Why aren’t people rallying in their droves to protest against those that steal thousands from under their noses? If someone was to come along a snatch fifty quid from out of their wallet they’d be non-to-pleased. Yet daily several hundred people casually snatch cash from right from under your nose. Richard Murphy, a former KPMG tax specialist believes every UK worker loses £1000 a year to such people[1].
In fact companies and wealthy individuals to avoid paying £25bn of tax each year. Nobody particularly enjoys making such payments but it is something most people accept is a fact of life. In fact ordinary folk don’t have much say in the matter as all the income tax is taken out of your wages before you even get a say in the matter. On pay day you open your wage slip and gaze down at what might have been. Yes you know, that grand total which gazes temptingly up at you flashing its black typeface. The total you always imagine having but never quite get the chance to actually have. Each month you get you salary only after the government have taken away their share, euphemistically known as deductions. You never agree to it, it simply happens once you start work. The amount taken out is quite substantial.
Each year Gabriel Stein, a director of Lombard Street Research, for the Adam Smith Institute, calculates the nations Tax Freedom Day. This is the number of days a year the average earner has to work to pay “all direct and indirect taxes and National Insurance Contributions”. TFD is the day that you stop working for the Government, and start working for yourself. In 2006 that day was June 3rd.
What is income tax for? It’s a question that seems to have been lost in recent political rhetoric. Maybe the answer has awakens ideological ghosts with its collectivist connotations, a dirty word never to be uttered by politicians looking for a fast track route to the top jobs. Even New Labour seems to have shied away from extolling the virtues of collective endeavours, especially when they recently sought to revamp inheritance tax and capital gains tax. But income tax is a necessity, it provides all those services we take for granted detailed below.
Figure 1 Source http://budget2005.treasury.gov.uk/page_09.html
However not everyone plays by the same taxation rules. Some members of our society have the advantage of being able to us the legal services of businesses that offer help in avoiding paying income tax[2]. The Sunday Times[3] recently published a report which showed the UK’s 54 billionaires paid income tax totalling just £14.7m on their £126 billion combined fortunes. Thirty two of these extraordinarily wealthy people were calculated not to have paid any personal taxes on their fortunes. Of the remaining 22 billionaires who actually paid tax, the contributions came mainly from share dividends paid by their companies. Unlike you and I these exclusive people usually choose to pay themselves in dividends rather than with a conventional salary. The reason being the tax rate on dividends is 25% rather than the 40% higher rate of income tax.
No form of taxation has ever been or will ever be popular but at least inheritance tax is burden more likely to fall on the wealthy than many ordinary people. Let’s be clear inheritance tax is a burden levied on the rich simply because it’s a burden many ordinary folks will not have to bare At a time when the super-rich can avoid so many taxes, it means that the wealthier families cannot simply transfer all their advantage to the next generation. While millions of ordinary folk in the UK regularly pay their income tax thousands of top earners in the UK pay next to nothing. Leading footballers avoid paying millions of pounds of income tax by using loopholes that New Labour has done nothing to close. Just over 300 footballers or managers have “non-domiciled” status in Britain and a further 67 claim they are “not resident”, according to Treasury documents released under the Freedom of Information Act. Many of these players use legal tax loopholes to reduce their liabilities such as signing multiple contracts so they only having to pay tax on the first contract. Any other money earned on other contracts is paid tax-free to an offshore tax account.
In contrast, players in Spain must pay tax to the Spanish government on their worldwide earnings. The Treasury documents reveal that there were 77,000 nondomiciled people in Britain in 2002, avoiding an estimated £1 billion in tax. The number is understood to have risen to almost 200,000 since then.In 2007 the treasury admitted it didn’t even know how many people living in the UK were claiming non-domicile status and neither did they know how much money this loop-hole was costing the UK[4]. The idea of a “non-domiciled resident” came into being in 1914 for the benefit of people who had been born in the colonies to live in England without paying tax on their foreign earnings as long as that money remained abroad.
This rule has now been hijacked by some of the wealthiest people in the UK who can claim to be linked to some other domicile. This allows them to escape UK tax on all of their income and capital gains from monies earned all over the world. Most surprising of all is, with the exception of the Irish Republic now other country in the world allows this. Even the most liberal economy in the world the USA makes all its residents no matter where they were born pay taxes on all revenue no matter its origin. Oh and let’s be clear about one thing. Some people insist on arguing that these wealthy residents will depart from our shores if legislation were adopted to close such a loophole and take all their money with them. The simple answer is where would they go, as no other country operates such lucrative rules for non-domiciles as the UK. The super-rich use a variety of loopholes to avoid paying what the Treasury estimated in 2007 to be around £2bn in lost income tax revenue.
And don’t think it’s envy which gets people uptight about such issues. Sir Ronald Cohen one of Britain’s richest men recently warned about the frustrations created by the haves and have-nots in society. And he is not alone in his thinking. James Dyson, the inventor worth £1,050m, contributed the bulk of the income tax paid by the billionaires discussed above. Mr Dyson paid £9m of the £14.7m paid by all 54 because he believed in paying tax and “generating wealth” for Britain. Polly Toynbee is often at pains to point out the implications for a society which engineers such disparities in wealth. It creates the impression that paying tax is an option for a tiny minority but an absolute necessity for the majority. Such an approach, allows some members of society to operate outside the rule of law which surely ultimately undermines democracy.
© Copyright Chris Thompson (unless otherwise stated). You may republish if you include an active link to the original and leave this notice in place.
[1] www.tuc.org.uk/touchstonepamphlets[2] http://www.wealthprotectionreport.co.uk/public/main.cfm[3] http://www.timesonline.co.uk/article/0,,2087-2483988,00.html[4] http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm070308/text/70308w0026.htm
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