Tax avoidance
Why is there no capital gains tax charge on houses?
I posted this video on YouTube this morning:
The transcript is:
Why is there no capital gains tax charge on private houses in the UK? It's a question that's entirely fair to ask because we've all got so used to the fact that people who own their own homes don't pay capital gains tax when they sell them. We just think it's normal, but it is in fact a tax exemption and it is an incredibly costly exemption - the second most costly exemption in the entire UK tax system. In fact, costing in excess of £30 billion a year in the estimate of HM Revenue and Customs.
So, is it a good exemption? Does it achieve a useful outcome? Could we do something different?
Is it a good exemption? Well, yes, to an extent. Why do I say yes to an extent? Because we would have difficulties if we charged capital gains tax - that is the tax on the increase in the value of a person's home between the time that they bought it and the time that they sold it - every time they wish to move during their life, particularly if those moves were required, for example, by the need to change jobs. We don't want people to be stuck in a location because they can't afford to move because they can't pay the tax on selling one property before buying one in another location where their work is available. So, there is a real problem with charging capital gains tax on people's capital gains arising on the sale of their homes during their lives.
But, should we end up with a situation where, as a result, a lot of people - people of my sort of age, with my sort of hair colour - are sitting on a lot of private wealth based upon the fact that they bought their own homes when they were relatively young - which was easy when I was knocking around in my 20s - and now appear to be very wealthy through nothing that they ever earned but by the chance or fortune that they bought a house when they were young.
No, that is not fair. And it's not fair because it concentrates wealth in their hands and in the hands of the children who they can pass that wealth on to. So, we do need to tax this more than we are at present, which is by inheritance tax, which only falls on about 5 per cent of all estates in the UK?
We should be charging capital gains tax on every final disposal by a person or their spouse or their civil partner at the time that the last of those two ceases to use that property, whether that's either because they die, on the second death, or because they move into a nursing home or whatever else, or both of them quit the country and move abroad. Whatever the reason, on the last disposal of a property without there being a reinvestment, which if both are dead there couldn't be, then there should be capital gains tax charged on the whole of the lifetime gain that they've made.
That would be fair. It would collect serious amounts of tax. I reckon at least £10 billion a year at present, rising over time as more and more properties come within the scope of the charge.
And it would also put downward pressure on house prices - which would be good news - while also requiring that properties be sold, which would open up the market to more people who could come into it.
All in all, a win.
But we have to do such a change with care because we can't stop people moving during their lifetimes.
There is more on this in section 8.4 of the Taxing Wealth Report 2024.
Scotonomics on the Taxing Wealth Report
I was on Scotonomics last night, discussing the Taxing Wealth Report, and right at the end its relevance for Scotland.
For reasons I can’t explain the YouTube link will not embed here, but you can watch the video by clicking here.
The rich won’t quit
This YouTube is a further discussion of 'Colin' and his threat to quit as a result of tax increases, already discussed in a different way, here this morning:
The transcript is:
I put out a TikTok yesterday in which I suggested that the wealthy should lose some of their pension tax relief.
On average, the wealthiest people in the UK - those who pay higher rate tax, and whether they like it or not, they are the wealthiest people in the UK because they are at least in the top 15 per cent of income earners and many of them much higher than that - those people get on average £8,000 a year or more of tax relief on the pension contributions that they make to their own savings. That figure is as big, near enough, as the state pension that most people over the age of 75 get. It's much bigger than most people on universal credit get. It is a system designed to subsidise the rich with benefits that I don't think they need.
But the reaction has been entirely predictable. Someone called Colin turned up on my blog. I am absolutely sure that's not his real name, by the way. But let's call him Colin because he wanted us to think that was his name. And he said,
“I think you need to split the difference between wealth and income. I'm a higher rate taxpayer who started with nothing and then worked up my way up the corporate ladder to a point where I'm comfortable, but not by any means wealthy.”
And then he goes on to say that if I take away this tax relief, he'll work less. It won't be worth his while to bother, and everything under the sun.
So he says I should be taxing wealth and not income.
Colin. is talking a load of nonsense. Colin is wealthy enough to decide that if his income falls, he'll let it fall even further by choice. In other words, he has all the money that he needs to literally provide for everything that he, and maybe his family, require to be able to live.
Now, if that isn't a definition of wealth, I don't know what is. Because he can actually afford to give up working.
People who are really in need, when their income falls, work harder. They get a second job. They get a third job. They do everything they can to put food on the table.
But Colin says, I'm being very unfair, so unfair he'll have to work less.
This is ridiculous.
It's just as ridiculous to claim that half of all income tax is paid by the top 5 percent of earners in the UK and therefore they'll leave. Look, who cares if they pay half of all income tax? That's because they're overpaid. Let's be blunt about it. They probably don't earn the money that they're paid. They've managed to secure it, maybe unfairly at cost to the rest of society.
We'd be better off if we had a more equal society.
But worse than that, Colin then goes on to say, “I will work much less, and if you don't like that, I'll leave the country.”
There's absolutely no evidence that people leave the country because of taxation. Their families don't want them to. Their in-laws don't want them to. Their parents don't want them to. Their children don't want them to. Their dogs don't want them to. They don't want to leave the golf club or whatever else it is that they spend their money on. They don't go. So, this claim is absolute nonsense.
All I've suggested is that Colin shouldn't get as much subsidy for his savings as he has. He'd still get, on average, more subsidy per year than the average Universal Credit claimant gets. And he thinks that's unfair.
Heaven help us when people like this are managing the companies, the organizations, and the government, even, of this country. Because that logic is so, so spitefully selfish.
Frankly, it staggers belief.
Rarely has a troll-like comment produced so much reaction from me, but that is why I share them on occasion.
Poor, petrified, non-doms are terrified that they might have to pay some tax
The Guardian is reporting this morning that:
“People are jumping on planes right now and leaving,” said Nimesh Shah, the chief executive of Blick Rothenberg, an accountancy firm that specialises in advising very rich “non-doms” on their tax affairs. “I am not being dramatic, they are leaving right now.”
Shah said his clients – some of the richest people in the country – were “petrified” of plans to abolish the “non-domicile” regime, through which for the past 225 years wealthy people have been able to live in the UK and not pay tax on their overseas income.
You can sense the hyper-ventilation from which Shah must be suffering oozing through every pore of this comment, largely because he senses his business model is disappearing in front of his eyes.
And what is it that his terrified clients are so frightened of? It is the risk that they might have to pay a fair contribution in tax to the country in which they wish to live and which they want to host their activities whether they are socially desirable, or otherwise.
There are three things to note. The first is that advisers like Shah are always inclined to overstatement, usually to protect their own self-interest.
Second, that said, I am sure he is right. Some of the thoroughly anti-social people he represents will leave the UK. Shah has every reason to worry about the future profitability of his firm if he is dependent upon them.
Third, he is drastically overstating his case. Some people will leave. A very few will do so straight away. But the vast majority will have good reason for staying. Methinks the man doth protest far too much.
And as for those poor, petrified clients? Maybe they should try living with the fear that you have no idea where the next meal might come from whilst being harassed for repayment of innocently overpaid carer’s allowance that you have no chance of ever refunding. Then you might find out what fear really feels like. As it is, I don’t give a damn about their fear that they might just have to pay some tax, because is exactly what they should be doing.
Why has Rachel Reeves appointed as her tax adviser a person who has said that tax is extortion and told parliament that he was not too worried about small businesses not paying their taxes?
Rachel Reeves has appointed Sir Edward Troup to be one of her four new tax advisers. He might be a former boss of HM Revenue & Customs, but he is a very odd choice.
First, as his Wikipedia page makes clear, he was a special adviser to Ken Clarke when he was Chancellor from 1995 to 1997. So he was, I think we can safely assume, a Tory set on opposing Labour at the time. I know people do change their spots, but I don't think this is a good start.
Then there is the problem of an article he wrote in 1999 for the FT in which he said:
Tax law does not codify some Platonic set of tax-raising principles. Taxation is legalised extortion and is valid only to the extent of the law.
I know of no one in tax justice or outside the Tufton Street think tanks who would share this view. The power to tax is part of what defines the state. Its power to use tax to organise society is one of the bedrock of left-of-centre thinking. Troup clearly did not share those views on the state or society. It is an exceptionally odd view for someone advising a Labour Shadow Chancellor to have held.
He added:
Tax avoidance is not paying less tax than you ‘should'. Tax avoidance is paying less tax than Parliament would have wanted. Avoidance is where Parliament got it wrong, or didn't foresee all possible combinations of circumstance.
The problem of tax avoidance is reduced to the problem of finding an answer to the question of what parliament intended and making sure that this is complied with. I would not pretend this is a simple task. But recognising this as the issue and dealing with it equitably and constitutionally would be a significant step on the way to tackling avoidance effectively.
Again, I would suggest that no reasonable person thinks now, or thought in 1999 that tax avoidance was the fault of Parliament. Tax avoidance is undertaken by those who wilfully seek to undermine the intent of parliament, aided and abetted by tax advisers (which Troup then was) willing to help them do so, in exchange for a fee.
I was not the only person with this concern back then. I raised my concerns in 2013 in anticipation of a Public Accounts Committee hearing in parliament. As a result, Margaret Hodge, who had read my post that morning (I sent it to her, together with another one), questioned Troup on these suggestions he had made. The record is still available. This exchange took place:
Q399 Chair: Well, the OECD does think that. Is it true that you said at some time that "Taxation is legalised extortion"?
Edward Troup: I am very glad that Mr Murphy and others go back and read the articles I wrote in the FT in the 1990s.
Q400 Chair: Did you say that?
Edward Troup: I wrote a whole series of articles.
Q401 Chair: People go back the whole time to stuff I did in the 1990s and 1980s, I can tell you. You never get away from your past.
Edward Troup: The article was making the point-indeed, it is relevant to a lot of what we discussed today about tax being a matter of law-
Q402 Chair: Did you say "Taxation is legalised extortion"?
Edward Troup: In the context of that article, which you read, I was making the point that it should not be left to the discretion of tax administrators to decide how much was due; it had to be left to the rule of law, and that is quite an important principle.
Q403 Chair: Did you say "Taxation is legalised extortion"?
Edward Troup: In the context of that article, those words appeared. If you read on-
Chair: You said it-thank you.
Edward Troup: Would you like me to read it?
Chair: No. I was interested; I would never dream of putting those four words together.
Hodge is now a colleague of Troup's on Reeves' new panel.
This, though, was not the only time Troup was called to account before parliament when he expressed contentious views. In 2004, he said when questioned by the Treasury Select Committee that:
I would not like to support anything which is perceived as tax avoidance, but you have got to remember that this is money left in the economy and this is not necessarily a bad thing for the economy. It may give a bit of an imbalance of incidence of tax between certain groups of people, but all we are actually saying is that some small, self-employed owned and managed businesses are actually paying less tax than the Government might have intended, which is not necessarily a bad thing, except to the extent that it creates inequity between equivalent classes of individuals.
In other words, he was indifferent to tax abuse by small businesses, did not care about inequality, the impact of tax abuse on honest smaller businesses, or the undermining of the rule of law that this activity represented.
So, the question is, if he thinks the tax is extortion and is apparently indifferent to the abuse of tax law, why is he a suitable person to advise Rachel Reeves? Could it be that, as quoted in a Guardian article in 2016:
“If you think the world needs to be changed you don’t appoint Edward Troup to that job,” said Jolyon Maugham QC, an expert in taxation law.
I agree with Jolyon.
In that same article, Margaret Hodge said, referring to the matters I note above:
The fact that he had written that draws into question whether or not he should be in charge of our tax system.
Hodge's question still remains relevant, not least with regard to his appointment to advise Rachel Reeves. Troup looks like a most unwise choice by Reeves.
Rachael Reeves will not close the tax gap by looking overseas. Pretending that the problem is elsewhere is no longer realistic. It’s in her own backyard.
Rachel Reeves is making an announcement today on how she will plug the gap that she thinks exists in her financial plans as a consequence of Jeremy Hunt stealing her intention to close the domicile rule.
As the Guardian notes this morning, she has resorted to the age-old intention of politicians who do not know how to balance their supposed books by claiming that she will close the tax gap.
Firstly, let me make it absolutely clear that I welcome that intention. It is entirely appropriate. I discuss it at length in the Taxing Wealth Report 2024. I look at the issue in chapter 15 of that report, where in four subsections, I deal with the need to better estimate the tax gap, to undertake tax spillover assessments, to set up an Office for Tax Responsibility to monitor delivery on this issue, and to reform HM Revenue & Customs so that its presence in local communities might be recreated so that it might deliver on this promise.
It would also be well worth looking at chapter nine, and in particular subsection 9.1 on reforming the administration of corporation tax and subsection 9.3 on the reforming of Companies House, both of which are essential if we are to close the tax cap.
In that case, given my enthusiasm for this topic, it would be churlish in the extreme to not welcome Rachel Reeves' intention to tackle this issue.
That said, excepting her comments on domicile, which are appropriate because the Tories are very clearly trying to manipulate the replacement rules for this in favour of the wealthy, Reeves’ comments this morning do appear to have an inappropriate focus to them.
In particular, she is highlighting another age-old mantra, which is that we must pay great attention to offshore tax abuse use if the tax gap is to be closed. Whilst there will, inevitably, be some outstanding opportunities for tax investigations during the period when the domicile rule is closed as matters, previously unseen come to light, I overall doubt that this is where the focus of attention for HMRC should now be. After all of my years campaigning on offshore, I am not saying the issue has gone away. It has not, but it has reduced, considerably. All the effort expended on it has now paid a considerable return. As a consequence, the evidence is now very strong that the problems in tax recovery are not to be found offshore. Nor, by and large, are the problems created by tax avoiders. It seems that HMRC is catching up with them. Instead, the problem that we face is in collecting tax from those who owe it and choose not to declare it within the domestic economy.
As I note within the Taxing Wealth Report 2024, whilst the overall claim of HMRC is that the tax gap is falling (which I doubt) what is also unambiguously true is that the tax gap for the self-employed and small businesses is very high, and in the latter case, in particular, rising rapidly.
In the case of small companies, it is estimated that 30% of all corporation tax liabilities owing or not now paid. Although HMRC never seems to extrapolate a tax loss in one tax to imply that there must be a consequent loss of revenue in another tax, it necessarily follows that if this is the case, then those same companies that do not pay the corporation tax that they owe must also fail to pay the VAT and PAYE that they owe, meaning that it is my belief that both those estimates are seriously underestimated as a consequence. In addition, I do not take seriously HMRC’s claim that the tax gap amongst the self employed is now only 18.5%, representing a decline over the last few years from a peak of 32.5%. If small companies fail to pay 30% of the tax that they owe there is no reason to think that small businesses do anything significantly different.
If Rachel Reeves is serious about closing the tax gap, this is where she would start looking for money. And, as I note in the Taxing Wealth Report 2024, if she wants to collect the significant sums involved in this loss, then she would require that HMRC begin to reopen its local tax offices because only by having a presence in the communities that it serves, and which pay tax, can it understand who is not paying that money, and who is helping them to evade it.
Simultaneously, she should be transforming the information that UK banks are required to submit to HM Revenue and Customs each year so that all those companies trading in the UK can be properly identified, and she should be massively increasing the resources available to Companies House to increase the effectiveness of its operation in tracking down corporate data in the UK.
There is a real opportunity to reduce the tax gap in this country, but Rachael Reeves will not close the tax gap by looking overseas. Pretending that the problem is elsewhere is no longer realistic. It's in her own backyard.
Removing the domicile rule would be a rare smart move by Jeremy Hunt
As the Guardian reports this morning:
Jeremy Hunt is considering scrapping Britain’s non-domiciled tax rules in next week’s budget, it has been reported, in a move that would see him poach one of Labour’s key fiscal policies.
If it is announced in next week’s budget, the Conservatives would be mirroring a Labour policy that Hunt has previously criticised. Abolishing the non-dom tax regime would raise an estimated £3.6bn a year.
As a very long term campaigner for abolition of the domicile rule I do not care who delivers this policy, which has always ensured that taxation in the UK is profoundly unjust because it has directly discriminated between people on the grounds of their place of origin. That would be illegal if undertaken by anyone but the government itself. My reason for wanting rid of this rule has always been ethical in that case.
In reality, this rule would need to be replaced by a short term residence rule. In the Taxing Wealth Report I have suggested that this means that the claimed revenue raising capacity of this change is open to doubt, whilst accepting the noted estimate because there are so many unknowns around this particular issue that any estimate is bound to be much more approximate than almost any other I have made when undertaking that work. Both Hunt and Labour might be disappointed by the outcome as a result, but I will not because the unethical discrimination will have gone.
Politically I would also add that this is a rare smart move by Hunt. He is going to lose the election, come what may, but removing Labour’s position on this, undermining the very many ways in which they say that this money is going to be spent (which just shows that they have not the slightest idea that taxation never funds government spending) is a clever thing to do. Reeves has always been on the back foot when claiming she can deliver balanced finances when glaringly obviously she cannot and will not. Her position will now look to be even more untenable. I cannot see her reacting by talking sense, however. That would be too much to hope for.
Reforming the organisation, goals and funding of HM Revenue & Customs
I have this morning published the last substantial chapter of the Taxing Wealth Report 2024. Some introductory and concluding sections have still to be completed, but this note focuses on the need to reform the organisation, goals, and funding of HMRC and is the last that makes substantial recommendations that will be included in the report.
When I started work on the Taxing Wealth Report 2024, I thought that this section would be one of the first to be completed, largely because I have looked at issues relating to the underfunding of HMRC since 2010. However, as my research on the subject developed it became clear that to discuss funding in isolation made no sense because to do so would have ignored the context within which this matter is of concern.
As the House of Commons Public Accounts Committee has noted in the latest of their many reports on the failings of HMRC, published this week, there is a long-term and marked downward trend in the quality of service supplied by HMRC to taxpayers. They also imply that many of the claims that HMRC's management is making concerning its own performance have to be open to doubt.
Within this context, looking at the claimed improvements in efficiency that HMRC suggest have resulted from the substantial reduction in its workforce cannot be justified. HMRC‘s costs are now rising, significantly. This issue is addressed in detail in this chapter.
Worse, a detailed review of the tax gap, the reduction which is used by HMRC to justify its supposed ever-increasing control of tax collection, cannot support that claim. HMRC admit that around 30% of corporation tax owing by smaller companies goes unpaid each year. They also accept that 18% of tax due by unincorporated small businesses goes unpaid, which they suggest to be a significant improvement on 2015, when more than 30% of those taxes went unpaid. However, data on on-time tax return submissions and data published by HMRC in 2022 showing that they had discovered that more than 8% of the UK population might be involved in the shadow economy, almost all of whom are self-employed, sharply contradicts this claim of an improvement performance in this area. As such this tax gap is highly likely to be at least as large as that for small limited liability companies.
This evidence then suggests that those most in need of help from HMRC to comply with their tax obligations are not getting that help. As a result of HMRC economies, tax offices have been closed, face-to-face taxpayer support has ended, telephone helpline support has become incredibly difficult to access, and online help has proved to be no substitute. Txaayers have been left bewildered by their obligations and alienated from HMRC, and it is not surprising that tax gaps are out of control.
That this is the case might also be due to the fact that HMRC is managed as if it is a large public company and not as a public service. The fact that all its non-executive directors represent the interests of the wealthy and large companies only reinforces the inappropriateness of its focus.
The consequences of all this are that a substantially more radical approach to the reform of HMRC is required than is currently proposed by the House of Commons Public Accounts Committee. It is time to re-organise HMRC so that its focus is on providing taxpayers with the support that they need to meet their tax obligations. At present, far too many of those taxpayers are alienated by IT systems and the demands that they create that taxpayers, quite reasonably, cannot comprehend.
It is, as a result, time for HMRC to restore its local office presence so that people can be provided with face-to-face advice on their taxes.
In addition, HMRC also needs to restart its programme of support to small businesses that are struggling to meet their obligations by reinstating its programme of active engagement with small traders by reviewing their books and records on-site to make sure that they are tax compliant.
What all this also implies is that HMRC‘s headlong rush towards Making Tax Digital is not just inappropriate but is the totally wrong way in which the UK should manage its tax system.
A tax system should be a public good, meaning it is a service supplied without the intention of profit arising by an agency that is seeking to maximise public well-being. The UK tax system does not meet that criteria at present, largely because of failure on the part of HMRC's senior management.
We need a radical overhaul of the management of the UK tax system if it is to be fair, transparent, accountable, open, accessible, and dedicated to creating equality within the UK because everyone is required to pay the taxes that they owe.
The summary of this chapter, which is of 33 pages in total, is noted below. A PDF version of the whole chapter is available here.
A copy of this chapter will be sent to the Public Accounts Committee.
Brief Summary
This note suggests that:
- HM Revenue & Customs governance structures are no longer fit for purpose. They are based on the ethos of a public company and are focused almost entirely on meeting the needs of large companies and the wealthy. Both sectors are well represented amongst its non-executive directors; no other group in society is. That is no longer acceptable.
- HM Revenue & Customs has for too long emphasised cost control as its focus of concern rather than serving taxpayers or raising all the revenue owed to it. This has been inappropriate and has prevented the creation of a tax system suited to the needs of society in the UK.
- HM Revenue & Customs’ drive to reduce the cost of collection of tax in the UK has largely failed but has as a consequence:
- Seriously reduced the quality of service that it supplies to taxpayers in the UK, with the quality of everything, from face-to-face services to the answering of telephone calls, to the time taken to reply to letters, all deteriorating significantly leaving many taxpayers without any of the help that they need to pay the right amount of tax that they owe.
- Seriously reduced the number of staff at HM Revenue & Customs.
- Reduced the average real pay of staff at HM Revenue & Customs.
- Considerably reduced the number of tax investigations undertaken each year.
- Lost control of some major parts of the tax gap, which is the difference between the tax that should be paid and the tax that is actually paid in a year.
- Tax gap measurement has been used by HM Revenue & Customs’ management as the indicator of its success, but as has been explored in other parts of the Taxing Wealth Report 2024, the claims made with regard to the tax gap in general are open to question.
- One of the two tax gaps where it is very apparent that matters have got out of control is that for small companies, where around 30 per cent of corporation taxes owing now go unpaid each year, which is way in excess of any reasonable level of loss. The likely annual cost of this loss is now £5.9 billion per annum.
- Another tax gap that is likely to be out of control is that for the 5 million small businesses that pay their taxes via the income tax system. HMRC say this tax gap has fallen from around 32.5 per cent of these taxes owing going unpaid in 2014 to only 18.5 per cent being unpaid now. They have not, however, provided any convincing reason for this improvement in taxpayer compliance, which is not matched by improvements in equivalent rates for small companies or in the overall rate of timely tax return submission, half of which returns come from self-employed business owners. The claimed current rate of loss is unlikely to be realistic in that case and an excess loss of maybe £3.4 billion is likely to arise as a result in this area, largely because HMRC has withdrawn from local tax offices that previously supported these taxpayers and from active monitoring of their onsite activities through their now largely abandoned programme of business compliance visits.
- In combination, the losses from just these two tax gaps amount to maybe £9.3 billion and can be attributed to HM Revenue & Customs mismanagement of its activities in the community, whether that be through maintaining local offices where face-to-face help is available or by visiting businesses at their own premises.
- It also seems that HM Revenue & Customs’ claims for the benefits of its Making Tax Digital programme seem to be seriously overstated, which is a fact repeatedly noted by the House of Commons Public Accounts Committee. The costs of creating this programme appear to be out of control. The costs it imposes on business taxpayers are excessive. Worst of all, it is likely to alienate millions of people from the tax system and most likely increase the tax gap as a result, rather than reduce it. It also makes the UK a significantly worse place in which to run a business, which is likely to impose serious costs on society at large.
- As a result, this report recommends that:
- That HMRC reforms its governance structures and objectives.
- HMRC restore its local office help centre presence in towns and cities across the UK, and widely advertise the availability of this support service.
- HMRC’s should restore its programme of site visits of businesses to monitor their tax compliance to cover checking both PAYE and VAT records.
- HMRC should stop the rollout of its Making Tax Digital programme so that no business that is not VAT registered will never be enrolled in this programme.
- The cost of restoring these services will be very much less than the sums that might be raised by reducing the two gaps that have been noted to reasonable levels (i.e. those that were maintained during periods when HMRC was better resourced in the past), but since some of those sums capable of recovery have already been noted elsewhere in the Taxing Wealth Report 2024 no additional account of such recovery is made here. That said, because other tax gaps would also undoubtedly improve if HM Revenue & Customs were to re-establish its presence in UK towns and cities the likely cost of this programme – which might be £1 billion a year, or twenty per cent of the current cost of running HMRC - is not taken into account either. Nor is the likely significant gain from reducing taxpayer strain taken into consideration, or the gain from making the UK a more tax-friendly environment, to which considerable harm has been done since 2010.
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HMRC have deliberately taken tax collection out of our communities and the price that we are paying for that is very high
I am continuing to work on data from HM Revenue & Customs on its accounts, the tax gap and other issues related to its management of the UK's tax system.
When doing so, I created this chart based on data in section five of the data files on the 2023 tax gap report, downloadable from the HMRC website:
The tax gap is the difference between the tax that HMRC think should be collected each year and they amount that they actually get.
As will be apparent, since I and others began work on tax justice the large company corporation tax gap has fallen from about 8 per cent of revenues to around 2 per cent of revenues. There are, of course, issues I would disagree with on both estimates, but that this trend is correct is, I am sure, correct.
We brought pressure to bear on the government on the large company tax gap from 2005. I created country-by-country reporting that is now in use in about 80 countries, including the UK, to tackle this issue. Large company tax abuse is no longer the issue it was. Investing further effort in it is no longer a priority in the UK and many other countries. It really is time that the current misguided tax justice movement took note: they are barking up the wrong tree when this is just about the only issue that they are still willing to talk about.
The chart does, in itself, prove why. The small business tax gap has gone through the roof. As a proportion of the total UK corporate tax gap it has changed like this:
Small company non-payment of tax is now the issue in the UK corporate tax arena. HM Revenue & Customs do, I think, still seriously underestimate this tax gap and its ramifications by suggesting that it might be £8.4 billion a year. The large business tax gap is, in their estimate, just ten per cent of that.
But the question is, why is this? I am musing on there being one very obvious cause. Look at the inflexion point in the top chart. It is 2011/12. That is when HM Revenue & Customs began to close local tax offices, end on-site PAYE inspection, and, most especially, began the process of ending almost all on-site VAT inspections of small businesses.
If VAT is not paid, sales go unrecorded. If sales go unrecorded, so too does profit. So, too, incidentally, does PAYE on the money illicitly taken from the companies involved. The small business corporation tax losses since 2012 arising as a result might have amounted to £25 billion in my estimate. The other losses will have exceeded that sum, easily. And that is all because HMRC tried to save £1 billion, maybe, a year.
We are paying an enormous price for HM Revenue & Customs mismanagement in that case. They took HM Revenue & Customs out of the community and the price we are paying for that is very high.