A taxing issue

I haven’t a clue why, but it seems George Osborne the Chancellor is shocked at the lengths that the “rich” will go to to avoid paying tax. I mean if that’s the case, then he really shouldn’t be Chancellor at all as he’s clearly not up to the job.

BBC.

The chancellor has said he is “shocked” that some of the UK’s richest people have organised their finances so that they pay virtually no income tax.
George Osborne told the Daily Telegraph the very wealthiest should be paying around a third of their income in tax.
He said he had seen “anonymised copies” of tax returns which showed him that some of the highest earners paid an income tax rate averaging at just 10%.
He said he would take “further action” but did not outline any new proposals.
HM Revenue and Customs provided the chancellor with the confidential tax returns submitted to the organisation by the UK’s wealthiest people, the Telegraph reported. Legal loopholes
He was not given the details of the individuals involved, but he said the returns he had seen had shown him the 20 biggest tax avoiders had legally reduced their income tax bills by a total of £145m in a year.

The clue as to why he shouldn’t be shocked is in the emboldened word “legally” this is the bit that people screaming out at so called tax dodgers fail to get, avoidance is not a crime, evasion is. Yes I know there are many who think that avoidance is not complying with the so called spirit of the law, though I suspect said laws were actually written to provide said loopholes for the reasons people use them otherwise they’d be closed. Still when the government through various means tries to take away over half your income if you don’t take steps to legally reduce what they can get their grubby hands on I’d be willing to bet that in the same position we’d all do what the “rich” have done. I wish there were some way to reduce the amount of money the government shakes me down for and I’m not what anyone would call rich, I just cannot afford to employ an accountant to make sure what I did was legal.

The governments levels of taxation are also the reason that the cash in hand black market is flourishing too, their current plans to levy a green surcharge to any home improvements will no doubt exacerbate the situation as people will seek to avoid involving the authorities by getting the work they want done by some guy who for all they are a professional, will only deal in cash but wont ask too many questions. At least the lucky ones will, there are far too many tales about cowboy builders etc to make me entirely comfortable about the end result of excessive taxation, but I do know it will happen. And it’s inevitably the end result of excessive taxation when people move from the legal to the supposed illegal.

One of the things that experts in the past have noticed though is that for all people don’t particularly like paying taxation, they will tolerate what they consider to be a fair level of taxation, the laffer curve theory would seem to indicate this after all with government income actually dropping if taxation goes too high as people seek alternative means of doing business.

This governments obsession with squeezing blood out of a stone will eventually be its and its successors undoing, instead of cutting taxation and the state and giving a perceived value for money they continue to borrow and waste billions on maintaining the size of the state and its spending.

Eventually something will break, with a bit of luck it will be their necks in a long drop.

10 comments for “A taxing issue

  1. April 10, 2012 at 7:12 am

    “… their current plans to levy a green surcharge to any home improvements will no doubt exacerbate the situation…”

    That’s a disaster waiting to happen, as Tim points out. I favour the suggestion in the comments; set ’em against one another and watch the fun! 😆

    • John
      April 11, 2012 at 9:01 am

      There are already problems with many not-quite-so-new properties.
      Draught sealing and high levels of insulation are turning properties into breeding grounds for mould.
      Coupled with the new[ish] high efficiency gas heaters which draw their combustion-air from outside directly, and you get a humid, poorly ventilated mouldy house.
      I won’t even mention what happens to the sewage system when people economise on water, or do not direct their waste water into the drainage system, instead venting it onto the garden.

  2. April 10, 2012 at 11:12 am

    Is there a difference between tax avoidance and tax evasion?

    • David A. Evans
      April 10, 2012 at 12:19 pm

      Avoidance is using legal loopholes, evasion is things like misdeclaring income and hence illegal.

    • April 10, 2012 at 1:51 pm

      Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Avoidance is doing it by legal means.

      • John
        April 11, 2012 at 9:03 am

        Avoidance is doing it by any means that seem legal until proven otherwise.
        Paying your plumber in cash and not getting a receipt is just fuelling the economies black market…..but it’s cheaper (until it comes to problem time and the plumber doesn’t want to know)

        • April 11, 2012 at 5:54 pm

          No, that would actually be evasion by the plumber. Avoidance is legal, within the law (if not the spirit of the law) whereby the amount paid to the plumber goes into an account to be taxed at business rates. If the plumber does not declare my payment, that’s his lookout, even if I know he’s giving me a good rate because he’s getting cash.

          • David A. Evans
            April 11, 2012 at 6:39 pm

            The 1st part was right though. I believe there was some retrospective legislation highlighted here a while back.

        • Mudplugger
          April 11, 2012 at 9:43 pm

          At another level, paying your plumber in cash for a financial benefit is actually a sophisticated value judgement on your part.
          You are balancing the money saved with the risk element that, receiptless, your plumber may abscond and deny responsibility for any follow-up work.
          The fact that the monetary advantage may have been initiated by your plumber deciding to evade VAT and probably Income Tax too is not your problem, providing you do not enquire on that topic. If your plumber simply offers you a discount for cash, and you accept those terms, you are not to know whether or not he is including VAT or whether he is declaring that revenue on his personal Tax Return. You have no legal obligation to demand a VAT Receipt, so you can have no responsibility for any knowledge of the plumber’s tax reporting habits.

          Note: This is not meant to condemn plumbers as being uniquely involved in any such activities – any similarity to any plumber, living or dead, is purely coincidental and is used for example purposes only.

          • EForster
            April 12, 2012 at 10:45 am

            If I employ a plumber and £20 VAT is charged, then I pay £20 in tax. If the plumber also pays £20 in income tax, then a total of £40 in the bill is tax paid to HMRC with my money to have the work done. There is no practical difference between any method of taxation on producers and sellers. The end consumer pays all taxes incurred in the supply chain.
            The notion that, in the transfer of customers’ money to HMRC, businesses and employees “pay” or really bear any of the burden of income taxes is the greatest illusion of our age. Income taxes are the preferred backdoor method of taxing consumers, while pretending to be the epitome of fairness. That some taxpayers are unreliable in transferring the money to HMRC is a risk that politicians must face in not being completely open with the public. However, the alternative of admitting that implicit taxation of the consumer now takes an average of half of our spending, would be too uncomfortable.

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