14 February, 2015

Tax, when to pay

Possibly to Ed Milliband's annoyance, the people seem to be getting bored or confused or both on this business of tax avoidance.

Rather than spread malicious feeling about rich people (Stanley, now Lord, Fink was a commidities trader who was posted to Geneva by his company and opened an account with the Geneva branch of the bank he used in England) Mr Milliband needs some definition.

Tax evasion, we know, is illegal. The reason people haven't been prosecuted is that the tax office set up a scheme where you could pay a fine. Prosecution is expensive and time consuming - you have to prove the person knew what he was doing was illegal, which lets off someone who has just joined a scheme he was advised was OK. The fine gets the money back but lets the guilty off.

Tax avoidance, by contrast is perfectly legal. If you work for yourself and in a good year put a bit more into your pension, you are avoiding tax. Also if you give money to charity. As Stanley Fink put it 'everyone does it'.

What Milliband needs is to define something which is between these two.

It is possible to tighten up the definition of schemes which do nothing except save tax. But these can already be outlawed and the law is allowed to 'pierce the veil' behind foreign companies and trusts to determine their real purpose. There is something you can do here but not much.

Milliband's best shot would be to undertake to prosecute anyone above a certain amount of evasion. But this would be expensive, both in the costs of prosecution and in the loss of what can be clawed back from the penitent. Also it would require a lot more staff at HMRC.

Perhaps smearing the rich and successful is his best option.


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