income arising from (say) services provided to the US, but generated from a base in the UK with the work done in the UK, pay UK tax not US tax.

    More generally, profits from sales to the US of UK goods out of the UK also pay UK tax not US tax. If you sell worldwide from the UK, you pay tax on worldwide profits in the UK. One tax form, not dozens or hundreds.

  6. @Martin Davies:

    John Galt – sounds good. What are the hospitals like?

    I pay about £600 per year to Kurnia for fully comprehensive medical insurance in Malaysia. Standards of medical care, cleanliness and access are far in excess of the UK. Pretty much on par with US private health care.

    In Switzerland, I’m covered by a corporate policy, but never needed it.

  7. The comments on the thread are both obvious and irrelevant.

    If Amazon EU’s business was to sell people in the UK things from Luxembourg, then you’d be correct: making it pay UK tax would be stark staring bonkers. If Google EU involved call centres in Ireland selling people in the UK advertising, then the same.

    But that isn’t what happens. Both companies have a huge UK setup. If you order something from amazon.co.uk, then you’re using servers in the UK that operate logistics and payment processing systems based in the UK to get a warehouse based in the UK to courier you the item in question.

    As JamesV notes, this isn’t equivalent to me living in Australia and paying Australian income tax on the work I do remotely for UK clients – it’s as if I lived full-time in the UK, worked on site in the UK in roles that I could only carry out in the UK, and then demanded the right to pay only Luxembourgeois income tax.

  8. john b – I think you’d be surprised about where your Amazon browsing and orders end up being electronically processed. The UK has expensive power and land, it’s a horrible place to site datacentres. I’d bet on Ireland providing most of the serving capacity for the UK, maybe Holland or Belgium as alternates. Don’t be fooled by the “.co.uk”.
    The warehouse point is valid, however.

  9. I ordered from amazon.co.uk to Australia a couple of weeks ago. Originating DC for the book seems to be in Belgium (based on tracking info of the delivery).

    Why in blue, buggery blazes would they pay UK tax on any of that? If I could read French or Afrikaans (joke), I suppose I could have ordered from amazon.be [if it exists… quick Google. Nup.]

  10. Don’t be fooled by the “.co.uk”.

    Exactly. Amazon.co.uk is a foreign company masquerading as a British company in order to feel more familiar to UK customers. I expect the operations actually carried out in the UK are pared to a bare minimum.

  11. Hopper: datacentre is Ireland, you’re right – was on the mobile before so couldn’t tracert. Makes sense, as that’s where the call centre is. The main European development team is based in Slough, I’d gratuitously assumed the servers would be there too.

    DMS: The co.uk site fulfils primarly out of the UK [*]. IIRC Amazon has more fulfilment centres in the UK than anywhere else outside the US. They don’t have a warehouse in Belgium at all – it’s UPS’s main European hub, which may be why it’s shown up on the documents. So the answer to your question is because the UK is probably where they processed, packaged and posted it…

    Tim: why would you expect that, when the UK is one of the best places to do business in Europe according to countless independent rankings (rule of law, lack of red tape, flexible employment laws, and so on)? As it is, Amazon get the best of both worlds – they have major logistics and development operations in a strong market which is a great place to have a company, – *and* don’t have to pay corporation tax.

    [*] more accurately, “products of interest to British-English speakers are fulfilled primarily out of the UK”. If you buy the latest Zsuzsa Bank from Amazon.co.uk, they’ll send it over from Germany; if you buy the latest Hilary Mantel from Amazon.de they’ll send it over from the UK.

  12. Amazon have fulfilment centres all over the place. I’ve stock stored in Swansea, Bedfordshire, Dumfermline, Rugeley and Hemel Hempstead – annoying when I have to hold stock until I’ve enough to send in a box to a particular centre. A courier delivery of 2 items worth a total of £15 between them simply not being worth it when near enough the same price to send 100 items worth £800.
    But storage of stuff and where you sell it from can be different – and amazon are based elsewhere in the EU.
    They are taxed – just not as much as some in the UK would want them to pay the UK government.

  13. Tim: why would you expect that, when the UK is one of the best places to do business in Europe according to countless independent rankings (rule of law, lack of red tape, flexible employment laws, and so on)?

    Okay, fair point. But they’d only need one centre of operations in Europe, so if they are indeed based in the UK then presumably the German and French Left are howling at the injustice of it all.

  14. Doesn’t this just display the idiocy of corporation tax? Accountants have spent many years trying to create a global set of standards for measuring profit. Then, in every country with corporation tax, the authorities create their own definition of profit – what business is it of the taxman in the UK to say that entertaining customers is not allowable against tax?

    The UK should just set Corp tax at a low level of accounting profit – eg 10% – and then see how many of these elaborate tax dodges get dissolved and see how the tax take of CT rises.

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