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.
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.
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.
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.
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.
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.
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!
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?
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.
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’.
Economists said spending was also boosted by the reversal of the National Insurance increase introduced by Rishi Sunak when he was chancellor. Elizabeth Martins, senior economist at HSBC, said a recession was now “avoidable”.
Could be. Would make certain screams about inevitable depression that must be averted look a tad de trop, won’t it?
The Treasury will bank a £11bn windfall from a stronger than expected economy and plunging energy prices, economists have said, raising the prospect that the Chancellor could cut taxes sooner than expected.
My desire would be to do a Lawson. Cut a tax. Kill one, that is. Instead of lowering some plethora of tax levels, simply withdraw the state from taxing an activity. Got more money to play with? Kill another one.
Sue, the macroeconomic numbers, the balanced – ahaha – budget and so on. But look to the microeconomic benefits too of being able to gut an entire part of the tax bureaucracy.
Middle-aged workers have quit the workplace in droves since the pandemic, with the number of jobless 50 to 64-year-olds rising to 3.6 million. Two in five cite sickness or disability as their reason for leaving work.
The UK is almost unique among rich developed countries in having a workforce that is smaller than before Covid, attributed in part to older professionals taking early retirement.
Does any other country have over 100% marginal tax rates on those with a decent pension pot?
Why shouldn’t the two uniques be linked?
Nevertheless, Julian Richer, who founded the electronics retailer in 1978, was still paid £10.5 million as part of the deal he struck almost four years ago to sell most of the business to its employees.
…
Richer, 63, sold 60 per cent of the company to an employee ownership trust in 2019. The company was understood to be valued at nearly £100 million then and Richer agreed that the £60 million or so he was owed could be paid over a 15-year period.He was paid an initial £9.2 million upfront, but immediately gave away a third of that to staff. Since the beginning of the pandemic, he has received a further £24.5 million, documents filed with Companies House show. That includes a £7 million payment made during the company’s 2021-22 financial year and a further £3.5 million payout last summer.
As the sale was to an ESOP that revenue to Richer is entirely tax free. Legally, as a matter of public policy.
And you can have any view you like on whether encouraging the creation of ESOPs is a justified use of tax breaks but there’s no doubt at all that Richer has not just obeyed the rules here but he’s also done so entirely according to the spirit of them.
It just amuses me terribly that some portion of this money is then spent on supporting Tax Watch, with Richard Brooks (the bloke at Private Eye who made all those claims about Vodafone etc). You know, the people who whine incessantly about people using the tax system expressly and exactly as it is both designed and meant to be used?
The returns also show Trump claimed foreign tax credits for taxes paid on business ventures around the world, including licensing arrangements for the use of his name on development projects and his golf courses in Scotland and Ireland.
But, but, you mean Trump told the American taxman of the taxes he’d paid to other taxmen?
Donald Trump boasts about his accounting despite tax returns revealing negative income
The art is in describing income so as to show a negative one.
Sheesh.
As far as I understand it – which isn’t far but perhaps further than at least one accountant we could name – the specific wrinkle which allows all of this is depreciation.
A building lasts – say – 50 years. Air conditioning last 25 – say. And so on. Capital has to be spent on keeping the thing going. If it’s 50 years then at the end of that period of time the building’s worth nothing. So, if you consumed 2% of the value of your building each year you’re not, in fact, eating profits, you’re eating your own capital. Upon which there is no tax of course.
Or the other way around. Your profit is the excess of income over costs. Depreciation is a cost – even if not a cash one in each year. So, depreciation is deductible.
I think I’m right in saying US depreciation on buildings is 2% a year. So, there’s that rent roll, there’re the cash costs each year. So, there’s a positive cash flow which can be spent.
Now run the real estate empire through a series of LLPs. The excess cashflow flows through to the individual at the top who puts all that on the tax return. But so also does the depreciation allowance which flows through to that individual’s tax return. The way I understand it, by and large, is that the 2% is about, or perhaps larger than, the free cashflow. Therefore there’s no overall tax bill. Trump is eating his capital that is.
That’s not right, in the sense of accurate, but it’s a good guide to the base idea.
That such depreciation exists and acts this way is fine, something like this is a necessary part of a tax system dealing with capital assets that decline in value. Where the American system goes wrong, as I understand it, is that the same depreciation is applied to the underlying land as well as the building. Which is nonsense. But that’s what the system is as I understand.
Trump claiming depreciation on his buildings on his tax form is normal, sensible even. His being able to do so on land is an error in the tax system.
Now, I’ve not had a look a the latest revelations and I’m sure there will be interesting little gremlins in there. But overall the above is I’m sure a major part of the effects.
In 2017, his first year as president, he paid $750 (£622) in federal income taxes and claimed $7.4 million (£6.1 million) in tax credits, erasing the tax he would have otherwise owed.
The tax credits included claims for renovating the Trump International Hotel in Washington DC, according to the Los Angeles Times.
Renovation costs are the equal and opposite of that depreciation. Shrug.
The Exxon lawsuit was filed by the group’s German and Dutch subsidiaries in Luxembourg. It challenges the council of the region’s legal authority to impose the new tax — a power generally reserved for sovereign countries — and its use of emergency powers to secure member states’ approval.
I’ve not enough law to know whether that’s got any chance of success or not. But if it does it’d not be the first time the EU has gone ultra vires, is it?
So, the Ritblat tax dispute:
The HMRC dispute dates to 2007. That’s when Delancey raised €1.5 billion for its flagship DV4 fund — the vehicle it went on to use for deals such as the break-up of Minerva, the listed company that owned the Walbrook building in the City. At the same time, an employee benefit trust (EBT) was set up to hold senior Delancey staff’s performance rewards from the fund, known as carried interest. Those beneficiaries were, in effect, entitled to 20 per cent of the fund’s profits above a 7 per cent annual hurdle rate.
That’s the same basic structure that Julian Richer used – entirely, wholly and undoubtedly fully legally – to sell Richer Sounds to his employees without having to pay CGT on the income therefrom. The employees’ benefit trust.
Fun, eh?
Rishi Sunak has been urged to launch a £1bn raid on inheritances as wealthy families increasingly use pensions to avoid the tax.
The Institute for Fiscal Studies said pensions risk becoming “a vehicle for the wealthiest households” to slash their inheritance tax bill as they use other investments to provide income in retirement.
The think tank said a rich couple can escape tax bills of more than £600,000 through the pensions loophole, urging for it to be “swiftly ended”.
Any money remaining in a pension at death at any age is not subject to inheritance tax, creating a huge incentive to use other investments to fund retirement and leaving pension pots for families. There is income tax on money received from inherited pension pots but only if they died at or after 75.
The thing is, we’re repeatedly told that the dead don’t actually pay inheritance tax. So, it’s fair game. Also, there can’t be any distortions from taxing inheritances because there are no incentives.
Except, as we can see, people go to extraordinary lengths to avoid inheritance tax. So, there are distortions, people do feel the pain.
Exactly because people do these things we know that inheritance tax does have an effect upon behaviour.
No, I’m here to investigate the tax authority, which is called TAKS.
The Faroes have a tax system that is unique even among their Nordic neighbors, and probably the best in the world. Its operating principles are centralization, efficiency, and simplicity. It’s not the most riveting subject for a travel holiday, I’ll readily admit. But it’s beautiful in its own way—and it makes a major difference in the lives of every Faroese person, from the lowest worker to the owners of the biggest businesses. It’s hard to imagine fully implementing such a system in the United States, but we still might learn from their example.
So, it’s all computerised, automatic, works.
It also covers 54,000 people. Our little reporter seems to think that this – something hugely subject to Bjorn’s Beer Effect – might translate to something useful for a nation of 360 million people.
Isn’t that just soooo cute?
Electric cars will cost as much to run as petrol vehicles once green motorists are hit by a fresh wave of Government tax rises.
Folk will pay x amount of tax in order to have personal transport. So, government will tax personal transport x amount. Because they can.
We can also estimate the value people put on personal transport. The excess by which they value it over public transport. The amount of tax they’re willing to pay to get that personal transport. Around and about £40 billion a year.