Most amusing from Mr. Murphy

There is, however, a duty imposed on such companies to protect those who trade with such companies from abuse, and that is that they place records relating to the company, including its accounts, on public record. This obligation is currently ignored by hundreds of thousands of UK companies each year providing opportunity for many of these companies to tax avoid or evade with impunity and potentially engage in other fraudulent activity without being detected. The cost to society at large is estimated to run to be much more than £10 billion a year.

That\’s one of those wild guesses that Ritche made on the basis of no evidence at all wasn\’t it?

Would be rather clearer if he said \”I guessed £10 billion\” rather than the more official sounding \”is estimated\”, don\’t you think?

30 thoughts on “Most amusing from Mr. Murphy”

  1. It’s a bit out of character for him. Normally he cites something he wrote for the TUC to support his claims on TRUK, or something he wrote for the TJN to support the Fair Tax Mark, or the findings of the Fair Tax Mark to demonstrate that the whole of civil society supports his conclusions 🙂

  2. Pellinor: I’m sure he will continue to use this number again and again and will then quote this estimate (most likely indirectly). Estimates do need to start somewhere after all.

  3. I’m calling b/s on Ritchie here.

    What he’s saying is that lots of people (hundreds of thousands sounds b/s) set-up companies – because it is cheap and easy to do so, but they never fulfill their statutory reporting requirements and so get struck off by companies house for non-filing.

    The reasons for above are multitudinous and very few of them are to do with taxes:
    – Company is set-up as a personal service company, but the contractor never gets a contract and goes back to being a permanent employee

    – Company is set-up to flog widgets, but after doing more groundwork there isn’t sufficient market to make it worthwhile and therefore the who thing gets abandoned.

    – Company gets set-up to deal with a property development between a consortium of developers, but gets dumped after planning is refused.

    – etc…

    In all of the above cases it is unlikely that any tax will be due as costs would be far greater than any income (often none)

    The only circumstance which their might be tax due is if the company was deliberately set-up to rake in a load of case from some kind of fraud and then do a runner leaving no records, tax debts and lots of creditors e.g. Missing Trader Intra-Community (MTIC) fraud, land banking, boiler room scams.

    These are already illegal and the reason we have SOCA and specialist HMRC teams to deal with the issue.

  4. The number of companies that do not file is around 1 million out of 52.8 million in the UK. See table E5:

    http://www.companieshouse.gov.uk/about/pdf/companiesRegActivities2012_2013.pdf

    As John Galt says some of these will be firms are those that never really get off the ground. We also know that a big proportion of these will be small companies that are about to go into insolvency and havent filed because they are so poor they cannot even do the accounts. It is true that they will then default on their obligations to the HMRC, but this is because they are bust. Note in Table E4 that just under 6 million companies are dissolved. A substantial portion of the 1 million will be honest but bust traders. Yes, they will have diddled the taxman out of money, but mainly because they were not very good at business (using VAT money for cashflow rather than paying the taxman).

  5. Only £10b? I can’t be bothered checking, but I’m sure that the possible tax lost to companies not filing their paperwork made up a huge chunk of Richie’s tax gap.. something like £60-70b.

    Obviously it’s bollocks – although I agree that it’s not acceptable for so many companies to register and then disappear without anyone doing the housekeeping. That may, however, be because it’s so much bloody arseache getting a company struck off.. so people don’t bother.

    However, the idea that people who want to carry on a business but have no intention of filing paperwork or paying tax would register said business with companies house is bizarre.

  6. I don’t think it’s too odd to suggest that people might register a company at Company’s House even if they don’t intend to do the paperwork properly. After all, having a company number and showing up there does give some legitimacy to the operation, and of course you can go 21 months before you have to file anything at all. If you wanted to set up a fly by night operation it gives you a good long night to fly in.

    For example, Murphy himself has pointed out that the Fair Tax Mark is run by a perfectly kosher and open company, the Fair Tax Campaign – which need not file any accounts until March 2015, so checking that it is indeed kosher and open is fairly difficult 🙂

  7. @ Pellinor

    ” and of course you can go 21 months before you have to file anything at all.”

    That’s true. Although as Murphy’s is only looking at those companies that are in breach of their filing obligations, anyone doing that isn’t covered (unless they just took the grace period and carried on frauding regardless).

    So, what we’re saying is that he’s probably hugely undercooked his estimate… the silly sausage!

  8. Very cheap to set up a company. Accounts are expensive and as has been said, company never goes anywhere so is basically dropped.

  9. Today he has beeen trumpeting his 1000th blog post. I’m not sure if that means he has posted 1000 times or if it is only estimated by most serious specialists, who may or may not be in the pay of Unite, that he has posted 1000 times.

  10. Yup, starting a company is easy, but doing the accounts is hard, expensive (£500+ per year), so many loss making or poorly performing businesses will simply not file and allow the business to be struck-off for non-filing which costs nothing as the non-filing penalties die with the company.

    If compliance costs were less then the less companies would take this route.

  11. I set up a company for a specific purpose about eighteen months ago. However, another project I’d been working on for longer seemed more promising, so the business of the first company was never pursued by me. I could and would have used the first company for the second, more promising project, but various factors made it undesirable. So I set up a second company for the second project.

    The first company has never done a thing. No idea whether I can expense a chunk of time I spent working on it, but it’d be purely a loss. Never traded. Never earned a sov. Maybe one day, if it hasn’t been struck off, I’ll return to it. But right now, and for all of its history to date, it is a nullity. It owes nobody nuffink.

  12. Total irresponsible rubbish.

    As Ken points out, there are only 1 million companies that don’t file accounts.

    And, therefore, Murph “estimates” they cost society £10 grand each?

    Why not do some real research.

    Find out how many of those have ever traded. Find out how diligent the RofC is in striking off companies that don’t file up to a year after the deadline. Check the annual returns to see how many directors/shareholders there are and what the share capital is (it’s a bit unusual for a £2 company to be capable of generating a few hundred thousand in profits).

    No, we have a fine example of Toynbeeitis here.

    Make up your own facts and come to conclusions not even supported by your fictional facts.

  13. I do wish he’d stop this “cost to society” shit.

    If I set up a business and make a billion and pay not one bean in tax (i.e. total evasion) then I still haven’t cost society anything.

    I may have deprived the taxman (and, by extension, certain other people) but that is not an actual “cost” to society.

  14. I’ve just revisited his site. He’s claiming 10,000 blogs; not 1,000 as I originally… er… estimated.

  15. THG

    “Obviously it’s bollocks – although I agree that it’s not acceptable for so many companies to register and then disappear without anyone doing the housekeeping. That may, however, be because it’s so much bloody arseache getting a company struck off.. so people don’t bother.”

    I had a company in the UK for contracting through. When I left I wanted to shut it down, but my accountant advised me not to worry about it as it would be struck off soon enough.

    Seems to be the easiest way to deal with it.

  16. Offshore Observer

    The real problem with Murphy, as has been pointed out above is the echo chamber effect. The man has to be given some credit for knowing how to use that to the maximum advantage. All of his numbers are bullshit but if you say them long enough, often enough, loud enough others will start quoting them then all of a sudden it becomes accepted fact.

    another problem with all the journalists being unable to do sums and recycling press releases and rent-a-quotes instead of doing some honest research and analysis.

  17. “All of his numbers are bullshit but if you say them long enough, often enough, loud enough others will start quoting them then all of a sudden it becomes accepted fact.”

    Sounds similar to Hitler’s idea of “Die Große Lüge”. Funny how collectivists like Ritchie always keep recycling the tried and tested methods of repression.

    http://en.wikipedia.org/wiki/Big_Lie

    “As a dog returns to his vomit, so a fool repeats his folly”Proverbs 26:11

  18. So what are the numbers then? I’m pretty sure the £10bn is an HMRC number. Since no one can be bothered checking, how do you know it’s wrong? You sound like a bunch of cocks.

  19. Arnald: I just tried to find the numbers because I can be bothered to check. The only thing I could find was, predictably, an article by Richard himself (http://www.accountingweb.co.uk/topic/tax/struck-companies-dodge-16bn-year/486630).

    I don’t think HMRC has ever sought to estimate the cost to the Exchequer of such companies – most likely because without any accounts, it would be very difficult and highly unlikely to be accurate. In fact, at page 58 of the Murphy report I’ve linked to above David Gauke states (in 2011) that HMRC does not calculate potential tax leakage in respect of companies not filing accounts. This is all rather beside the point, though. Richard should cite his sources (particularly if the source is his own deduction, which it seems to be here). In my view, he deliberately seeks to give his own figures an air of accuracy by not citing his sources, knowing that these figures then get picked up by lazy journalists.

    The figure estimated by Murphy in the report linked to above seems utterly ludicrous to me in any event. He takes the average amount of CT paid by a small company (£10,000), then adds £20,000 for other taxes (VAT, PAYE etc) without any explanation as to why. He then estimates the number of companies which make profits without declaring tax at £570,000. These numbers are inferences by Murphy from the scant data that is available and are little better than guesswork.

    Instead of calling other people cocks for not looking up the figures, why don’t you look them up yourself?!

  20. It’s also not clear why Murphy has estimated £10 billion on his blog when only two years ago he estimated it at £16 billion.

  21. Again, you don’t calculate what effect there may be. If you can’t be bothered to attempt to quantify the situation as described, then why bother ridiculing someone who can?

    Do you have something against wanting transparency? Free markets can’t work without it.

  22. What on earth are you talking about? What effect there may be on what? I am saying that Richard should cite his sources and be accurate and open in his estimations. I said nothing whatever about whether I thought this was an issue.

    Do you have something against citation of sources (aka transparency) or accuracy?

  23. taxranter:

    £10,000 is the modal amount of tax paid by companies earning enough to tax and it is actually a range of between £5,000 and £10,000. See table 11.8

    http://www.hmrc.gov.uk/statistics/ct-receipts/corporation-tax-statistics.pdf

    I assume you mean he estimates that there are 570,000 profitable firms. I’m guessing that he took the original lack of filers: 1,000,000 or so and assumed that the breakdown of profitable firms was roughly the same ratio as the one in table 11.8 (about 50% or so). This suffers from an assumption that the subsample has the same distribution as the wider population, instead my prior would be that non-filers would tend to be loss making.

    One issue is that we cannot use the mean corporation tax paid (£24,000) or so since this is heavily skewed by very large companies. If we take the median rather than the profit mode, the effective amount of corporation tax owed is zero, which for most non-filers is probably accurate.

    There is probably a figure for the amount of employers NI and VAT owed that will be substantially larger – although the figure of 20,000 sounds high. It’s a pointless exercise since this is money that is never going to be paid since the firms are bust. We could probably go back and work it out from unpaid VAT and NI.

    I’d guess that the total amount of collectable tax that is hidden through non-filers is closer to zero than to £10 billion, with some positive amount for fraudsters who actually are stealing money (judging by Carousel fraud this could be a couple of billion) as opposed to unfortunates who have thrown NI and VAT into working capital and then fallen into bankruptcy.

    The median corporation tax bill is zero. (And note that T11.8 shows just 1.8 million companies whilst the companies register shows 50 million. if we worked back from there: a lot fewer companies subject to tax)

  24. Hmm. I’ve now checked RM’s numbers. He’s calculating the 10k in corporation tax based on the average tax bill of small firms. The problem is that this is based on the profitable segment of small firms. Median taxable profits in this segment is again zero.

    His analysis is based on the idea that a large proportion of firms fail to file accounts and are not subject to audit. But again my prior is that these are loss making firms.

  25. Arnald – if you are happy to accept Murphy’s figures at face value, that is entirely up to you. I think there are serious flaws in the inferences he draws from the figures he cites. Ken has very helpfully set out some of these flaws above (and yes, I did mean 570,000). When I referred to citation of sources I was referring to Murphy citing a figure in his blog post without citing the source.

    I notice you didn’t comment on whether it was appropriate for Murphy to cite his own figures without saying that is what he is doing either.

  26. From memory I also think that a lot of companies. (50%?) are below the AT threshold. So the VAT loss is not as big as alleged.

  27. I’e put up some revised numbers on the blog. The response confirms all the numbers are just estimates.

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