Tax Avoidance

[nichomach]

I'm not sure I understand your point.

"there is all the moral difference in the world between tax evasion and avoidance"

Could you provide firm definitions of both of these?

It's very simple, Beeny, evasion is not paying the taxes that you are legally obliged to pay. Avoidance is ensuring that your affairs are so arranged that the amount of tax that you are legally obliged to pay is lower than it might be if you didn't. One is fraud, the other isn't. One is the derivation of the benefits of our economy without satisfying its rules and the other is not. What's hard?

Is opening an off-shore business account, and paying almost zero income tax "evasion" or "avoidance"?

It depends whether it's lawful for you to do so; if you satisfy the IR that you're entitled to operate in that fashion, and account for your monies to their satisfaction, then you'll have satisfied the law, and that's avoidance. If you're moving money offshore without declaring it or accounting for it here or there, then it's probably evasion and illegal.

Is employing your wife and paying her £4.5k a year (tax free) salary evasion or avoidance?

Depends whether she actually does the job for which she's paid (and you'd better hope she does, for as sure as the rising of the sun you will be audited); if the answer's yes, why shouldn't one employ one's wife if she wants to work for you?

Is having a head office in the Cayman islands, thus avoiding corporation tax, even tho you do no business there, evasion or avoidance?

If you satisfy the legal requirements for doing so, then it's avoidance.

You may argue that the law needs to be reformed, and that's a good argument. You may argue that the current system is inequitable, and that's a good argument. You may argue that the law is being too laxly interpreted, or has been misapplied, and that's a good argument. Calling people "cheats" when they're playing by the rules is not a good argument. You don't like the rules or the way they're applied, campaign to change them.

[RVF500]

Erm, EVERY contractor I was working with pre-IR35 was paying no more than 15% tax. You think that's fair?

If it was legal yes. They would have paid tax in declared income and corporation tax on dividends. Capital expenditure attributable to the business can be offset against tax. Remember that all the benefits paid for by a company to it's employees have to be paid for by the contractor. I actually paid more tax in real terms (pounds and pence)as a contractor than as a permanent employee. But I kept more of my money which I thought was a good deal for working around Europe (accomodation costs) and bringing money into this country. Money that was generated by me and not another UK company. Tax on that money was spent in this country as was the income that I kept largely.

All travel costs, capital equipment, insurances (third party liabilities), holiday, pension etc. It is a more tax efficient way of working. But you have to work at it.

The choice is simple. Take the more tax efficient way of working or the security of a permanent position. But if you take the permanent option don't moan because someone is getting more money for taking more risk. Employing themselves and going around rooting out work.

[DaBeeeenster]

If it was legal yes. They would have paid tax in declared income and corporation tax on dividends. Capital expenditure attributable to the business can be offset against tax. Remember that all the benefits paid for by a company to it's employees have to be paid for by the contractor. I actually paid more tax in real terms (pounds and pence)as a contractor than as a permanent employee. But I kept more of my money which I thought was a good deal for working around Europe (accomodation costs) and bringing money into this country. Money that was generated by me and not another UK company. Tax on that money was spent in this country as was the income that I kept largely.

All travel costs, capital equipment, insurances (third party liabilities), holiday, pension etc. It is a more tax efficient way of working. But you have to work at it.

The choice is simple. Take the more tax efficient way of working or the security of a permanent position. But if you take the permanent option don't moan because someone is getting more money for taking more risk. Employing themselves and going around rooting out work.

I'm not "moaning". I'm not claiming people are "cheats". I used to work a number of consultancies, with tax being taken out of my salary on a monthly basis. I did not moan. A few years back set up with a friend and now work for myself. Obviously now I have a much larger variety of "positions" I can assume from a tax perspective. The point I'd like to make as that I find some of these options "morally incompatiable" with my point of view. Of course, if it is legal, then there's no problem, right?

If you pay your wife £4.5k as "salary" for making your dinner when you get home, it may be technically legal, but it is morally correct? Some may say that they are mutually exclusive. I'm not so sure. Whenever I talk to people in a similar position to me (i.e. able to take a number of different tax positions of their choosing) it is almost always done with a "nudge nudge - what Gordon does not know I will not tell him".

In a way I wish the system were a LOT simpler, and that a lot of these loopholes (especially off shore accounts - it still happens - fly business class and tell me what the most popular type of business is based on the adverts in the in flight magazine...) ought to be closed off.

Personally I think the idea in the article (publicising everyone's tax statements) is a good one.

[RVF500]

Then the answer is simple. If you find something morally incompatible with your point of view then don't do it. It's nice that you can afford to take that position. Personally if I don't have to give £4000 of my hard earned cash to the govt then I won't and I sleep just fine with that. As it happens my wife is active in my business. I take the tax position that leaves as much money as possible that I work for in my account.

I take the moral position that I did the work for it therefore I (and my family) should take the benefit of that work. If others want to take advantage then they should do as I, and you, did and empower themselves so that they can be in the position of choosing.

Too many people are happy to complain about their lot and to pour derision on others who are in a better position but are not happy to do something to change their lot. Other than buy a lottery ticket and sit with crossed fingers twice a week.

Closing loopholes too tightly will, imho, be bad for business in the way that I outlined in a previous post. It would, I believe, have an adverse effect on the economy far out of proportion to the taxes that would be recovered.

[DaBeeeenster]

Closing loopholes too tightly will, imho, be bad for business in the way that I outlined in a previous post. It would, I believe, have an adverse effect on the economy far out of proportion to the taxes that would be recovered.

I'm not sure how accurate the figures are that are quoted in the article, but 25 billion notes is a LOT of money. I think it might dent the takings of Porsche and Bently dealerships in Docklands, but I'm not sure how much of an impact it would make to businesses on the whole. What reasoning do you have for it having a > £25bn impact? It would almost exclusively affect higher earners; like I said people on salaries and pay packets have far less scope for avoidance.

I dont agree with your argument "I earnt it; I can choose what I do with it". IMHO tax is not something that comes down to personal discretion. Do teachers or nurses get to choose what component of their salary is given to the government? Why should you?

[RVF500]

I pay tax. Tax that I have to. If I don't have to pay it I won't. Therefore I earn it, I keep it. That's what I meant.

Teachers and nurses do have a choice, albeit limited on how they handle their money. Unless they are contract in which case they are in a more flexible environment. Income tax is the same across the board. As you know it's how much you take as income and have instant access to and how much you decide to keep in your company and take as dividend (which you pay tax on) depends on what bracket you fall into as regards income tax. If you choose to have instant access then you declare it all as income attract whichever rate you fall into. Or you determine what you need to live on and take the rest as dividend and attract a lower tax rate. That seems to make sound financial sense to me and I can't see anything immoral in it.

If I wanted to contribute to less well off people I wouldn't do it through tax anyway. I would do it through contributions to charity. Such contributions are tax exempt and that benefits the charity. Has the added bonus of giving me the satisfaction of deciding where my money goes and none gets siphoned off by govt. Which is why I sponsored a local boys football team. They needed the help and I was able to give it. You may or may not agree with where I put my money. But that was money going back into my local community and that was important to me.

Tax doesn't end there. Savings are taxed, goods are taxed etc. So you can choose to invest your disposable income in tax efficient schemes. The govt actually encourages this. We make our choices and we live by them. Some are better informed than others but the information is there for everyone to take advantage of. It's the same as taking your money from a high interest credit card to a low interest one. It simply makes financial sense.

Why should I get to choose where components of my money goes? Because I can. And choice is a basic freedom.

[Rave]

At the end of the day RVF I don't think you're wrong to make sure you're not paying any more tax than you have to. What I do think is wrong is News International selling millions of papers in Britain every day without paying any corporation tax. That is the kind of loophole I want to see closed, and if Rupert Murdoch packs up and ****s off as a result, so much the better.

Rich :¬)

[RVF500]

It's the Murdochs and Ecclestones of teh world who screw things up for everyone. Though the article sounded like a jealous man who is embittered towards those who have more than he does. Tough mate, the world isn't fair and unless we are all turned into mindless clones who do no more than exist until we die, procreating simply for the sake of it, then there will always be haves and have nots (though that is another thread and if we wish to debate it we need to open another one).

Until this has been sorted out, there is precious little point in proposing, as both the Liberal Democrats and a group of rebel Labour MPs did last week, that income tax be increased to 50% for people earning more than £100,000 a year. It is just, it is necessary, but it simply raises the incentive for the very rich to find new means of staying that way.

Ok, how is this just and fair? These people worked for that why should they be penalised for it? That's tantamount to saying you work twice as hard as me therefore you should also contribute twice as much as me. Why should people who put in the time and effort and who will pay more in tax in real terms that our example of the McWorker whether the tax rate is different or not, be punished for it? Don't give me the ability to pay argument. It's old and tired. High earners have 40% of their earnings over the cap taken in tax. Think about that, for every pound over and above the higher rate you earn, you hand 40 pence back.

People like the author if this article want these people hit even harder. This kind of thing would stifle entrepreneurism. Either people won't bother as it simply isn't worth putting in the effort or these people will take their skills and ideas elsewhere. Before you leap up and down with joy at kicking out the uber capitalist pigs. Just think. That person could be the person who employs your children in the future. Or the person who donates large sums to the charity that provides care for a family member. Saying that the money would be there through greater taxes doesn't hold water because those people won't be here and you can guarantee that government will mismanage funds anyway. Putting it into schemes that are more likely to get them reelected. All this can be explained by a very simple thing. Human nature. There are exceptions I grant you. You may hate Murdoch, but if he hadn't put in the effort to build his business empire how many people would not be earning their living from him? Though I have to agree with rave's point about News International not paying corporation tax. Putting a penny on the price of a copy of the Sun would probably cover their costs on that front.

My argument on the effects on business in this country would be that those businesses would move to more tax efficient environments. If taxes became prohibitive then the simple cost of producing an article added to the impact on profits would make companies find a cheaper alternative. The reason that so many foriegn companies choose to operate here as opposed to Europe is because taxes in Europe are so much higher. This is something that our European partners complain bitterly about. Which is why they try incessantly to bring us into line with European taxation policy.

Holland is having difficulty in getting UK contractors over since they ammended their taxation policy. They have a small pool of resource and require outside engineers but because of thier high taxation they have been struggling to recruit. I've had recruiters on the phone to me bemoaning this fact, as I've cut short conversations because the rate I would charge to make it financially viable for me to carry out the work is prohibitive to the client. A waste of their and my time.

[Zak33]

You pay enough tax in this country alreay. Therefore, as RVF states, its up to you to sort out what you shouldn't be paying on.

If you UNDERPAY on a PAYE scheme (possible if the accounts department cock up) you have your Tax Code altered the next time Inland Rev does a tax calc on you. ie the next year, your tax code drops, allowing you to make less money pre tax.

ie you pay it off the next year. Or you can pay it in a cheque.

If THEY owe YOU because of a cock up, you can wait up to 3 years before the liability is repaid to you. Thats not a guess. Thats what happened to me. It happens to everyone at some point.

So when given a chance, by your own government to pay less tax, do it.

We do pay quite a low rate of tax now in the UK. But thats only the income tax bit. The rest is one big mother of a scam...but its our government and we choose to live here so we gotta do our best to work on the rules..and the rules are there to help get some back.

However.....you pay income tax, and then with your salary you pay VAT on most things that you buy, you pay tax on your insurance and your fuel (up as high as 83% on petrol), you pay tax on your normal savings, you pay taxdisks for your car, you pay stamp duty on buying your house, you pay VAT on the Estate agent yo sell your old one.....

and one day you die.....and you leave as much as you can for your kids. And Because people can olny give small gifts without tax, they pay 40% on most the inheritance that you paid tax on all your life.

Few other small points while we're here....as I'm on a roll of sorts. If Customs and Excise was lowered on alcohol and fags, most people would stop bringing it over....

same rules for CD's..if they were cheaper people would'nt pirate them so much.

Same rules for TAX.....if it was CHEAPER and EASIER people wouldn't avoid it.

Period.

[Zak33]

if you wanna see TAX EVASION/AVOIDANCE at its peak....

AVE THIS

http://www.offshore-manual.com/225_1.html

that is the small Island of Sark. Where small houses with no more than 3 or 4 rooms have "registered" many people living there. Each of those people pays a "LAnd Lord" a lot of dough to have mail delievered there, and register council tax and stuff.

Its worth it...if you are wealthy enough!!!

[Swafe]

I also heard from one of my mates with an economics degree that the most commonly used loophole is charity contribution, you can donate so much to charity that it makes you tax exempt and it is cheaper than paying the tax itself.

bill gates anyone ?


i remember seeing him give a few million to charity.....geez people think what a nice man....not giving the government god knows how many billions

[RVF500]

From my own experience, During the telecoms crash a couple of years ago I, like many many others, found myself unable to get into a new contract. I had paid what I had to, especially my NI contributions, whilst working overseas. Funnily enough it was 3 years before I got all the rebates that were due. I went down to the local benefits office to see where I stood. Basically on my own was the upshot of that. I was told I would be entitled to £50 a week to keep a family of 5 and as for my home. Well, it's a tough world sonny. Maybe the mortgage company won't repossess you.

So, I did it myself. Used all my savings, remortgaged my home, spent money I basically didn't have to retrain. In fact I spent £12000 that I didn't have on training to get the certification I needed to get back into work. That's how much real training costs when you don't have a company to do it for you. In 1 year I posted earnings of £3000. Finally, by the skin of my teeth I got back on my feet, it took 2 years, without missing a payment on anything. How much help did I get in doing that? The square root of f*ck all. I got nothing back after 20 years of giving.

Who is the first person there with his hand out once I was back up? You got it. The tax man. Taxes go to where the incumbant govt feel will most likely get them reelected. That's it. Maybe you can see why I don't think it's immoral to avoid tax and if I can legally not pay a penny. I will.

Brown just announced writing off a bunch of third world debts. That's where your taxes are going. And those debts more likely provided money for a third world national leader's Lear jet than provided education and health care for his people. At least those charities will see the money Bill Gates gives them.

I didn't take the £50 either.

[Zak33]

I didn't take the £50 either.

thats ok ...you'd still be waiting anyway

[pumbertot]

Erm, EVERY contractor I was working with pre-IR35 was paying no more than 15% tax. You think that's fair?

maybe not fair but at least they were paying it. i wonder how much of the total unpaid tax figure comes from people opening new businesses, getting VAT and tax rebates then 'selling' it to a relative who then gets the same rebates and this cycle repeats.

or how many people claim benefits then work for cash-in-hand jobs and pay no taxes?

added to that illegal immigrants who work ilegally and pay no taxes.


added to that prostitutes who pay little or no taxes.

......the list goes on.


and I wonder how large the sum is from Lap Dancers who avoid taxes. not to be laughed at I know a few and they can earn in excess of £2k per week.

[Zak33]

Ice Cream Men.....

who has EVER paid for Ice Cream Cones with a card or a cheque?

I used to sell cars to Ice Cream Men...they all pay in cash.

Not anymore....not big amounts. I have to report large sums of cash to a special Hot Line, cos when we pay it into the bank, THEY report it too.....and if we haven't reported it first, we get a visit.

Money laundering is rife