Sadly for Ritchie

I note that the press is reporting substantial average pay increases for DTSEV 100 CEO’s this morning who do, on average now earn £5.5 million a year. I wrote this blog on the issue of high pay four years ago. Not much has changed since so I offer it again:

TUC has published a new report this morning called Bonus Season. The summary says:

Ending corporation tax relief for pay and bonuses worth more than 10 times average annual earnings (£26,200) could raise around £1.7bn a year if applied to the banking and financial services sector, according to a new TUC report published today (Monday).

The TUC report Bonus Season uses data from the Labour Force Survey to show that over a third (36 per cent) of employees earning more than £250,000 a year in the UK work in banking and finance.

The report then uses HMRC data to estimate that around 81,000 people have incomes of over £262,000 (10 times average annual earnings) that come primarily from employment, including 29,000 people in banking and finance.

The report finds that total pay on earnings above £262,000 in the finance sector – which the TUC believes should be disallowed as a deductible expense for corporation tax purposes – is around £6.8bn a year.

He appears to be unaware of a rather important point.

You do not need to be a UK domiciled company to be listed in London. Thus you do not need to be subject to British tax law to be listed in London. And some of the FTSE100 companies are not.

20 thoughts on “Sadly for Ritchie”

  1. Ending corporation tax relief for pay and bonuses worth more than 10 times average annual earnings (£26,200)

    Err, why not just impose another income tax band at £262,000? Much easier than fiddling around with corporation tax. (A complex tax system is just a make-work scheme for accountants.)

    This is just the usual leftist trope that everybody who earns more than me should be subject to 100% tax, to bring them back down to my level. Often parroted by one Ms Toynbee in the Guardian.

  2. “I wrote this blog on the issue of high pay four years ago. Not much has changed since”

    Because what you write is bollocks, Richard, and no-one is listening.

    “so I offer it again”

    No, sorry still not listening.

    It’s another one of his, “I thought this up in a second and it believable to people who know nothing about tax or business” thoughts.

    As Tim points out, the company needn’t be tax resident to be a FTSE company, the CEO doesn’t need to be tax resident in the UK and if they were then the massive tax hike for the company would be good enough reason to leave or have an overseas company pay the salary. (or the CEO could simply leave the UK).

    We’d then be getting 45% of nothing at all. Plus corporation tax and NIC on nothing at all.

    The man’s stupidity really does leave no boundaries.

  3. The question to ask about corporate bonus schemes is this: what % of bonus awards are based on performance?

    In my experience, bonus payments are pretty much an extension of salary, with some adjustment for the particularly deserving. What, if anything, you can do about this is anyone’s guess, however this would be a more useful avenue for the likes of the LHTD.

  4. A lot of people here in Canada with whom I argue seem unaware that corporate tax is here much lower than personal taxes. My small active business corporate income tax rate is 11%. My personal rates are 15% on $43,953, then 22% to $87,907, 26% to $136,270, 29% thereafter.

    I take out of the corporation only what I need to live – not much as my home, vehicles etc are clear and I’m old, so don’t consume much. My corporation is a lovely vehicle for concentrating wealth out of the hands of lefty governmental bastards.

    Many jurisdictions have a similar structure so that high pay to corporate execs actually raises more personal tax revenue than forcing the money to stay in the corporation and subject to a lower corporate tax.

    A few years ago I got a special VAT tax rebate because my income showed me to be poverty stricken. I spent the money, intentionally, on expensive wine in Barcelona.

  5. Fred Z,

    But how do you get the money out of the company when you retire? The government always gets their share in the end.

  6. But Tim, there is a simple solution to the problem you pose, and no doubt one that would both occur and appeal to the Murphmonster:

    Every company listed on the London Stock Exchange is made automatically UK tax resident, as are all companies in and all employees of any member of its group. Candidly, issues such as the application of double taxation conventions may be conveniently ignored as neo-liberal devices to avoid tax.

  7. “Fred Z

    Many jurisdictions have a similar structure so that high pay to corporate execs actually raises more personal tax revenue than forcing the money to stay in the corporation and subject to a lower corporate tax.”

    That’s true.

    But Murphy wants both high taxes on income AND more tax on companies. He imagines they would just put up with it. Income tax and NI being deducted from the salary, Employers’ NI paid over and then no CT deduction for any of it.

    The man is a serious danger to the UK economy – or at least he would be if any of his ideas were ever adopted.

  8. Andrew C

    You are of course as always spot on.

    That’s why he rabbits on about ‘secrecy jurisdictions’, within which are encompassed such dens of tax dodging iniquity such as Norway & New Zealand. You should not be able to escape your obligations to what he sees as ‘Civil Society’ (Often abridged to just ‘society’) merely by moving to another location. It’s why he sometimes falls into advocacy of a passport tax – the Courageous state owns you – body and soul…..

  9. I don’t get this obsession with high-earners, it’s just pure avarice. If they’ve ***EARNED*** the money, then so what, they’ve EARNED it.

  10. Andrew M:

    Corporate estate freeze. My shares and my wife’s are non equity voting shares with a fixed value of $1 each. Our children have non-voting equity shares. Even better, they don’t even know they have them, otherwise the little buggers would push us out onto an ice floe.

    Our children will get the boodle tax free, they and their kids will have to devise their own plots.

  11. jgh

    You forget you owe everything to the state (at least for Murphy) – without it you would not be able to survive (that’s a rough precis of his mindset such as it is!!)

  12. @ Andrew M

    Nice one. I don’t think there’s anything like that available in the UK, alas.”

    Well, there isn’t IHT on trading companies and for IHT purposes it’s only required that they are MAINLY trading companies so 51/49 trading/investment is fine.

    If you want to bring the kids into the company earlier you can always give them limited equity shares. If your company is worth £1m, the new class of share would only share in equity above £1m so when granted they would be worthless.

  13. Andrew M: I think an estate freeze is likely possible in the UK as it is a product of ordinary corporate law, 99% of which Canada has inherited unchanged from the UK. The children’s shares must be issued when the corporation is new, or otherwise worthless, or they must pay full value for them.

  14. @Fred z

    Limited equity shares achieve the same end. It is also possible to create artificial temporary value in shares by creating them with a limited timespan possibility of selling issued shares back to the company for -say – £2 a share for 14 days. Useful if you want to qualify for certain tax advantages employee schemes.

  15. The thing that gets me about this is the shock horror that the average CEO earns less than £5m but its OK for Wayne Rooney to earn £13m plus. Isnt it more important for us to have well run business sector than football. Dont we want to encourage kids to be successful in business.
    I dont object to Rooney earning what he does its that what goes with the territory a CEO earning less is evil and overpaid

  16. Putting aside shorter career for a footballer I’d argue it’s much easier to see value added by a Rooney.

  17. Has there ever been a Murph piece about the Coulthards and Hamiltons in Monaco? What did Hodge the Dodge do about them?

  18. It’s a new alienation but the suckers don’t realise it.

    In the 50s, Tom Finney was an international star. But was paid as if he were the plumber… And he was a plumber.

    Now, someone as average as Dier, maybe Dire, gets paid millions and displays less skill. Did Marx work out this effect? It seems to debunk the Labour theory of value. Maybe the current supporters of Ltd, such as Dillow, SWL, Yates can explain the value of being a bad footballer in a mediocre team, compared with Philip Green.? Not holding my breath.

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