Quick, quick alert the media!
That should be celebrated as good news. It shows that tax
campaigning can work. Unfortunately, however, as one gap
recedes another one is emerging into view. And it is not one
that is just a consequence of sharp practice by clever corporates:
it is an intended consequence of government policy.
It means that I now think that the total UK large company
corporate tax gap has increased even higher than it ever was,
to £13bn a year. This is the consequence of the new ‘corporation
tax policy gap’, which might be as high as £8bn a year.
This new tax gap represents the gain that large companies
have made since 2008 as a result of the extensive changes
in UK tax policy that they have secured. As example, the
corporation tax rate for large (but not small) companies has
reduced from 30 per cent to 20 per cent over that period. In
addition, whilst UK multinational groups were once taxed,
at least in theory, on their worldwide income, they are now
only taxed in the UK on the income they have arising in this
country. This is in direct contrast, for example, to the vast
majority of individual UK citizens, who are still taxed on
everything they earn (unless, that is, they’re non-doms). This
policy change has increased the appeal of tax havens to UK
based multinational companies enormously. And numerous
other changes, such as more generous reliefs for R&D and
the tax treatment of offshore treasury functions have also
greatly helped big business.
The result is that in 2015 the UK corporation tax yield
(excluding North Sea revenues) will be £8bn less than forecast
in 2010. Part of this may be down to growth not meeting
expectations, but at least £4bn may be due to tax rate reduction,
as forthcoming report for the TUC will demonstrate.
Meanwhile, it is easy to allocate the rest of the shortfall to
specific reliefs and allowances given based on Office for
Budget Responsibility and Treasury forecasts at the time
that they were introduced.
Note that the tax gap started with, the law says these people should be paying and they ain’t.
Then it moved on to, well, if the politicians were capable of writing the law properly then these people should be paying this amount and they ain’t. That’s the spirit rather than the letter of the law stuff.
Now we move on to a third tax gap. Note that Ritchie really is saying that this gap is as a result of the express aims and desires of government in setting tax laws and rates. But that’s still a tax gap: because Ritchie thinks these people should be paying this amount, the politicians don’t so they’re not.
But it’s a tax gap because Ritchie.
We really do have an LHTD.
I’m no accountant/economist, but isn’t most of this wrong ?
Didn’t small companies have a preferential tax rate anyway ? Has it ever been the case that UK multinationals have been taxed on their worldwide income ? Don’t (for example) Barclays South Africa pay tax in South Africa ?
Groups were never taxed on their worldwide income.
Individual companies were – and still are, although they can now elect to have their overseas branches left out of account for UK tax. This normally means that instead of paying overseas tax and crediting it against their UK liability so there is nothing to pay in the UK, they simply pay their overseas tax and have nothing to pay in the UK. That is, the UK thinks profits should be taxed where they arise, not where the company is established.
There are anti-avoidance rules (controlled foreign companies, transfer of assets abroad, and so on) which mean that if set up a subsidiary to avoid UK tax, then you don’t avoid it. The CFC rules were weakened a few years ago, as they were catching a lot of cases which didn’t involve avoidance and gave rise to a lot of admin hassle. This does mean that UK tax which was payable a few years ago is now not payable – although there is a debate as to how much should fairly have been taxed in the first place (ie have we gone from too much tax to just right, or from just right to not enough, or what?).
“multinational groups … are now only taxed in the UK on the income they have arising in this country.”
This is, of course, total bollocks. UK Corporation tax is charged on UK tax resident companies on profits arising anywhere in the world. Those profits might also be taxable in other countries as well and we have tax treaties to cover that but if a UK company has profits arising in (say) Germany and has no Permanent Establishment in Germany then the profits would be taxed in (and only in) the UK.
“although they can now elect to have their overseas branches left out of account for UK tax. This normally means that instead of paying overseas tax and crediting it against their UK liability so there is nothing to pay in the UK”
And it’s worth pointing out that such an election would apply to all overseas branches and can’t be reversed. The flip side to having profits of branches taxed abroad is that overseas branch losses can’t be relieved against UK profits.
The ‘branch election’ puts companies with branches in the same position as companies with subsidiaries.
I always thought he read this blog.
Perhaps he’s nicking my idea of getting the tax gap up to £130 billion…
I did say that, since he was already in the realms of fantasy, the only limit was his imagination.
Dream on Dick, the future is within your grasp!
Yes, I was looking at this just the other day with Germany – I note that the DTA is to be amended to explicitly treat branches as if they were separate entities. The direction of travel is clear (and not just by the UK).
the more he churns out, the more he reminds of this XKCD cartoon
So the tax gap is now the difference between the tax paid based on the rates as they are, versus that corresponding to the tax rates as they aren’t?
Glad we’ve got that cleared up.
Is he really saying that a “tax gap” was created when the tax rate fell from 30% to 20%?
UK GDP is £1,832bn. Tax revenues are only £672bn.
That’s a £1,160 bn “tax policy gap”.
Just read it. Who needs a drink?
“Is he really saying that a “tax gap” was created when the tax rate fell from 30% to 20%?”
Yes, yes indeed he is.
He’s been at the bottle of mercury he found in the old toolshed again…
So now the tax gap is measured as being the difference between taxes assessed under law and what taxes would be assessed if Richard Murphy were God.
I don’t know what Richard’s smoking, and I don’t approve of what he’s smoking, but I do want some.
You know, maybe the media is ignoring the fact that Murhpy is Corbyn’s ‘leading economic advisor’ out of pity for ol’ Jeremy.
The sad bit is that this will become established ‘fact’ in the media. Everyone will be repeating it and no-one will know or care that it is mendacious bollocks. It will be interpreted as £xbn evaded by evil companies.
Incredible that he can get away with this.
Not to anybody who has ever had to deal with the Fourth Estate as part of their job.
Their ability to regurgitate input garbage without any hint of critical faculties as supposed journalism makes them significantly less capable than many modern computers. Which do regularly generate “input content is correctly formatted but does not pass validation tests” errors.
So presumably this means a similar ‘tax gap’ opens every time the rate of income tax or national insurance is reduced?
Or when a threshold is increased?
Then what’s the opposite of a tax gap, for when the rate in increased? Or is it a ratchet — the increased rate become the ‘new normal’ that it should have been all along, and the previous rate had a ‘potential tax gap’?
What happens if the rate is lowered but the total tax take increases, or vice versa? Is that a ‘negative tax gap’? Or does his tiny mind just explode?
I see you’ve been subjected to the ban that so many of us have for the umpteenth time. I’ve tried to read through the quite densely packed posts of the last two days to gather some kernel of what his thoughts are but this one is off the scale. Both you and Karl eviscerate his Fabian Society post and his response is just ‘not to engage’ – I think if Corbyn has issued him any credit this and the piece describing him in the Guardian will have Jezza backpedalling pretty furiously in short order.
A friend of mine was blocked for pointing out that Murphy claiming that ‘HMRC director Jim O’Hara’ had confirmed to Murphy that HMRC no longer asked UK companies for tax returns if they traded outside the UK was suspect because (1) they do and (2) there was no such person, although there was a Jim Harra.
So, no difference of opinion, merely pointing out factual errors gets you banned on Murphy’s site.
as Michael Crichton termed it, “the Gell Mann amnesia effect”
I’m convinced that there is always a follow up by people like Karl and Pellinor to the Murph’s final comments which gets deleted, thus closing the thread, and making it look like there never was a further rebuttal.
It’s quite a clever ploy as if you didn’t know about the deletions, you’d think Murph genuinely had had the last word and the argument had been settled in his favour.
He has deleted my last post on this, yes.
Unfortunately, I didn’t bother keeping a copy of it. I was basically just calling him out on not engaging, though.
He has never explained anything to me in more detail than “Read my blog”, “I have already explained this”, or “you are either wasting my time or an idiot” 🙂
The problem is of course that he won’t post anything significant outside his own blog, where he can control comments. He did on Maugham’s blog once, got ripped to shreds, and hasn’t ventured outside again. Twitter is about the only place I can comment on him without being deleted, but it’s not really a suitable forum for extended discussions 🙂
That’s why I predict his association with Corbyn won’t last more than a couple of months – how could he standup to scrutiny which would inevitably follow his exposure?
What about his spat with David Gow about publishing a private email? It is even better than his recent exchange with Jolly Farmer