Wednesday, 16 March 2011

The Tax Gap

It used to be argued that death duties were a "voluntary tax" since those liable to them were rich enough to employ clever accountants who worked out ways of avoiding paying them. A report published this week indicates that much the same is true of Corporation Tax. The report suggests that something like half a million companies disappear from the register each year, and the total tax unpaid is probably in the region of £16billion. HMRC apparently lacks the resources to chase them up. Bizarrely, HMRC has shed some 30 000 staff in recent years and a further 15 000 are to go before 2014 under the coalition spending cuts.

According to the report, the annual cost of running HMRC £4.4billion. How crazy to further emasculate the goose which could collect the golden eggs.

A reminder that HMRC itself estimates that the total of uncollected tax from all sources in the last financial year reached £42billion, so 9% of all taxes. To be clear, that is uncollected, not including tax avoided or evaded.

It is shameful to live in a country which puts so much energy into hounding so-called benefits cheats, particularly the mentally and physically ill, and is so "relaxed" about unpaid taxes.

2 comments:

  1. Aren't people cheating the system at either end, whether by living parasitically on society by choice, or by accepting the deal of a society and all its advantages but failing to honour their end of the bargain, equally reprehensible?

    Likewise, aren't people dependent upon society through no fault of their own, and people who manage their affairs to minimise over-penalty in a way that society permits, equally non-culpable?

    It seems to me that pro-business types like to paint tax evasion as a victimless crime, and believe all welfare dependents are fraudsters; whilst socialists and social liberals like to condemn all those who don't pay every last penny of tax they possibly could, but seem to think that benefit cheating is practically non-existent. It does look as though both viewpoints pander a little to the ideologies of the people who espouse them; personally, I think we need to discriminate in both cases between the villains and the rest, and act appropriately.

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  2. You are right that there is cheating at both ends, and that commentators and even social scientists tend to chose the targets that suit their prejudices. Nevertheless I think there are two reasons for being more concerned with uncollected taxes, tax evasion and tax avoidance, than with benefits cheats. One is scale and the other degree of necessity.

    When you look at the scale, www.benefitfraud.uk (there doesn't seem to be the facility to make a link in this comments box) estimates that the annual cost of benefit fraud is about £3.5bn. This website is anti fraudsters, not an apologist for them. As stated in the post the official estimate of uncollected taxes is £42bn, and in my post of 1st November last year I quote an annual figure of £130bn for the total of tax uncollected, evaded or avoided. No contest really as to which, in financial terms, it is most important to tackle.

    As to the issue of need, although I am sure there are many small shopkeepers and businessmen who are struggling to survive and who are quite relieved if their VAT is uncollected or that HMRC are somewhat behind with other demands, the majority of the unpaid tax, for whatever reason, will be by the well-heeled who are augmenting an already comfortable lifestyle or hoping to secure advantages for their children and grandchildren. At the other end of the scale, some benefit payments are so meagre that, whilst not condoning it, one can understand that a bit of "moonlighting" or other fiddling at the margin in order to make ends meet or provide the occasional treat is perfectly understandable. Let him who is (or would be if placed in those circumstances) without stain cast the first stone.

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