Both Ritchie and Margaret, Lady Hodge, get it wrong again

HMRC’s calculation of the tax gap does not include an assessment of the amount of tax lost through tax avoidance, therefore it represents only a fraction of the amount that the public might expect to be payable.

I have, of course, been saying this for years.  It is, I admit, pleasing to have it noted publicly.

The challenge now for HMRC is how to respond. The PAC are, in very many ways, the representation of the people to whom they are supposed to report – that is parliament and through parliament, us. Parliament has now said their reporting of the tax gap is not fit for purpose. If they do not change it will they be in contempt of parliament?

No, this is incorrect. HMRC’s estimate of the tax gap do indeed include tax avoidance. It’s just that they include what HMRC defines as tax avoidance, not the drivel that Ritchie defines as tax avoidance. For example, Ritchie would say that Google’s Irish profits are tax avoidance. HMRC will say that they’re fully compliant with the law and so not tax avoidance.

It’s a different definition. And it’s HMRC that is working in the real world here.

18 thoughts on “Both Ritchie and Margaret, Lady Hodge, get it wrong again”

  1. In any case, tax isn’t lost through avoidance. Tax avoidance is entirely legal, and involves arranging one’s affairs to pay the legally obliged amount of tax, and no more.

    If I choose to take some of my income in pension contribution, the tax I would have otherwise paid, and which I have avoided paying, is not ‘lost’. It recognises that the government wants me to do something (provide for my retirement) and it pays me to do it by not taxing that part of my income.

    In the same way, if a company borrows to invest, that is something the government wants it to do, and is therefore happy to forgo tax on that transaction.

    This should be obvious to an 11 year old, let alone an accountant and an MP. I suppose ideology, like smoke, gets in their eyes.

  2. Ritchie actually goes further, claiming the PAC has declared HMRC to have got it “wrong”. no it doesn’t, not even Ms Oppenheimer has said that. The argument is about defintions. Nobody is supporting Richard Murphy’s method, which we can legitimately call “Make it all up as you go along”.

    P.S. Using this PAC version, would bloggers who argue their income is excluded from VAT be contribtuing to the tax gap?

  3. That hasn’t been quite right for a while. According to HMRC/Treasury the Duke of Devonshire’s case has been hollowed out. They say one is NOT not entitled to arrange ones affairs to reduce tax if there is no other purpose. A reduction of tax has to be the effect of transactions or activity that have some other purpose.

    If transactions are undertaken solely to avoid tax, then HMRC says they are not criminal but ineffective for tax purposes – and will retrospectively demand tax and penalties as if they hadn’t happened. That’s HMRC’s definition of “avoidance”, everything it might potentially treat as null. It is not so very far from Ritchie’s, but practically quite different in effect, since any fair use of well-established business or personal administrative practices will be treated as legit, and the tax man won’t look into motivation. He knows no one is queuing up to pay more tax.

  4. no, no, no. The point is that the PAC is not Parliament, It is an unelected committee. Hodge is a labour politician, and she is using the PAC to grandstand her political views. Shame on Parliament for not getting its own house in order.

  5. One odd thing I noticed from the BBC report: it claimed that HMRC had “wildly exaggerated” the amount it could grab from Swiss bank accounts, but that it should try to get more.

    How can it do this if it is not allowed to do so, I.e. Not legal? Why is the PAC insisting it does so? Is it because the money is in Swiss bank accounts, objects which have an effect on the Left similar to garlic on vampires?

  6. Q: Does your estimate of the tax gap include this made up number?
    A: No.
    Q: Why not?
    A: Because it’s made up.

    Final report: “HMRC doesn’t include any tax avoidance at all in its estimate of the tax gap”.

    It’s a complete non sequitur. PAC will have to reissue this part of the report, because what they’re stating does not derive from the facts presented to them.

  7. @guy herbert

    Thanks, and you are of course entirely correct. But I think this is just a sop to the idiots like Hodge & Richie from HMRC.

    They may say say one is not entitled to arrange one’s affairs to reduce tax if there is no other purpose, but the whole purpose of tax allowances is to get people to arrange their affairs in the way desired by the government (assuming it passes tax laws with a purpose, knows what that purpose is and the law achieves that purpose, which I admit is unlikely) and the law indicates the ways its wants people’s affairs organising by giving tax allowances for those arrangements.

    Whilst I agree that wholly constructed tax avoidance is now illegal (making it evasion), that doesn’t appear to be what is being discussed here. Rather, this is just the way tax allowances are arranged currently to incentivise behaviour which it is intended to incentivise.

  8. please can anyone actually clarify what exactly tax ‘avoidance’ is? Does buying some fags duty free at LHR count? An ISA? My buying an imac in Hong Kong the other week and sweet talking my way through customs with it?

  9. @Dongguan John

    “My buying an imac in Hong Kong the other week and sweet talking my way through customs with it?”

    Into Mainland China with an iMac from HK, that’s impressive! China customs have grabbed many of my HK colleagues with components and more than one iPhone before and made life hell!

  10. Yeah I thought i was gonna get stung, was the Changping, Dongguan train station border, but some how my shite mandarin got me through… I think they couldn’t be bothered to try to translate. :)… the trick with iphones etc is that they will keep them for you until you leave so just go in then out and switch border crossing and try again… assuming you’re crossing into Shenzhen.

  11. It’s been a while since I’ve entered at Changping, but I’m sure i’d never get an iMac in through Lo Wu!

  12. Christie

    “PAC will have to reissue this part of the report,”

    Yeah maybe, but Richard Murphy will not have to retract a single word will he.

    His claim to tax expertise now explicitly rests on his having a wiser, broader view of life than HMRC types. Can’t wait to see what his PCS mates make of that.

  13. @ guy herbert

    But that whole ‘some other purpose’ thing is problematic. Say I ask for my bonus to be paid direct to my pension scheme so that it is not taxed.. would we say that’s OK because my purpose is to save for my retirement? If not, what basis do I have for putting money into a pension scheme? None.. so for this to be legal then that has to be my reason.

    So how does that differ from Amazon structuring in a tax efficient way so that they can ‘save’ for investment in their business? Or, even, so that they can return higher values to their shareholders?

    Nobody avoids tax just to avoid tax – they do it so that they can do something else with the money. If the inference is that paying less tax is only OK when it’s an entirely co-incidental side effect of some other purpose then taking advantage of any tax relief granted by government is illegal. You can’t take advantage of an incentive to relocate your business to Sunderland.. unless you were going to relocate there anyway.

    It’s just a weasly hook so they can capture things they notice at the more egregious end – thus it’s entirely judgemental and, therefore, dangerous.

  14. I listened to Murph on R5L this morning (5:15 ish – sad eh?) & I’ve complained to the BBC that they didn’t state his vested interest as he is paid by PCS – we’ll see what they say.

  15. Yeah Lo Wu is much better staffed. Changping has a couple of officials who probably can’t be bothered with it. Another good smuggling trick is to get a private car ‘sky limo’ from the airport and get your stuff driven through… it’s really rare to have those stopped and searched.

  16. Max

    I made the exact same complaint. Particularly relevant as Murphy started banging on about staff cuts at HMRC.

    Perhaps we should all complain?

    He is introduced by the BBC as being from a ‘tax think-tank’ (which is of course just him) whereas when spokespeople from (genuine) think-tanks are introduced they are invariably introduced as “from the left-wing think-tank” (or “right-wing”) but at least the listener can then be aware of the bias. Unless Murphy is introduced as “our next guest is from a delusional puffed-up self-important one man think-tank” listeners won’t really understand why they are listening to the drivel that follows.

  17. @ The Thought Gang

    Oh, I agree entirely. The taxman’s discretion is pretty dangerous. It’s that the taxman is a bureaucrat, not a zealot, and wants an easy predictable life that makes life bearable for the taxpayer *in practice*.

    In an improved world the Duke of Devonshire would be properly vindicated: it would be accepted in Whitehall and Parliament that one is entitled to try to reduce one’s tax bill per se. That would be a blow for the rule of law.

    A fair tax system would also remove arbitrary power by getting rid of the “wholly and necessarily” rule for business expenses and replace it with a “to the extent that” rule, putting individuals on the same solid footing as corporations.

    Ultimately the Murphyites and Treasury proceed from the same assumption: the taxman ought* to have arbitrary power. All wealth is the state’s to dispose of, and you get to keep as much as the greater-than-thou in their wisdom see fit. The fight is against the general acceptance of that view.

    While it is common, then there’s little point in flagging where Hodge, etc are wrong in law. They don’t care about the law, and are engaged in the project of making it received wisdom that it is immoral to care about the law.

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