Cameron - tax avoidance morally wrong

seven-day-weekend

pqrdef wrote: »

For those confused, bemused or amused by the concept of morality, some more dilemmas:

(1) Do you put foreign coins in vending machines? Parking meters?

(2) You go to a village fete or carol concert. Somebody is collecting an entrance fee, but there's no security and it's easy to walk in without paying. Do you?

(3) You see an opportunity to get into a football match without paying. Do you?

(4) You see an opportunity to travel on a bus or train without paying. Do you?

(5) More generally, many things depend on a degree of trust. If somebody trusts you, do you try to honour that, or do you say "more fool them" and try to exploit the situation?

(6) Should the State be able to trust us to pay what our democratically elected Parliament decides is our fair share?

My mum would have conscientiously paid with all these scenarios and brought me up to do the same. She believed (rightly in my opinion) that if I wanted an honest society, it had to start with me. (Interestingly, my mum was a Communist - I am a floating voter on the centre right.).

Myself, I try to live up to my mum's ideals but quite often fail. In the above scenarios I would pay for all of them (or at least attempt to), but I may not try as hard as my mum.

As an actual real-life example however, concerning the train, I have on many occasions used a local train from my home city to another city twelve miles distant and no-one has ever checked whether I have a ticket, I could have very easily just got on the train and completed the journey without paying. However, in my case, my Senior Citizen's bus pass allows me free travel on that route, so I don't actually have to pay. In the days when I had to pay, I did pay. But there must be millions who should have to and don't, on that route.

roddydogs

He earns £3M pa for being as funny as piles?

BobQ

The_J wrote: »

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Some of you people are just so !!!!ing stupid. I hate that the internet gives you a mouthpiece, to think in the past you would have just been seen and not heard. Glorious days.

What a credit to your profession you must be if this is the way you think of your customers. Such intellectual arrogance is so pathetic.

CLAPTON

1. does anyone actually know exactly how the tax avoidance works?


2. does anyone know whether the mechanism has actually been tested in law ?

chewmylegoff

CLAPTON wrote: »

1. does anyone actually know exactly how the tax avoidance works?

yes, the essence of it is that you have earnings paid into a UK company, and then you resign from that company. you then set up an offshore company and that company contracts with the UK company to provide your services to it. the money in the earnings previously paid into the UK company are now paid to the offshore company (tax deductible expense for the UK company thus no CT levied in the UK). the offshore company now pays you a pittance of a salary and then loans you the rest of the money.

this would not work with a UK company as if you make a loan (i) it wouldn't be deductible for CT purposes, so the company would get a tax charge on the profits and (ii) if the loan isn't repaid within a relatively short timescale, then the company is charged an additional 25% tax on the loan. Therefore the effective rate of tax for this sort of arrangement would be 45% - 55% depending on what CT rate the company pays. Plus you would have to pay NIC on the benefit in kind unless you paid market rate interest on the loan.

so there are two dodgy elements to the scheme:

(i) the contrived contract between the UK company and the offshore company for the provision of your services, which appears in substance to simply be a mechanism for creating a tax deductible expense in the UK company equal to its income. you are not really providing any services to the UK company in return for the payments [normally where the purpose of a transaction is simply to create a loss/deduction for CT purposes, it is not allowable for tax].

(ii) the contrived loan, which is not really a loan. [i.e. the person is really receiving income from an offshore company which is taxed in the UK in exactly the same way as income received from a UK company, notwithstanding any double taxation relief. the arrangement will be supported by a piece of paper which claims that it is a loan but which sounds like a sham arrangement solely for the purposes of wrongfully avoiding* tax, in my opinion].

2. does anyone know whether the mechanism has actually been tested in law ?

no, it has not. hmrc wouldn't be investigating it if it had.

one assumes that if they do bring a case against it that case will be that there is no commercial purpose to either (i) the contract between the UK and offshore company and (ii) the loan agreement, and that they are devices created solely to avoid paying tax and should be ignored.


i say avoiding, because this thing has been registered with HMRC as an avoidance scheme. therefore i think you are technically indemnified from being prosecuted for tax evasion, but if HMRC find that the scheme does not work (and win if challenged by the users) then all that happens is the users have to pay the tax due plus interest, and there isn't a penalty levied. but that might not be right.

i guess one problem that hmrc might have is that if they go after it, people might start repaying the loans, to try to demonstrate that they were proper commerical arrangements. it will look quite sussed though if this starts happening only after the scheme began to be called into question.

angrypirate

bankhater_1965 wrote: »

thats how things will always be when either labour or torys gain power ( i do not vote either) , its been proven , but not to blame the banks for any of the mess is complete and utter rubbish and the banks have failed down to there greed for big bonuses ,and rightly so , they should have been left to rot just as there are doing now to small business by not borrowing but are encouraged to , just as the statement says in the previos post the labour party encouraged the banks , the banks are still doing what they want and this goverment is letting them get away with it still,, very hypercritical if you ask me ,

Hypercritical? surely you hypocritical? hypercritical means excessively and unreasonably critical which somehow i dont think you mean.

So you say we are to blame the banks for the mess. What exactly are we blaming the banks for? What exactly did they do to create this mess and force the government to end up with a huge deficit?

Following the crash that happened after labours watch, regulation came in that required the banks to hold a lot more capital reserve, with the aim being to prevent another Northern Rock style bank run. Of course the banks are going to lend a lot less at the moment, because they need to build their capital reserves up. They HAVE to build them up to comply with the regulations. So they have less cash to loan out and they are going to be a lot more selective who they lend money too. Wouldnt you be if you were in the business of lending? The banks are there to make money. They arent there to be a charity and give money to everyone. Bank bosses are paid so much because if they get it right, they can make huge amounts of money.

In a lot of industries you might be able to say 1 excellent employee = 2 times an average employee. Ie the amount of work an excellent employee does and his value to you is worth double an average employee. Investment banking doesnt work like that. 1 excellent investment banker could earn you millions in a day, and one average one could loose you millions in the same day. So the pay reflect thats. What is wrong with the idea of people who earn the company a lot of money getting paid good money?

The_White_Horse

the immorality is the assumption that richer people should pay a higher percentage of their income in tax than those who are not quite as rich. Pure unadulterated discrimination. If such discrimination was practiced in any other form it would be (and is) outlawed.

Here is Jimmy Carr paying GBP33k in tax - more than most people earn and yet he is being made to feel guilty. Good on him. Does Jimmy Carr use more state aid than anyone else? why should he pay more?

However, he is scum because he is a hypocrite. How dare he make jokes about "fat cats" when he is doing the same.

kabayiri

What a mess eh?

Cameron is on dodgy grounds if he is playing to the public gallery on a morality basis.

What about the wealthy person who adopts a scheme to pay just a few percent in tax, but then donates 30% of their income to a cherished charity ?

Does the morality of their charitable giving outweigh the immorality of the tax arrangements? It's a farcical unresolvable situation.

This is just politicians trying to work a broken tax system as best they can. They probably know the accountants can run rings around them, so they think 'lets adopt a morality play'.

If you or I earn £500K or £3m is it so hard to accept a minimum of 25 or 30% of that being taken in tax? Maybe Gordon Gecko was right.

chewmylegoff

kabayiri wrote: »

What about the wealthy person who adopts a scheme to pay just a few percent in tax, but then donates 30% of their income to a cherished charity ?

Does the morality of their charitable giving outweigh the immorality of the tax arrangements? It's a farcical unresolvable situation.

what about it? if you want to give 30% of your income to a cherished charity you can do so, you don't (currently) get taxed on any element of that donation.

if you evade, sorry, wrongfully avoid tax because you can't really afford to (or just don't want to) pay tax on the other 70% of your salary if you give 30% of it away, then yes, that is completely immoral.

it's all very well to say that the 30% is doing some good, but it's really not acceptable to avoid paying any tax and then pick and choose which cause you support.

as a democracy we have voted in successive governments on the basis that we think, e.g. that we should have an NHS and that it should cost a certain level and provide certain services.

if, as an individual decide that, for you, tabitha's donkey sanctuary, or even childline, is more important than having an NHS providing that range of services, then you can vote for whoever offers the closest solution to that, or run for parliament yourself.

however, if you don't get the democratic result you want, it is immoral to subvert that result by refusing to pay tax through some idiotic scheme such as K2, and then giving 30% to the charity instead of paying it over as tax.

if you don't like it, you can always actually move to a tax haven, not take advantage of the public services in the UK and make your donation to the donkey sanctuary from there.

edit: i agree though that the tax system is broken. it is in desperate need of total simplication. the govt keeps going on about the anti-avoidance legislation which is going to be introduced, as if it is a silver bullet. i will believe that when i see it.

if it just said that "Rule 1: when assessing what tax is owed, HMRC will consider the substance of the arrangements you have put in place, rather than the legal form of the arrangements. The End." then it might work.

we will see. i bet it makes no difference. when it comes down to it, whatever the legislation says, the main factor in this is the competence and appetite of HMRC.............

MacMickster

kabayiri wrote: »

What a mess eh?

Cameron is on dodgy grounds if he is playing to the public gallery on a morality basis.

Whilst I believe that on this occasion he is right, Call me Dave has actually scored a massive own goal with his statement. This will have been pointed out to him in no uncertain terms, which is why he won't now comment on other individuals.

Over the next few months I would expect to see investigations by the press unveiling MPs (just when the expenses scandal has almost run its course) and in particular Conservative party donors who use such schemes to reduce their UK tax liability to almost nil.

Where will his morality argument sit if it turns out that the largest party donors are doing no more than donating taxes which they have avoided?