Here we go again. The old chestnut of tax avoidance being equated with tax evasion is back in the papers today.
The paywall-free Mail reports about a number of BBC ‘stars’ who elect to be freelancers and paid as ‘personal service contractors’, rather than work on the BBC payroll.
The benefits are clear. The BBC doesn’t have to pay tax on the money it pays to the freelancer (other than VAT on the invoiced sum), as the freelancer is a ‘company’ entity and responsible for paying taxes due for the services they provide. The freelancer can pay a lower effective tax rate than an employee, depending on how they organise their directorships, salary, costs and expenses and dividend arrangements.
But yet again we see the grubbing politicians, who are so preoccupied with hoovering up as much of our money as possible in order to control how money is spent, making moronic statements that demonstrate they are trying to con the public and demonise people who have done nothing wrong. As the Mail puts it:
There is no suggestion that any of the individuals named have acted improperly but MPs accused the BBC of having ‘staggeringly inappropriate’ arrangements in place for many employees and said it could be ‘complicit’ in tax avoidance.
Complicit in tax avoidance? What the hell? This is the equivalent of criticising drivers for going along a road at 30mph in a 30mph limit by claiming they are complicit in driving within the speed limit. The argument is completely ludicrous. The pressure that has been applied to lead to this unnecessary change is an example of excessively powerful government that is out of control. Personal freedom is being infringed as a result of undue pressure being brought to bear by the over powerful state.
There is nothing wrong with tax avoidance, which is the arranging of your financial affairs so that you legitimately pay less tax. It is legal and responsible. Yet some politicians, whose only motivation is wanting more of our money to control and use to service their whims, have even gone as far as coining the expression ‘aggressive tax avoidance’ to describe the active effort to find legitimate ways of a person or company arranging their affairs to ensure they pay as little tax as necessary within the law. In using this description they are deliberately attempting to mislead people into thinking these individuals and companies are engaging in tax evasion – the illegal and criminal act which is the deliberate failure to provide full and accurate information about income and assets to the tax authorities so tax liability can be correctly assessed and demands applied within the law.
Although it is our money the refrain of the politicians is, ‘but we want it and are taking it’. We no longer have a Parliament. We have an elected Court of Robber Barons.
Court of Robber Barons
And they are doing all they can to bully, threaten and demonise individuals and companies into handing over money they have no legal obligation to pay. Starbucks being a case in point, having suffered so much reputational damage at the hands of politicians and blinkered campaign groups who believe government should control everything, they voluntarily offered to pay millions of pounds to the Exchequer they were not liable for in order to put an end to the blackmail they were subjected to. You read that right, Starbucks were blackmailed into handing over money because politicians did all they could to turn people against the company, which was wrongly being painted as abusing tax law. That should engender fear in everyone.
Taxation has long since ceased to be the process for raising funds to be spent on essential public services and infrastructure. It is now a form of oppressive control to restrict the ability of individuals to use their money as they see fit. The funds raised are squandered on whims and discretionary spending to bribe people into voting the politicians back into office, which is not dissimilar to the use of taxes in medieval times to fund the adventurism of monarchs and luxury of lords.
In a classic abuse of language, the politicians hark on about people having to pay their ‘fair share’, even though this invariably means people with larger incomes and who use public services far less than most other citizens, paying the same contribution as many other people combined. There is no sense of proportion in all this. They have the money and the government wants it, so it rigs the system to ensure it gets it. But in their bubble this is supposedly fair.
The only way this country will ever see responsible taxation and use of our money by the government is when the people have the power to block spending plans that service the interests of the politicians rather than the interests of the population. This road leads back to The Harrogate Agenda, and the fifth of the six demands:
5. No taxation or spending without consent: no tax, charge or levy shall be imposed, nor any public spending authorised, nor any sum borrowed by any national or local government except with the express approval the majority of the people, renewed annually on presentation of a budget which shall first have been approved by their respective legislatures
Only with such democratic control can anyone in this country ever talk about tax in terms of fairness.
Autonomous Mind 
Good post. And, FWIW, the politicians’ blather about tax avoidance is just another illustration of their weaselly, two-faced attitude to, well, just about everything. I was an IT contractor when Gordon Brown invented the IR35 rules (which, it seems to me, the Revenue could easily invoke if they really wanted to grab an extra chunk of those BBC workers’ money) and jumped through every hoop imaginable in order to justify a convoluted and subjective set of regulations designed solely to punish a group of workers (IT contractors) that Labour had identified as a nice cash cow. The thing was (and still is) that the government could have neatly achieved the same effect simply by rolling National Insurance into the Income Tax system, and in fact they would have cleared up all kinds of anomalies and brought in extra revenue from other groups of self-employed people who managed to escape IR35. However, rather than take a simple, bold step like that they preferred to expend hours of effort trying to justify a confused and poorly-thought-out policy that ultimately drove many people out of the industry and handed chunks of it over to Indian and US companies. As I write that it sounds eerily familiar, in relation to other industries — steel, power-generation. I despair.
My only issue with this is that one the one hand the BBC jumps all over – and demonises – anyone who dares to take tax avoidance measures, they support, and encourage it amongst their own staff!
In fact, no doubt, the very people who are on our screens and radios telling us how awful it is when people do this, are quietly doing the same thing themselves. It’s the hypocracy I hate!
Nominally we pay National Insurance to fund our pensions, unemployment benefit (when needed) and health care through he NHS.
Yet the NHS is playing the same trick as the BBC with payments to “service companies” set up by surgeons and other specialists.
Your argument might stand up in relation to Britishservice companies set up by British resident taxpayers. But some such companies are being set up in other EU countries to bill the NHS for work done here by people resident here thus avoiding most of British tax and national insurance. I gather that a specialist, bill to the NHS for his year’s services may be as much as £300,000 .
His “employer” is the subcontracting foreign company (which he owns) and which may pay him just sufficient income to live on in Britain and be taxed – all quite lawfully.
Quite legal but definitely not legit.
But it is legitimate because, like it or not, we are part of the EU and anyone can base their entity anywhere within the customs union and trade anywhere in the union. Businesses are set up to reward the people who create them with profits. They are not created to fund the public purse.
If the UK government wants taxes to be paid here in the circumstances you describe, then it should lower the tax burden to be more competitive, so people don’t feel their entity is paying through the nose and doesn’t feel the need to set up where a better deal is on offer.
There is in my mind a great difference between “legal” and “legitimate” (at any rate in moral terms).
It might well not be legal (indeed it is not) to assemble for a demonstration against the EU takeover of our government close to the Houses of Parliament without police permission.
But, if that permission were withheld, it would (or could) be entirely legitimate to do so.
Of course, I want lower taxation to the point where nobody (or most) would not bother to try to evade or avoid it because it was not worth the trouble BUT it would also be desirable to make attempted evasion of simple rules subject to the most severe penalties – human nature being what it is.
The example I have given shows how the privileged can evade or avoid the imposts which ordinary people cannot. I am sure that is by design of the privileged and not merely by happenstance. We are in the sort of society where managers, favoured suppliers, cronies and clients of powerful corporate and state bodies have the equivalent of feudal privileges at least as great as those of Medieval times – and today’s villeins have to pay with extra days of labour for their lords , as their forefathers did.
The Inland Revenue collects the fruits of their labours but the principle is the same.
Your plea is rather like those MPs milking their expenses who claimed that they “acted within the rules” – and the overwhelming majority got away with it. Lesser people would have lost their livelihoods and almost certainly their liberty if detected in similar activity.
As it said of Magna Carta in “1066 and All That”
“Barons could only be tried by other barons who would understand”
Sorry Edward but there is no comparison between what MPs did and how business entities are operating.
Often, MPs using the ‘within the rules’ excuse were taking advantage of a lack of definition about what could be claimed. Others simply lied to abuse the system and break the rules.
Locating a company in a particular EU state, enabling transfer payments, and benefiting from lower tax rates than in the country or countries where you operate is expressly permitted under EU law. Not only is it legal, as it is expressly permitted it is also legitimate.
As for the argument that ordinary people cannot avoid imposts, there is nothing to stop them from creating an entity to offer a good or service and take advantage of the same rules that permit existing entities to reduce tax liability. Many prefer to be employed rather than assume the risk of trading themselves and getting any rewards that can bring.
Here we go again, indeed!
Are you suggesting that large employers would agree to make such arrangements for the average worker – say nurse or hospital porter, if the costs of setting up such an arrangement made it feasible on a normal salary or wage? I think not. It would be too administratively cumbersome and the Revenue would certainly stop it then anyway if it became large scale. This is one scam for the elite and public bodies have no business making special arrangements of this sort, allowing their favoured employees to avoid tax – not the Health Trusts, not the BBC, not local councils, not HMG, not Quangos. This is an “artificial arrangement” set up purely to avoid tax which the Revenue should be able to jump on hard – and does when it is attempted by more humble people.
The Blair government , of course, took this sort of thing to new corporate heights when they sold many of the Inland Revenue offices and leased them back from a company in a tax haven. They said it was “the best deal”.
The company was soon back demanding extra rent because it had got its sums wrong. When people tried to find out about it, they were told it was “commercially confidential”!
When you tie this with the “revolving door” by which ministers and officials, who have awarded large contracts, return as directors and consultants of the firms to which they awarded contracts, the circle is complete and the atmosphere of special deals and corruption thickens further.
Of course employees, having paid their proper NI and PAYE at source like everybody else, are free to take the best advice to minimise the liability. Many of us are legitimate tax avoiders with ISAs and the like
Your point is an excellent additional argument for stopping the loophole by leaving the EU.
I have just been through the rigmarole of making arrangements for paying a part time employee of an unincorporated association and the rules preventing payment being made without deduction of tax are rigorous – not to mention the other demands of employment legislation.
So it is definitely one law for them and another for us ordinary mortals.
I am not a class warrior but this is a matter of elementary fairness and efficiency in collecting revenue. With the state appropriating 50% of wealth it is a method of transferring the burden from the rich to the poor.
Like many scams, it appears to be legal at the moment but that certainly does not make it legitimate.
Of course, I hope that the state is eventually made to manage with far less revenue proportionately but as it can demand its cut by force, it ought to do it reasonably fairly – and this is patently monstrously unfair.
Who defines what’s fair? Where is the cut off point?
I was an employee, fed up of being ripped off by the system. Like many others I worked hard, developed skills and now I work for myself and have a limited company. I benefit by arranging my affairs to minimise my taxation. Is that unfair? Why, if I decided to base the limited company elsewhere to benefit from lower corporate tax, whether elsewhere in the EU or offshore, would that not be legitimate?
Are you advocating a closed, redistributive economy and saying people who work hard and take a risk do not deserve the rewards of any success they achieve?
I am suggesting that public authorities, dependent on taxpayers, should not assist their suppliers in tax avoidance schemes under any circumstances. This would not require any change of law but only a change of the corrupt policy. I would have thought that anybody could agree to that.
Why should any authority refuse to agree to perfectly legal arrangements that enable an entity to reduce their tax liability?
To link this with corruption is utterly ridiculous. Are you suggesting any time I work for a public sector client, my effort to reduce my tax liability is corrupt or illegal?
All that will happen is that providers will increase their rates to compensate, meaning the taxpayers pays even more for the same service. And all for the sake of misplaced moral outrage and financial envy.
Because it’s our money they are permitting to be siphoned off.
QED
I will add to the last – on a basis of favouritism too – and in the public service that is corruption.
You’re adding in so many ifs, buts and maybes you’re showing your argument has little basis. You didn’t answer my question about whether me having a public sector client means I’m corrupt or undeserving of a contract for services because I have completely legal taxation arrangements.
I don’t follow your reasoning about ‘our money being siphoned off’. If work needs doing would you prefer a new long term employee on full package who has to be redeployed somehow, or a contractor who does a job for an agreed period then moves on. A contractor who keeps more of their money by reducing tax liability can work for a lower rate than one who gets ripped off by the Exchequer.
Jobs for mates is comparatively rare. Budgets are tight and competition is real.
I agree with Edward – where do you draw the line? I cannot see how what the BBC have been doing (been allowed to do by HMRC) is correct. No “ordinary” organisation would be able to employ people off the books like this in that most of the work is done for one company – so they should be treated and taxed as employees of that company – that’s the way I thought it worked. These BBC types are unemployable elsewhere – they only exist by dint of BBC (our) money.
I spent the first half of my working life in our family business and the second half in a business which I set up with my wife. In both of them I was involved with employing people. I confess that it always struck me as rather odd that the additive effects of National Insurance and income tax made regular, paid employment such a heavily taxed activity. All his life my late father (born 1907) referred to National Insurance and its administrative chores as “That Lloyd George swindle”! So it is not at all surprising that people should seek to evade or avoid it. The question is whether state agencies should be complicit in helping them to do so.
NI and income tax are the methods chosen by the state to fund its activities, particularly in the areas of pensions, welfare and health. So it is a perversion that arms of the state should convert what are properly positions of regular, taxable employment (like a surgeon in the NHS) to artificial contractual arrangements, avoiding the charges which the less well-off have to pay for the support of state services.
This sort of behaviour marks the departure of public administration from the spirit of the Northcote-Trevelyan reforms which established the apolitical ( and largely uncorrupt) modern civil service in the 1850s, cutting out the special deals, corruption and patronage which had previously prevailed.
A retired civil servant explained to me how this process of decline had accelerated in the Eighties . We settled on the term “managerialism” for
the new dispensation. In his opinion it had imported the vices of business without the stimulus of real competition or genuine accountability. This has since burgeoned mightily with the Enron-style accounting projects of the Private Finance Initiative and Public Private Partnerships – all blurring the distinction between the public and private spheres. This is a prime feature of corporatist, state-led economies.
I have been retired for ten years and have just experienced how much tighter the Inland Revenue has made the regulations for ordinary people and employers to prevent payments to part time employees without first deducting tax etc.
Sauce for the goose is sauce for the gander.
I think the question that needs to be addressed when people are going to such extraordinary lengths to reduce their tax liabilities is, as usual, “Why?”
It’s easy to say, “Because they’re greedy” but there’s nothing greedy about wanting to keep as much of the legitimately gained fruits of your own labour as you can.
There are many other reasons, though.
One of which is that the tax moneys generated are wasted to a large extent. Tax doesn’t just go to helping the poor, sick and elderly. Much of it goes to people who are none of these things and on schemes which provide nothing for the people who come under those categories.
If tax was drastically reduced and spent solely on those things that government should be providing, I doubt very much that people would even bother with all these complex arrangements. They’d pay what they were asked and would be happy to do so.
For my part, it’s because I’ve worked long and damned hard for it and I want to use most of it as I see fit, for the benefit of my family. I don’t want to see a large proportion of it wasted on politicians’ whims, gimmicks and bribes. I get no say in how my contribution is spent, so why should I hand over anything I am not liable for?
Left to me, a lot of the money I pay in tax could be used to ensure I have no reliance on state handouts, pension or anything except emergency medical care. Not everyone wants (or can cope with) that responsibility, but I do.
Wherever I have the ability to keep more of my hard earned money, I’m going to do so. If that means structuring my arrangements in a particular way, so be it.
@AM – That’s all these big corporations are doing. If a company has made profits then that is proof positive that any money under their control is in good hands – they will use that money to create further values which we all enjoy.
If they hand it over to governments, it will be spent on stuff which largely destroys that wealth. The fact that government takes all these hundreds of billions yet still finds itself in a budget deficit situation with a rising national debt is proof positive that they really aren’t very good with money.
As you rightly suggest, why would anyone work long and hard in order to make those profits only to give them to a fool who’ll pour the lot into various financial black holes (some of which may well be actually detrimental to the company who provided the profits in the first place – think subsidies to competing companies within the same industry etc)?