Tim Worstall

So, the auditors to the big banks were worried, back in financial crisis time, that they might not in fact be going concerns.

And they were right to be so of course. Banking is an inherently frail industry and even more so when bank runs are breaking out. For of course bank runs are what make frational reserve banking fragile.

Now, if an auditor thinks that the company he/she is auditing is not a going concern they\’re supposed to say so. Except, of course, saying that a bank is not a going concern is exactly what precipitates that bank run and thus makes it not a going concern. The simple qualification of the accounts is all that is required to cause the run (or at least possibly this is so).

So, what did our auditors do at this point? They went off to the government and said, in effect, \”well, you know, these banks might not be going concerns. We might have to qualify their acounts. And that, of course, would precipitate the runs. So Mr. Government, whadda\’ ya\’ gonna do about it, eh?\”

To which the response was \”we\’ll make sure they don\’t go bust as a result of bank runs\”.

Phew, right, so they are going concerns then and no qualification to the accounts is necessary, no qualification that would cause the bank runs to occur.

Now, this looks to me like the auditors using their judgement. You know, checking with the Government about support for the banks before they bring the entire financial system crashing down around all our heads sorta\’ thing?

And what does our favourite retired accountant from Wandsworth have to say about this?

But what is becoming increasingly clear is that a society where playing by the rules is the aim is not sustainable. Auditors and tax accountants are meant to exercise their professional judgement. And candidly I don’t think they are. And that is dragging down the whole basis of the corporate edifice with risk to the entire market system, at cost to us all.

Those with a neoliberal bent who argue otherwise threaten us all. The time for a revival of the exercise of sound judgement is now.

Eh?

Oh what silly boys you are

Yes I’ve run companies and there is nothing to stop me doing so

And yes my wife has owned shares in them

Fulcrum Publishing was set up to publish her articles and my software. It was owned 50 / 50 as a result

It turned out – I agree – software made more. She decided that writing was not for her. It’s one reason the company stopped trading. But the intention was right throughout. It’s why |I now argue that limited companies are not suitable for use in such situations.

The Tax Gap and its successor – Tax Research LLP – have both had massive input form my wife. She reads much of what I write, comments extensively, edits, helps make strategic decisions, is fully aware of financial activity and more besides. The real question is why she has been underpaid.

Except as you note she’s a part time GP – but GPs are rightly well paid and do pay NIC and so income was not shifted to secure tax advantage but reflected work done and NIC was not paid as the alternative measure was self employment where NIC was being paid in full as required by law – a point I have made before

No, not really. For the income was paid as dividends from the company, not as pay from the company. Which alleviates the need to pay employers\’ national insurance. Some 12 or 13% of income.

Now, I do agree absolutely that there are (at least) three possible ways of handling this income stream. As self-employment income, attracting a very light to none at all NI charge and standard income tax or higher rate income tax.

As a company, with the income being paid out as wages. This would attract at least one set of NI payments and possibly two (depends upon total income in the year) and that income tax.

The third, which is the one chosen, is as a company and then a small amount is paid as wages. This attracts no NI charges. But the usual income tax at whatever rate. The rest of the income being paid as dividends, which attract no NI and the usual income taxes.

Except, no, not quite. For in the years Fulcrum was operating (or at least some of them) there was a £10,000 tax free profit allowance for small companies. Thus that share of the profits was not taxed as profits to the company. However, when those profits were paid out as a dividend they were, in common with all dividend payments, regarded as having already paid basic rate income tax. So the only income tax to be paid upon that dividend income would be higher rate such, if total income in that year was sufficient to make such payable.

Now, all three of these structures are entirely valid, all three are entirely legal. My point is simply that the one chosen was the one which made the most of the available options to reduce, entirely legally, the tax due on said income.

And this is the personal behaviour of the man who tells us that using all of the entirely legal available options to reduce tax paid is immoral.

That\’s the dichotomy. Not that a retired accountant and his wife have used every Englishman\’s right to order their affairs so as to reduce the amount sent to The Treasury. But that that same retired accountant and his wife are running a highly vocal campaign to insist that the rest of us may not use those same laws so as to order our affairs and reduce the amount sent to The Treasury.

I suppose we could invoke St Augustine of Hippo and his \”Not yet Oh Lord\” but even he regarded that as a wry commentary upon human desires, not the way to really organise our affairs.