A lot of effort has been and will be put into tackling tax evasion, and rightly so. But in my estimate tax avoidance cost the UK £19.1 billion in 2013/14 whilst tax evasion cost £73.4 billion, and of the latter no more than £4.3 billion was specifically offshore.
Tax evasion and tax avoidance can be said to cost the Government of the UK some amount of money. They can be said to cost the State, the Treasury, something. But they cannot be said to cost the UK, the country, anything. Because that country is simply the collection of people that make it up. And that group of people have, cumulatively, exactly the same amount of money whether tax is paid or not. It’s just in different pockets dependent upon whether tax has been paid or not.
And no, this isn’t just some trivial linguistic quibble. The idea of all in the State, all for the State and nothing outside the State is the very definition of Fascism. It’s essential to differentiate between the people and the State.
The left often criticise Thatcher’s “… there is no such thing as society…” quote (which is taken out of context and conveniently omits the full quote).
I think we can conclude that as far as the left is concerned, “… the State is Society…” Therefore a ‘Courageous State’ is a ‘Courageous Society’. Essentially a justification for BIG government.
Isnt RM the very definition of a Fascist?
But, if the State and the people are not the same thing, then there is no need for the State to be run by the People’s Representatives?
Which would rule out the LHTD’s chances of becoming Chief Executive, UK Tax Denunciation Agency, after the next election.
Given that those who retained the money probably spent / invested it more prudently than the government, it is more than likely that the UK saw a net benefit compared to what the people would have gained had the government done the spending.
If the money is being shipped out of the country to evade/avoid tax, then that money may actually be leaving the UK to be spent abroad. That fraction of it would be leaving the UK.
You make a reasonable point. But Richard isn’t the only offender here. How often do we hear about “the nation’s finances” – not just from politicians but from BBC journalists – when the speaker is actually referring to the government’s finances?
I think Ritchie’s (and all other professional tax campaigners’) “argument” is that evaded taxes are stored up in a tax haven somewhere, so do represent a genuine loss.
The exercise of how a big pile of dollar bills on a Caribbean island in any way benefits its billionaire owner is left to the reader.
@Christie
Exactly the argument I deploy in pub discussions: what the fuck do you think wealthy people actually *do* with their money?
Yes, they salt some of it away for rainy days, but not under their mattresses. And the rest they waste – they just waste it (largely) on different stuff to poor folks.
@Christie,
That may be the “argument”, but when the Swiss went trawling through their banks for evaded tax money they found not a lot.
Now I know that Zurich isn’t a Caribbean island but I think the point stands.
@interested – I adopt a similar argument. Companies that pay less tax usually do something with it. They invest or pay bonuses or recruit more staff or pay dividends. A business model that involves burying cash in a biscuit tin on a beach isn’t one that will impress shareholders or lead to success.
I ask them, if they had £10k to invest, who would they give it to – someone like Richard Branson or James Dyson or would they give it to the Government.
I could spend my entire net income on fags but choose not to – am I avoiding tax?
£73.4bn? How on earth does he manage to come up with that figure?
“If the money is being shipped out of the country to evade/avoid tax, then that money may actually be leaving the UK to be spent abroad. That fraction of it would be leaving the UK.”
If a UK national puts money in a foreign bank, it remains his money. The total of UK nationals have not lost any money. If he spends it, he enjoys the benefits of spending. The total enjoyment of spending by UK nationals is not perturbed. If he invests, it he reaps the benefits of investment. The sum of investment benefiting of all UK nationals remains unchanged.
It doesn’t matter in the slightest whether unpaid tax money remains in the UK or not.
If one were pedantic, we could note that some of it would be lost to the UK if the money went to an overseas entity with no ties to the UK (although there is the question of whether the initial investment would have been made without the tax avoidance/evasion). A fraction of the total to be fair.
“£73.4bn? How on earth does he manage to come up with that figure?”
Seven days in a week, three cups of tea since breakfast, four legs on his table. It’s at least as accurate as any of his other figures.
@ken
“If one were pedantic, we could note that some of it would be lost to the UK if the money went to an overseas entity with no ties to the UK”
How would that work, Ken? The tie to the UK will always be the UK national is the beneficial owner of it. Unless the money was given to a foreign national as a gift, free of all encumbrance.
Unless one’s saying a UK national & the UK State are synonymous. In which case UK nationals don’t own their own money.
@Ian Bennet
I understand Murphy’s counting sequqnce runs – 1, 2, 3, fish, banana, car park, £73.4bn.
“If you then assume that tax evasion doubles every year, next year the figure for tax evasion will be £146.8bn.”
Stick that it a tweet and by the end of the day some left-wing journo will be wrting an article entitled “tax evasion expected to hit £146.8bn next year”
phuq me it’s easy to be a vigilante tax campaigner
@ken
If you are saying that (say) some French bloke is evading tax in the UK and spending the money in France then maybe so but as always every coin has two sides and there is probably some Brit evading tax in France and spending it in the UK.
If somehow all tax evasion was ended, then the two would probably broadly cancel each other out and the UK would be no better off.
It’s one of the biggest holes in many of Murphy’s arguments. He seems to think only the UK would benefit from any of his proposed international tax changes and there could never be a reciprical loss.
Christie et all
“…whilst tax evasion cost £73.4 billion, and of the latter no more than £4.3 billion was specifically offshore.”
He is definitely NOT talking offshore here. Mutinationals do not evade tax; only avoid it. So he is in fact talking about small traders. And he is suggesting that, relative to the SME economy, VAT and tax evasion is massive, a national scandal. It is a veiled sponsored post on behalf of the PCS.
Two things strike me about this:-
1. If small trader evasion dwarfs mutinational avoidance in this way, then why the hell does he concentrate all his efforts on the latter? Answer: he’s an anti-market, anti-capitalist, anti-wealth bigot.
2. What would be the social effect of taking the sort of measures he would like? Who would be affected? And, given that benefits are largely means-tested and any tax under-declaration leads to benefit over-claiming, in who’s name will this pogrom be conducted?
He refuses even to start to think about this; perhaps we would like to?
Really small traders do *not* have to register for VAT. I have no reason to doubt that the small trader exemption is the largest single part of the “VAT gap” from which he extrapolates to assume that umpteen billion of income tax is being avoided/evaded.
John77:
Is this the exemption if turnover is less than a certain amount (c£70k rings a bell).
One of the tradesmen I use takes advantage of this, passing on the savings to the customer. When he approaches the limit he just stops working (as he’s nearing retirement and is winding down). It does mean that I save up jobs for him for early in the tax year just in case he’s reached his limit later on.
The small trader may or not be registered for VAT. It makes no difference to his claim; evasion costs “the nation” £73.4 billion. He doesn’t specify which tax but the sector can only be SME. So my post stands, the unspoken impact on small traders would be the same.
GlenDorran: It’s £81,000 at the moment.
GlenD
Not sure that I understand you. Your small trader is paying VAT on all the inputs he needs to carry out his trade. The fact that he does not charge you VAT is basically irrelevant, isn’t it, to the UK tax take?
@ Ironman
My point is that a large part of the so-called “VAT gap” is not tax avoided or evaded but tax which was not actually due in the first place. So his extrapolation “there is a VAT gap of 10%, so 10% of all tax is evaded/avoided” is utter bullshit on two levels – firstly that the second doesn’t follow from the first and secondly that the “Vatgap” website says “if one-third of the VAT gap is due to fraud…” so even those making a fuss asbout it reckon one-third is pretty much the upper limit of how much might be fraudulent.
Apart from the small trader exemption there is another, perfectly legal, part of the VAT gap arising from HMRC decision to reduce the work they do – the “flat rate” scheme where one can just pay x% of revenue instead of paying (one-sixth of gross revenue minus VAT reclaimed); obviously guys opt into that if they end up paying less.
So Murphy is either ignorant or lying.
Diogenes: that’s what I was hoping one of our tax expers would explain!
@ diogenes
No. The small trader would be liable for VAT on his earnings = net value added by his labour. Actually more than that as VAT is charged on output and some of the inputs apart from his labour are subject to VAT at lower rates or not at all (domestic fuel, public transport, rent).
John77
“So Murphy is either ignorant or lying.”
Does that have to be mutually exclusive?
1. If small trader evasion dwarfs mutinational avoidance in this way, then why the hell does he concentrate all his efforts on the latter? Answer: he’s an anti-market, anti-capitalist, anti-wealth bigot.
The multinationals have big piles of money, and dammit, that’s just not fair!
John77
Yes, I agree.
@GlenD
Ii simplistic terms, if the trader were carrying on a trade and all his activities were VATable and his fees were £100,000 p.a. before VAT, he would charge his customers £100,000 + £20,000 VAT. If he had himself bought materials at £50,000 + £10,000 VAT and also paid rent of £5,000 (with no VAT added) then for income tax purposes his taxable profits would be £100,000 – (£50,000 + £5,000) = £45,000.
As far as VAT was concerned, the trader would hand over £20,000 – £10,000 = £10,000 to the VAT man.
If same trader had turnover of £80,000 and so was below the VAT registration threshold, (all else the same) his profit for income tax would be £80,000 – (£50,000 + £10,000 + £5,000) = £15,000. He gets to deduct from his profits for income tax purposes the VAT he cannot recover as he is not VAT registered.
Note that in the first instance you couldn’t necessarily conclude that the exchequer was losing VAT if that first trader was operating as a tax ‘ghost’ because if his customers were VAT registered they would be able to recover the VAT anyway.
The VAT burden falls on those who cannot recover it. It might mean your garden shed cost you 20% more but would cost the previously ghosting but now compliant builder nothing in VAT as he isn’t paying it. (income tax is another matter).
Andrew C
Easier to consider the same numbers with and without VAT (apples and apples)?
For example, £80K fees, £40K materials (plus VAT), £5K other costs
Profit is notionally £35K.
Not registered for VAT, he will also pay £8K of input VAT (on the £40K) reducing profit to £27K.
Registered for VAT, he will charge £96K to his customers, pay £16K to HMRC less the £8K he now recover and make a profit of £35K.
But if he is registered his customers will pay £16K more (the VAT). If his customers are mainly registered, then he should register, as they will recover the £16K anyway.
If they are not registered, he may not be able to charge £16K more, without losing business, and hence he assesses whether or not the £8k extra of VAT he loses is more than the lost business were he to register.
PF
He is both ignorant and lying – I’m sure some of the more colourful characters here could add a few other adjectives from the OED/ Roget’s Thesaurus to describe him as well….
Ted S.
Echoing his infamous post on taxation of bitcoin and other digital currencies:
“what you say is irrelevant – the issue is there is a large store of wealth here and it needs to be taxed’
A post which sums up his philosophy, which as Tim and others point out does not much differ from Fascism…
@ GlenDorran
Yes
So then, Timmy, the deficit isn’t a problem either?
The rationale behind his number is available for those with the stomach to wade through it.
In summary, he’s extrapolated from the number of companies that don’t file their paperwork with HMRC/Companies house, and assumed that there is a huge amount of economic activity in them, and that, thus, there is huge amounts of tax being evaded.
He does freely conceed that this must all be evasion by relatively small players. He thinks there’s a lot of criminal activity (over and above the mere failure to fill in forms).
Of course the number is bollocks. But we don’t know that for sure because, and he’s not wrong on this, the authorities are pretty shabby about keeping the company register in good order and striking off/penalising those who don’t do what they’re supposed to do. Even though some of that is because they make it such a faff to do things properly, the rational choice might often be to just shred all the letters until they stop.
Of course, his solution is 500,000 new PCS members to conduct investigations. Mine would be to drag companies house (and the law they administer) into the 21st century. Then, frighteningly enough, probably fold it into HMRC.
TTG
So he’s saying this is all.tax evasion by corporates alone? No mention of individuals/sole traders?
So does he not think individuals evade tax as well? Or does he think his figure.is actually too small?
He seems to me to be the gift that keeps on giving.
@The Thought Gang
You’re right that Murphy’s number is bollocks but you’re wrong about Companies House. They are quite efficient at striking off companies that do not file accounts/returns. Try it as an experiment. Set up a company (doesn’t cost much), do nothing and see how long it lasts.
The whole of Murphy’s argument here is such shit. It is that someone who wants to evade tax (i.e. stay under the radar) goes to the trouble of forming a company at Companies House. Giving it a registered office and listing directors. Ah! says Murphy, they use shadow directors. What?! An army of thousands of people prepared to bring themselves to the attention of the authorities for what? And you thinkHMRC don’t do director searches? Might not notice? and what about accounts? Ah, says Murphy they list themselves as dormant. Why bother rgistering a company in the first place? Ah, says Murphy, as a front, for legitimacy. OK, so our fraudster sets up a company using shadow directors and lists it as dormant, all for the sake for legitimacy.
So potential customers can look up the company at Companies House and…..er….see that it doesn’t file accounts and that the directors listed are not the people the potential customer is dealing with.
It makes no sense at all.
Sure, there are a few situations where companies are being used for fraud but his bollocks about hundreds of thousands of such companies is such shit that only lazy journos and those who want to believe “it’s all a big conspiracy” have an excuse for believing it.
@ Ironman
I think there are other elements to his number that would cover activity not within company structures.
@ Andrew C
His stats on the number of companies that don’t file the papers seem sound.. and it’s big numbers (IIRC, c1m of a register of c4m). And they’re not explained by churn (at least not a rate of churn that would support the argument that CH are good at clearing the decks. So I do think there’s an issue there.
But as to the bizarre idea that people register companies in order to trade illegally… yes, that’s insane… hence whatever issues exist should be dealt with by employing some administrators, not investigators. Also, some web designers so that doing the lookup you describe, and understanding the results, is easier for the average Joe. Linking to HMRC would also allow prospective customers (including prospective ‘employers’ of independent contractors with company status) to get some assurance that they are dealing with an entity that appears to be paying their tax.. which would be helpful in a world where HMRC can chase unpaid tax down the supply chain should they wish to.
It’s a perennial struggle to get clients to rationalise their company structures. One new client of mine is a loose agglomeration of companies, as the owner will set up a new one every time he has a bright idea. His financial controller then points out that either a) the idea is unworkable, or b) the work would be better done by an existing company; and c) that it might have been nice to have mentioned it before taking any steps… but the company is already set up and adding to the “I can’t see any reason for this company to exist so it must be dodgy” pile.
@ Pellinor
Aye. I worked in a group where we were littered with redundant entities until I finally got a chairman willing to let me spend some money to do the housekeeping.
We weren’t in RM’s stats because we submit all our returns, but there was a cost to doing so.. and an even bigger cost to the housekeeping.. so I can see why so many people don’t bother.
@The Thought Gang
November 2014 CoHo stats. – 3,386,396 comapnies registered, 3,123,042 listed as ‘active’ that is to say companies not in the process of liquidation or disolution of which 99.2% are up to date with accounts filings. So, c25,000 companies in arears. How that gets to be 1,000,000 companies up to no good is anyone’s guess. ‘Up to date’ includes those listed as dormant.
https://www.gov.uk/government/organisations/companies-house/about/statistics#stats-notes
Andrew C
Ah “the facts”..!! Thanks for that link.
Have you tried telling him..!?
@PF
Facts are “so called facts” if they do not match the Murphs view of the world.
I have in the past provided links which back up a particular point I am making and the Murph has stated that he “can’t be bothered to look at it”.
@ Andrew C
Why is he so polite to you?
He isn’t to me
It’s worth noting that dormant companies have to file accounts – every two years IIRC… They’re in a special, highly-simplified format, but the penalties for not filing are still severe.