One law for the rich...
A look at the "hidden economy" - but first, some words from George Bernard Shaw.
The law is equal before all of us; but we are not all equal before the law. Virtually there is one law for the rich and another for the poor, one law for the cunning and another for the simple, one law for the forceful and another for the feeble, one law for the ignorant and another for the learned, one law for the brave and another for the timid, and within family limits one law for the parent and no law at all for the child.
I found this exchange in today's Public Accounts Committee (PAC) report [1.44Mb PDF] on the "hidden economy".
A panel of MPs was trying to find out whether the taxman is doing enough to deal with an estimated two million people defrauding an estimated £2bn a year from the revenue.
- MP: If one of my constituents was caught, say, stealing £5 from a post office, they would undoubtedly be prosecuted and there would be consequences of publicity. Yet if a barrister steals several hundred by avoiding his tax, then there is no publicity and he is allowed to carry on regardless. It does seem a trifle unfair, does it not?
- Taxman: I can understand where you are coming from but we cannot prosecute everybody.
There are reasons, and I will come on to those - but when it comes to natural justice, it does seem that GBS was right when one measures the vigour with which the authorities prosecute the rich tax evader compared to, say, the relatively poor TV licence evader.
Q: How many people were prosecuted for TV licence evasion in 2005-6?
A: 157,452. (The Television Licensing Authority claims a 99.9% conviction rate.)
Q: How many people were prosecuted for tax evasion last year?
A: 69.
The amount lost through tax evasion is more times ten times that lost from people not paying their television licence. And the likelihood of a benefit fraudster being prosecuted is thirty times greater than a tax fraudster.
- MP: Our friends in the Department for Work and Pensions are prosecuting 60 cases per thousand benefit fraud cases. You are only prosecuting two cases per thousand hidden economy cases. I am not suggesting that you should rise to the level of 60 per
thousand but two per thousand is very low, is it not? This is a tiny chance of being prosecuted if you are in the hidden economy. These are people deliberately evading paying tax.
- Taxman: It is a low number and we do have plans to increase it when we can apply the skilled resource to it.
The difference between tax evasion and TV licence evasion or benefit fraud is that it is hugely expensive to prove that somebody has defrauded the revenue. In fact, the revenue makes a loss on most cases: the cost of prosecution is around £30,000 and the average amount of missing tax detected is just £11,260.
Unless the tax involved exceeds £10,000 and the case has other features, such as involving a tax advisor or barrister, criminal prosecution will not be considered. The consequence, according to the PAC report, is that "there remains very little chance of someone in the hidden economy being prosecuted".
But just how assiduous is the revenue in prosecuting high-profile fraudsters like barristers?
- MP: What... schemes are you going to use in the future to try and tackle the hidden economy, particularly at the upper end of the scale?
- Taxman: We have got several things going on. We have got more than 20 projects. We are trying to do the same with builders and decorators and the like by matching publicly available information, maybe advertisements in the Yellow Pages or elsewhere, with our databases. That tends to be at the lower end. At the upper end of the scheme we have a project looking at barristers, for example 57 barristers who were in the hidden economy at some time in recent years.
- MP: What, barristers doing legal work in this country perfectly normally are not paying any tax at all?
- Taxman: Not paying any tax.
Builders and decorators are targeted then - and barristers too. How many of the 57 dodgy lawyers were prosecuted?
- Taxman: The project that identified 57 barristers as failing to notify has not, at this time, led to any prosecutions.
I'm 
~RS~q~RS~~RS~z~RS~49~RS~)
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It's the old capital punishment argument. Those with capital don't get punished.
With the notable exception of Gloucestershire Police who worked hard and got inprisoned members of the Johnson family (notorious extended family in Cheltenham who it is said committed most of the crime in the area). Most law enforcement will go for generally law abiding citizens who slip up - speeding, putting the bin out too early etc. As it's easy and profitable, you do a tax return wrong and you are a normal person, it can be proved you get fined. If you are rich enough you don't pay tax as you are non resident, or you can afford a good barrister to get you off. How many cases does the SFO win? Not many as the fraud is too hard for the Judge - Jury to understand, so people get off. Hence fine the plebs and the big boys are left alone.
Just read Private Eye it's full of them, or look at Italy's priminister. Or what doesn't happen to our government ministers when say untruths, lose things, rewrite history. Could a less elevated person get away with it?
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What MPs (and indeed HMRC) will not accept is that for very high earners a substantial part of their tax bill is basically optional. We have a large number of lawyers and accountants who devise tax saving or tax deferral schemes. This has always been the case and unless the law changes radically always will be. There is no point blaming the lawyers and accountants, they did not write the law, MPs and HMRC did. So if it does not work they way they want it to it is their fault.
The problem is that MPs want "fair" and therefore progressive taxes. Conservatives worked out that when you reduced the top rate tax from 83% to 60% and then down to 40% tax take went up - Labour has yet to learn this lesson. The best tax is simple with no exemptions - flat tax of 25% on all income or capital gains over £10,000 would eliminate 95%+ of all tax avoidance.
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Mark,
There has been a law for the rich and one for the poor....
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When they apply a skilled force? they have one doing benifit fraud im sure they could be expanded to include the taxes as well. Oh wait that would be picking on hardworking people.
The sad thing is there will be a lot more lost in tax fraud to the goverment than there ever will be in benifit fraud. Even though everything the tax man gets is invoiced how many of those invoices are actualy correct? or the work/costs even done. At what point does the tax man check to see if a company whos name is on a tax deduction exists in this day and age.
Example is builders working for people who then turn out to be a few mate's from the pub that happen to be good with bricks. a large invoice then goes in at twice the price while the blokes from the pub get paid half.
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Thinking about it... why are fines part of law too?
It should either be percentage fines, or time, instead, I guess. That'd be fairer, rather than the poorer being fined life-changing amounts that for the rich is just small change.
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Sorry for the double post, but I forgot...
Nice article! Good read :)
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thats a good point actually#5 thats why there is so much apathy about.......also dont you all think ebay is bad news to the inland revenue as well(not to mention the high st).
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The more complex a tax system is the more cracks there are for tax lawyers to abuse.
The UK has twice as many tax laws as Germany and 3 times more than France. the only country with a more onerous system is India.
Simplify the system and it will be harder for people to cheat.
Unfortunatley if they simplified the system there would be a lot less HMRC officers needed, a lot less tax accountants needed and unemployment would have a large increase.
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Now that the banks are more or less nationalised, why not make all personal bank accounts into tax exempt savings accounts, but deduct income tax + NI completely automatically when money is spent from the account, not when it is paid in?
This would simultaneously encourage saving, largely prevent tax evasion, save enormous amounts of bureaucratic admin overhead, and facilitate an entrepreneurial approach to work (because income tax/NI would no longer be heavily biassed in favour of steady earning wage-slaves). It could also neatly do away with the hard and fast one time retirement event that the government can't afford any more.
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Cash for questions, cash for peerages, MPs expenses, MPs voting for their own salaries, gold-plating their pensions ...
Tell them to shut the flip* up and put their own house in order first.
When they've done that they can have a look at:
http://hmrcisshite.blogspot.com/
http://web.mac.com/nickmorgan/HMRC/tax-hell.co.uk.html
*flip is not the word I would have chosen but for BBC censorship
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I am not sure that this blog is entirely fair to HMRC in its reporting of the facts (I am shocked to find myself sticking up for them). A supplementary memorandum at the end of the PAC report does note that of the 57 legal aid barristers 36 had reached settlements with the revenue leading to payments of penalties, outstanding tax, interest etc etc so it would be fair to say that they certainly were following up these cases.
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Whilst it is deplorable that some barristers are trying to evade paying taxes, there is a story (which may be apocryphal) at the Bar that might explain the thinking behind such an attitude. The taxman eventually caught up with a barrister who had been practising from many years without paying tax. After several weeks he wrote back in the following terms: “My accountant and I have considered your proposal very carefully. Whilst I am grateful to you drawing your inventive scheme to my attention, I would prefer not to subscribe to at the moment as it seems not to be in my financial interests to do so.” Astonishingly (so the story goes), the taxman responded not by prosecuting the barrister, but with a polite letter pointing out that “the inventive scheme” (i.e., the requirement to pay tax!) was not optional. It is worth pointing out that the vast majority of barristers not only pay tax, but do so without employing expensive advisors to limit their liability. As such, most barristers contribute very substantially to the public purse.
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i worked for 15 yrs, and taxes were taken out of my wages automatically, if barristers are payed a salary then why arn't they paying taxes like me it seems the system is set up to benefit the rich. everyday i turn more and more communist, and it's this unfair system that is doing it, the everyday ppl need a wat tyler and a peasant's revolt before its too late, the Gov. and the very affluent that dodge taxes need to remember my peeps are nearly 60 million strong and we can only take a certain amount before direct action is taken, my english blood is at boiling point...
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can somebody out there help? am I a tax payer if iam unemployed? for purposes of tax on interest earned per month? sorry to make life even more complecated!!!
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#7 if you are trading on e-bay then you are in business and pay tax. If it is a hobby you do not. Revenue probably will investigate this one at some point, but they keep having resources slashed which means they end up with a skills shortage of good investigators to do things like this.
#9 - not the greatest idea. Everytime you transfer money you pay tax and NI? So, you move money from current account to savings account and watch part of it disappear.
Everyone would soon move all monies into overseas accounts that did not operate such a farcical system.
#13 barristers are not paid a salary. They are paid fees which means they are self-employed and therefore get paid gross and hand over tax to Revenue via a tax return (unless they choose to evade of course).
#14. Several social security benefits are taxable - jobseeker's allowance being one of them.
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I'm going to make myself unpopular .... Switch from taxes on earnings to taxes on spending and the rich pay most ...
Food and Childrens clothes 0% to protect the poorest from paying tax
Fuel also 0% as above
Goods up to £1000 VAT 15%
Goods £1000 to 2000 VAT 17.5%
Goods £2000 to 5000 Vat 20%
5000 to 10 000 VAT 22.5%
£10 000 to 20 000 VAT 25%
£20 000 to 30 000 VAT 27.5%
Porches, Aston Martins and Mercededes, luxuary Yachts, Private Planes et al taxed at 30%
The rich spend lots and therefore pay lots .. the poor have little to spend and most purchases are tax free .. pay little and decide when and where they pay tax.
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Hi Mark,
I did enjoy reading this article - it made my blood boil to read those examples. Grrr.
Of course we have the Non-Dom aspect to this - people who are not deemed to be working here in the UK (or working anywhere where they might be taxed).
But then we also have our council taxes where:
1) A pensioner refuses to pay the council tax because it is soaring in real terms (and he/she has also to cope with rapidly rising fuel bills).
2) Said pensioner does not see any improvement in local services - in fact the service becomes, if anything, worse.
3) Said pensioner refuses to pay THE RISE in council tax (but continues to pay at the previous level - a peaceful protest).
4) Pensioner ends up in court.
5) Non- custodial sentencing is not an option (unlike many habitual burglars who the option to be tagged or to do community service, etc).
... So let's lock the silly old duffer up in the interests of the public. Yeah, whatever. This is more about keeping us in our place! Non-payment of taxes is taken VERY seriously by the state but not if you are rich, of course.
Certainly, there are those who say that the law will be applied equally fairly to anybody in non-payment of council tax. Fair enough. But council tax has been rising faster than inflation for several years now and coupled with rising utility bills ... it will put more and more working people under pressure to pay.
Anyway, that's my rant over with.
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There can be few people who would agree with robbery - someone threatens you with violence if you do not give him money. Yet what is taxation? I never voted for tax laws. Yet, if I do not pay, I am violently taken away and incarcerated until such time as I pay or the violent people who took me away decide. How is this different from robbery, the appropriation of my goods with the threat of violence?
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Hi Mark,
I certainly agree with tedyeoman's points on VAT of luxury goods (Blog 16). But after they have pulled their income tax tricks to get through various loopholes, it's my guess that they will still be "quids in" even after they have bought their luxury goods! Why else would you have the likes of Mittal or Abramovich settling in London rather than any other city? I'd like to think it is because London (and the UK) is a great place but the cynical side of me thinks otherwise.
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I have a family member that works in the HMRC and he told me stories of massive amounts of uncollected tax from shady individuals who are being protected for 'political' reasons.
I said to him that that the amount of uncollected corporation tax is the biggest scandal of all. Big businesses such as News International have, to my understanding, paid very little tax in the last 20 years, while dominating the print media in the UK and overseas, the rich are able to use their influence to avoid paying taxes while the ordinary working woman or man has to pay through the nose.
It's time to make tax progressive again and that the pips start to squeak once again!!!
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The entire tax system is out of date. It should be replaced by a single transaction tax.
Every time you use any power source, from switching on a light to using a computer, tv or cooker an automatic tax deduction should be made from your bank account. That transaction would of course be taxed as well.
There should be no exceptions. You use a swipe card at work: tax its use. Drive your car then tax it immediately using the same technology that collects tolls.
Tax the councils on every traffic light switch and every street lamp when it goes on and off.
I believe the tax would need only be a minute fraction of a penny per transaction. There are probably trillions of such transactions every day. Count the number needed to type this comment!
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nigeta; how about movement tax? 10p for every mile you move, and 1p per mile for distance moved for every item you buy, tracked by a sophisticated GPS system. This will also reduce global warming because people won't use their cars as much.
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That fellow in America, who has allegedly defrauded his investors of $50m, probably never even thought about taxation. In the UK, a similar but smaller event took place a few years ago. His prison sentence was much reduced, a film made about him and he has appeared on various TV programmes since. When the sums involved are that large, the judicial sentence seems comparatively small in relation to the crime. This, despite the fact that many thousands of investors have little charge of recovering their money.
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Mark:
We have had a one law for the rich person and one for the rest of society....
If you have money--you can get any kind of legal advisors that you, want to win your cases...
If you are (don't have) much money, the legal options are limited and in some cases, there are no legal services; you will be getting...
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I have long been completely baffled by the way the media and people in general behave with such vehemence towards people like benefit fraudsters.....yet they hardly get worked up at all over all the very wealthy, educated people 'stealing' money..... and tax avoidance is still 'stealing' money.
I personally feel far more indignant and angry because to me their crime is pure and absolute greed and nothing to do with 'need'. They are the ones who should be held in utter contempt and who should be heavily punished. At least a poor, uneducated person has some excuse but a wealthy person has no excuse at all.
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It is the culture of the UK now and has been developed and refined over the last 20 years.
One well known bbc presenter moved to Ireland to escape our tax system while still working in the UK. Now the tax laws have changed in Ireland and he has come back.
With this deep recession we have a chance to make amends and redo our values.
Will we do it? NO.
Why?
We have no role models or examples since our government is corrupted by power and its actions are simply to stay there whatever the consequences.
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I have been on both sides of this fence.
I used to be PAYE and paid all my due taxes like most of the people in this country.
However since progressing my career I have become self employed and a much higher earner.
Once you reach a certain level of earnings it becomes worthwhile to pay a tax specialist to assist with legal ways of avoiding paying tax.
This is ultimately the problem with any tax system. It costs over £7000 a year for the tax specialist - however this is nothing compared to the tax that would have been paid.
Although it's a moral dilemna for me - what should I do really? I have seen the client list and I can assure you that no rich person pays their fair share of tax. My tax liability is now only 21% on a 100k salary.
I am a low earner compared to most of the clients. The whole thing is COMPLETELY LEGAL, so much so the Inland Revenue legal reps have confirmed it in writing.
The ONLY way the tax system will be fair is when the majority of tax payers revolt and bring down the government.
Sadly most people seem to happy to maon about the situation rather than organise themselves to do something about it.
I can assure you that when that day comes I will be happy to join you - however I am not prepared to be fair and above board when I know, and the Inland revenue know, that there are huge numbers of rich people getting away with it.
Remember, the Government is full of such people - which is why so many MP's are also self-employed or have limited companies (to dodge tax).
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I also completely agree with Peterjol above - the huge campaigns to stop benefit fraudsters but very little to stop tax evasion and avoidance.
The way this 'Democratic system' works is to make sure all the people are always looking down and criticising those of lower social or financial status.
Meanwhile the further up the ladder you are the less people there are to criticise.
This always ensures that the rich stay rich and the poor remain poor.
This is no free world democracy - you may as well go back to calling the rich 'masters' and the poor 'slaves'.
The only thing that has changed is peoples perception of what they are and their percieved freedom.
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@ Soupey
"My tax liability is now only 21% on a 100k salary...
Sadly most people seem to happy to maon about the situation rather than organise themselves to do something about it...
I can assure you that when that day comes I will be happy to join you..."
So you acknowledge that the tax system is unfair, but you won't do anything about it whilst it still works in your favour.
I doubt you will be as happy to join us as you claim.
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That,s rich . Coming from a journalist working for a corporation(supposedly neutral)that supports labour. This present govt has to be the "bentest" in history. We have mps claiming for non existant aides, double housing allowances when they,re a couple, expenses for everything , including the kitchen sink, attempting to pass a law that forbids disclosure. So much for a party for the worker. It,s always the same ending, capitalism, communism, socialism, and all the rest of the ,isms. The PRIVATE employee always gets shafted.
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If you want to campaign I would suggest you privately write to your MP.
The BBC must not campaign.
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