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Tax

Now that foxing day is over

HM Revenue and Customs could be forced to repay almost £500m to Uber after a legal victory over the taxman by a rival minicab app.

Memory’s a bit hazy as I don’t really pay attention to Jololyon all that much. But wasn’t he behind that Uber case over VAT?

Uber has argued that VAT should only be applied on the fees the company charges drivers, typically 25pc of a journey, while HMRC has said it should be applied to the full cost of a ride.

In the tax tribunal, Judge Greg Sinfield ruled that “mobile ride-hailing services” such as Bolt should be treated under the Tour Operators Margin Scheme, designed for holiday companies such as travel agents.

The ruling states that the company should only pay VAT on the company’s own fees, rather than the entire journey cost.

Seems reasonable enough to me even as I admit to no expertise at all in the law.

Those thieves?

A long-running campaign for the United Nations to have greater influence over international tax rules is expected to fall at the last hurdle in a vote in New York on Wednesday with the US, Brussels and the UK blocking the move.

Jesus no.

Of course, people don’t move because of taxes

We know this because El Patata has told us so:

Jeff Bezos ditches Seattle for Miami after buying $79m mansion in ‘billionaire bunker’
Move comes as Washington’s super rich face the prospect of a 1pc wealth tax

And who are you going to believe, the Solanum of all solanums or your own lyin’ eyes?

TaxWatch are as stupid as Murphy

The UK might have missed out on as much as £2bn in tax in 2021 from big tech companies shifting their profits elsewhere, according to an estimate by a group campaigning for greater tax transparency.

Seven of the biggest US-headquartered tech companies, including Apple, Microsoft and Google owner Alphabet, are estimated to have paid £750m in UK corporation tax and the digital sales tax, compared with £2.8bn in estimated tax due had profits not been routed elsewhere, according to TaxWatch, a campaign group.

Big multinational companies often have complicated structures using different subsidiaries around the world. In many cases that makes it near impossible for observers to calculate how much tax they have paid in the UK, and whether the amounts paid align with the amount of activity in the UK.

To try to get around the lack of data, TaxWatch estimated how much UK tax these global groups would have paid if their British subsidiaries declared profits at the same rate as they declare them worldwide. There is no suggestion that the companies involved have evaded taxes illegally.

But the profits are not made equally around the world. Google coding is largely done in CA. Therefore CA (part of the US) should get more of the profits and thus the tax. Etc. We’d all think it pretty weird of Rolls Royce taxes were allocated to where the engines were, no?

Willy’s will will be interesting

‘Money is like muck,” wrote Francis Bacon in 1625. “Not good except it be spread.” No one accuses the father of the scientific method and British empiricism of being a socialist, although doubtless the many Tory critics of inheritance tax will now want to group him with Karl Marx and the liberal elite as dark enemies of aspiration.

They should also add the Greek philosopher Aristotle to their list of leftwing enemies. “Man is by nature a social animal,” he wrote. “Society precedes the individual. Anyone who either cannot lead the common life or is so self-sufficient not to need to, and therefore does not partake of society, is either a beast or a god.”

Inheritance tax is a good thing because it breaks up concentrations of wealth.

Hmm, well, OK. I argue the other way myself – it’s glorious that bit by bit the population builds up wealth to make them free of government.

But Willy. He’s been on £ quarter million a year for some decades now. At one point his (late) wife’s buy to let empire included 10 properties if I’ve remembered that right. There’s significant wealth built up there. Obviously, his wife’s estate didn’t pay tax on what passed on to him. But his estate will be – I would assume at lesat – something substantial.

So, what lifetime gifts is he making to reduce that impact? What efforts to reduce the value of the pot subject to such tax? Any ag land? AIM shares? DC pension pot?

Enquiring minds would just love to know whether he’s making plans to maximise wealth passed on. You know, in those interests of transparency. For a reasonable bet would be that his likely estate will be large enough to make considerable contortions worthwhile.

Begging the question

The number of HM Revenue and Customs (HMRC) investigations that result in prosecutions has fallen by more than two-thirds in five years, with just 11 wealthy taxpayers prosecuted last year.

The number of concluded prosecution cases fell from 749 in 2018-19 to 240 in 2022-23, a drop of more than 67%, according to the figures obtained by the Bureau of Investigative Journalism and TaxWatch.

The statistics reveal that over the same five-year period the number of wealthy individuals – defined by HMRC as those with at least £2m in assets or with income of £200,000 a year or more – who were prosecuted fell from 20 to 11.

Margaret Hodge, the former chair of the House of Commons public accounts committee and a fierce critic of tax avoidance, said: “The scale of decline here is unacceptable. Where is the appetite from ministers for going after tax dodgers? Who will throw the book at these crooks? At a time when families are having to choose between heating and food, there has to be a real impetus to take the fight to those not paying their fair share.”

It is possible that prosecutions have declined because the number of tax dodgers has declined.

As we might, possibly, expect from tougher enforcement. Folk get frit and cheat less. But asking for logic from that combination of Richard Brooks at TaxWatch and Margaret “I’m the only person under the Liechtenstein rules” Hodge is to ask too much.

And here’s someone who really doesn’t get it:

Phil White, a consultant and member of Patriotic Millionaires UK, a group of millionaires campaigning for higher taxes on the wealthy, said: “Given the billions of pounds estimated to be lost via tax havens in the next decade – many of which are in the UK domain – it is hard to believe that HMRC has only prosecuted 11 wealthy individuals in the last year.

“At a time when families are counting every penny spent for mealtimes and totting up the cost of keeping their lights on, HMRC should be doubling down on those who can most afford to pay their taxes – especially so for those doing all they can to avoid paying them.”

Tax havens can be – and in near all cases actually are – used legally. So the amount of money in a tax haven bears no relationship at all to how many are deliberately flouting tax law.

Obviously so

A very large chunk of inheritance tax is paid out of house values. These are concentrated in SE England. Therefore inheritance tax is a tax on SE England.

Grieving families in Surrey pay more inheritance tax than Wales and Northern Ireland combined, analysis has revealed.

Residents of the home county paid £251m in inheritance tax in the 2019/20 tax year, compared with just £97m levied on inhabitants of Wales and £42m paid by people living in Northern Ireland.

So, let’s abolish it then, eh?

Laffer curves abound

But France’s cigarette wars are a sign of deeper problems running through society. International criminal gangs are putting millions of euros into setting up secret illegal cigarette factories in western Europe and France is a key target market – it has among the highest taxes on cigarettes in the EU with the average price of a pack about €11. At the bottom of the chain, the young men selling a handful of packets on the street – many from Maghreb countries or Afghanistan – are often without legal papers and unable to find other work, vulnerable to gangs and making a tiny profit to survive. Those who buy the cigarettes say they cannot make ends meet so have no choice, despite risking a €135 fine if they are caught purchasing illegal tobacco.

More than one-third of cigarettes smoked in France in 2021 were bought illegally, according to KPMG research, funded by the tobacco industry.

Wonder how tobacco tax revenue is looking? NY State certainly managed to puch the price up so far that revenue fell.

But, but, this is wrong!

This behaviour is entirely predictable. Economic literature shows people are highly sensitive towards increases in taxation.

But we have been told by The Sage of Ely that people do not move because of tax rates. That’s entirely an invention of neoliberalism. So, what is it, the Telegraph are fascists these days?

Yes, that must be it.

Har, Har, Har

Entrepreneurs who give away their companies to their employees are facing a tax crackdown under new Government proposals.

HM Treasury has launched a consultation on employee ownership trusts (EOTs) after it emerged they were being used for “unintended tax planning”.

These trusts allow entrepreneurs who give at least half of a company to employees to benefit from substantial tax breaks themselves

This form of shared ownership has become popular in recent years, most notably when Richer Sounds founder Julian Richer handed control of his hi-fi and TV retail chain to staff in 2019.

Under an EOT, those distributing the shares are exempt from the capital gains tax, while the company can pay its employees bonuses without incurring income tax.

But the Treasury’s consultation – which will be published later this year – could see the tax benefits restricted or removed entirely.

The Treasury said the consultation would aim to “ensure that the reliefs are targeted closely at incentivising EOTs as an employee ownership business model whilst preventing the reliefs from being used for unintended tax planning”.

That means that EOTs are now considered to be tax avoidance – or potentially so. Using Spud’s definition that is – tax relief that was not meant even if it accords with the letter of the law. That’s what “unintended tax planning” means there.

Which really does become amusing. Because TaxWatch, the groupuscule which now houses Richard Brooks, the Private Eye journo who has raged on about tax avoidance for donkey’s years, is funded by Julian Richer out of the monies received from the EOT of Richer Sounds. Which is, arguably and using Spud’s determination, tax avoidance – or could possibly be so.

Quite joyous.

Eh?

If it is a “private” estate, how come it pays no corporation tax, as every private estate does?

Corporation tax is a tax on the legal form of a corporation. If the estate is not a corporation then it doesn’t pay corporation tax.

The toads are lying again

These wealthy individuals have such a low tax rate because so much of their income (about 80%) is capital gains – money made from selling assets – and that is barely taxed. Only 17% of their income is conventionally taxable income like wages and salaries. So despite being worth an average of NZ$276m ($168m; £135m) each, and typically earning $8m a year, these families pay an average of about $640,000 each in tax – less than 10% of their income.

Hmm.

One objection is that the income of the 311 wealthiest families includes unrealised capital gains: that is, increases in the value of assets that have not yet been sold. For some, this is not “income”.

However, it is an increase in wealth that can be borrowed against, and will eventually turn into conventional income once sold.

Yes, indeedy, the toads are lying once again. Fuckers.

Screw’s Ritchie’s tax calculation then

Shell made net tax payments of $8 million for its UK North Sea operations last year — less than it paid its outgoing chief executive.

The London-listed oil and gas major said it had incurred a $134 million tax bill under Britain’s “energy profits levy” windfall tax in respect of its 2022 profits.

However, it disclosed yesterday that only $57 million of this was actually paid in 2022, with the remainder due this year, and that it had received more than $49 million in tax rebates last year related to decommissioning.

Spud continually tells us that the real tax number to look at for a corporation is cash tax paid. But here we have proof that’s not so.

” the remainder due this year”

Corporation tax is often paid in arrears. On the very useful grounds that it’s a charge to profits, profits are only known – known, not estimated – after the end of the financial year. Therefore cash tax paid in a specific financial year is not the tax bill for that financial year.

But then we knew The ‘Tater doesn’t know much about tax.

As to the refunds, that’s tax they paid years ago on fields. Because Chancellors always want their money early. Instead of allowing companies to build up a sinking fun to pay for hauling old rigs away they insist on tax being paid. Then you get a tax rebate 30 years in the future when you do haul the rig away.

Dan Neidle’s foolishness

He’s just abolished sweat equity.

On the carried interest being taxed as a capital gain idea:

I’ve just had a lengthy peer-reviewed paper published in the British Tax Review concluding that there is, in fact, no loophole. Private equity’s nifty tax treatment works only if private equity funds are regarded as passive investors, in the same way as unit trusts or other mutual funds. But if they are carrying on a financial trade, like an investment bank, the executives would have to pay tax at the same rate as everybody else.

Unlike a mutual fund, private equity funds are far from passive investors. They enter into complex acquisition agreements to acquire companies. They actively manage those companies, often restructuring them from top to bottom. They run elaborate auctions to dispose of the companies. And they repeat the whole process again and again.

The level of activity suggests that many funds are carrying on a financial trade, which means HMRC should look carefully at each private equity fund, and apply the law, and not stick to a very political agreement from the 1980s.

Well done, well done. So the management of a start up firm. They gain equity for the work they’re going to over the next few years of building that company. Which, under Neidle’s reading, means that equity must pay income tax rates.

Way to go Danny.

My word and what a surprise

It looks like some lefties have been telling porkies:

Proposed onshore wind farms that could power more than a million homes are at risk of not being built because of the tax on electricity generators, their developer has warned.

Community Windpower said it was prepared to invest £1.5 billion in the three “shovel-ready” projects in Scotland, all of which could be finished by 2025.

However, the company said the electricity generator levy, announced in November and due to be legislated for in the spring finance bill, had rendered them unviable amid soaring financing and construction costs.

Peoplpe do look at the post-tax return when deciding whether to invest. Therefore higher taxes on investment returns reduces the amount of investment.

Abolish corporation tax now!

How glorious, we have a natural experiment

It’s very difficult to rewind the economy, change the starting conditions then see what happens. We therefore depend – as with geology, cosmic stuff, astronomy and so on, natural experiments to build our science:

Nicola Sturgeon’s barrage of tax rises risks sparking an exodus of rich Scots across the border, the Institute for Fiscal Studies (IFS) has warned.

High-earners in Scotland will be thousands of pounds worse off from changes to income tax that the parliament is expected to approve on Thursday, the think tank said.

Scottish business leaders branded the rising tax burden “a disadvantage for Scotland” and expressed concern it would make competing with the UK for talent harder.

Under the new policies, the richest tenth of Scots will on average be 2.1pc poorer than those south of the border, according to the IFS – a hit equivalent to £2,590.

Meanwhile, the poorest tenth will on average be £580 better off a year from April from benefit rises, lifting incomes by 4.6pc.

Ms Sturgeon’s government is increasingly relying on taxing higher earners to fund its policies, said Tom Wernham, a research economist at IFS and an author of the report.

He said: “With this group in particular, there is a risk that higher taxes will incentivise tax avoidance efforts, such as converting income into dividends – to which Scottish tax rates don’t apply – or even migrating across the border.”

OK.

So what is the movement of people – or the movement of money into dividends – going to be? Or, more importantly, what do we observe it to be over time? For that will be the grand test of Spud’s insistence that people don’t move because of taxes, won’t it?

No, I don’t know the answer either. That’s the point of observing, see?

Arun Advani trips over his own laces

Perhaps we should advise Arun Advani to start using the logical equivalent of loafers rather than lace-ups. For his latest advice on capital gains tax ends in his tripping over his own laces.

OK, so, Zahawi.

…. the bigger concern is that the only tax he was required to pay on £27m was £3.7m. That implies an average tax rate of less than 14%, lower than the rate for someone working full-time on the minimum wage.

OK, CGT is at lower rates than income tax. YouGov will, of course, have paid corporation tax. That reduces the capital value of YouGov. So, that capital valuation is already reduced by whatever bleeds out in corporation tax. A point all too few grasp nor note. But, OK:

It is also bad for those actually investing serious cash in companies, because in times of high inflation they can pay large amounts of tax on increases in the value of those investments, even if this increase doesn’t keep up with the price of ordinary goods and services.

Indeed, inflation is a problem with CGT. Either we tax at a lower rate, in order to roughly and approximately deal with this, or we go back to the old system. Which is what Advani proposes:

So what is the answer? One not particularly radical solution would be to largely go back to the capital gains tax structure imposed by the Conservative chancellor Nigel Lawson in 1988. Lawson taxed capital gains at the same rate as income, and provided an allowance for inflation. A move back in this direction, with also some “smoothing” to account for gains being received less frequently than income, would be eminently sensible.

Well, OK. But now see what is done here.

Already rich people who invest (that Piketty r greater than g) gain a tax break over entrepreneurs.

No, really. The guy who starts the company gets his stock at nothing (or £1). So there is no inflation allowance because there’s no starting value. All of the entrepreneurial capital income gets taxed at income tax rates. The capitalist, who puts in the cash to develop the company, gets the inflation allowance on the valuation of the cash put in. OK, for Angel investors this will be pretty small. But for A, B and C round investors this will be a substantial tax break.

Rentiers pay lower tax rates than entrepreneurs. Isn’t that a wondrous manner of encouraging economic growth and limiting the power of that r greater than g and inequality?

Logical loafers for Advani then, so he doesn’t trip over his own laces.

I do think this is just gorgeous

Over the past decade, tax avoidance by big global companies shifting their profits to low-tax countries has received a great deal of media attention. The Fair Tax Foundation has shown how tech giants such as Apple and Google continue to pay small amounts of tax. A country such as Ireland, with its low corporate tax rate of 12.5%, scoops up much of the money that tech companies make across Europe. Governments have to play whack-a-mole, trying to shut down the tax loopholes that allow this behaviour – with mixed success.

The way the tax system is designed allows some people to pay very low levels of tax, even if it doesn’t strictly count as tax avoidance. A good example is that if you have income from wealth, such as investments or second homes, you pay lower tax rates than if you work for your living. This is why an investment banker can have a lower tax rate than his secretary. Taxing income from wealth at the same level as income from work could bring in tens of billions of pounds a year, according to academic Arun Advani.

And the thing that Palmer and Advani deliberately don’t tell you. Those corporate profits are taxed at two levels, the corporation and upon receipt by the shareholder. The combination of those two taxes is – quite deliberately – around and about, roughly you understand, the marginal income tax rate of the recipient.

This is a problem that is already solved that is.

The other very fun issue here:

Then there is a range of ways in which individuals and companies purposefully slash their tax bills. Some of these methods are illegal – deemed to be tax evasion – and can result in criminal prosecution and even jail. Somewhere in the middle there are ways in which people can use laws in unintended ways to pay less tax – known as tax avoidance. At the other end of the spectrum are deliberate gaps in tax rules that allow some people to pay much lower rates of tax than others.

Indeed so. It’s possible to sell your company without paying capital gains tax on your profits. Without – if I’ve read the rules properly, not a sure thing – even creating a taxable amount in your estate. Which is to sell the company to an employees shareholding trust, an ESOP. You get the money rolling in over the years the ESOP pays off. All entirely and wholly legally, deliberately and specifically put into tax law as a way for expanding employee ownership. It’s not tax evasion, it’s not tax avoidance, it’s the specific way the law was crafted to work. Which is great.

Analysis from the thinktank TaxWatch shows

Ah, yes, TaxWatch, funded by Julian Richer who sold Richer Sounds to an employee trust and therefore paid no CGT on the receipts from that sale.

I agree entirely that this is wholly and entirely legal and is exactly the way the law was written to work. It just does make me giggle tho’.