Be responsible and pay your tax

Last Spring I wrote a piece entitled “Render unto Caesar...” which pretty much sets out my view concerning tax avoidance and those who are reluctant to pay tax. For the record I reiterate that I have no objection to people taking sensible uncomplicated steps to pay less tax. That is no different from choosing to fill your car with petrol, diesel or gas at a particular establishment which charges a little less than the one down the road. Daily essentials everyone buys on price because the value is the same. Complicated and artificial tax avoidance schemes really have no place in a responsible society.

There is a moral case to pay a fair share of tax. We may not like a particular Government but we all use the infrastructure, the roads, education, the health service and so on, and we should cough up according to our fair share. There are occasional refuseniks who choose to withhold a portion e.g. of their perceived share of the defence budget, quoting moral grounds, and they may at least appear principled if foolhardy in making a futile stand against the system, though at least gaining publicity for their cause.

What really gets my goat is those who dodge the system, take cash so that it does not go through their books and appear in their accounts (“save the VAT, mate?”) and those who fiddle in other ways, such as inflating their business expenses. None of these people are clients of us professional practitioners of course, because if we sign them up they are in the system they wish to avoid, and subject to our scrutiny.

Just the same, it is certain that there are still many tax dodgers and if any are reading this, let me tell you that if you have dodged £5,000 of tax you have stolen it from the Government and from us taxpayers and it is no different from stealing £5,000 from the state-owned Post Office. The punishment on getting caught may not be the same, but perhaps it should be? It is money taken from our back pockets.

The financial penalties for tax evasion have been raised subject to various targeted initiatives in particular areas. Should we see more custodial sentences? How can more dishonest tax evaders be caught given the limited resources of HMRC? What do you think?

© Jon Stow 2010

HMRC tackles the medical profession with the Tax Health Plan

We professionals in the tax business are fond of offering tax health checks to prospective clients, but now we should be offering health checks to medical professionals, who are the target of HMRC's latest campaign to collect tax from perceived miscreants. I am sure the Revenue is not suggesting that all in the health business are into dodgy dealing and falsifying their tax returns, but presumably there must be a supposition that “extras” such as giving references to patients, signing passport applications and getting payments from pharmaceutical companies slip through into doctors' pockets unnoticed by their accountants or tax advisers. Those targeted who have something to report must notify their intention to do so by 31st March 2010 and have until 30th June 2010 to have made the disclosure and arranged to pay any tax that is due.

Given that we have had two opportunities for people to disclose their offshore bank accounts and we have the ongoing Liechtenstein Disclosure Facility, the HMRC tactic is simply to concentrate the minds of a particular group of taxpayers. I doubt that doctors are any worse or any better than many other trades or professions. I assume this must be the first of many initiatives targeting various sections of the business community.

Who will be next on the list? Pharmacists? Tyre fitters? Plumbers? Wheel-tappers and shunters? Accountants and allied professions? It is a novel idea to put each sector under the microscope, but it will take an awfully long time to get through the list. I hope HMRC gets some tax dodgers to confess, but doubt the tax take will be significant from each campaign, especially given the disappointing response to the recently closed second campaign on offshore accounts.

© Jon Stow 2010


Details of the HMRC Tax Health Plan

A tax practitioner's view of the economy - why we have reason to be worried

Dealing as I do with the nitty-gritty results of small business owners' efforts, I am puzzled by some of the predictions for the economic recovery and in relation to the recent short term sales figures of certain more successful stores, notably John Lewis, Marks and Spencer, and House of Fraser.
 
My perception is that service businesses have had a very poor year, and it is perhaps poorer in 2009-10 than for the 2008-09 period to March last year.
 
I believe there is a huge gap between the self-employed (and I include micro businesses operating through companies) and those still in employment, living on at least the same salary or wage that they have had previously. The latter group has benefited from slight deflation and the desperation of the stores to shift goods at smaller margins, but I believe principally because the crash in interest rates has given employees with mortgages extra cash to spend. I remember from childhood the game we used to play, calling out "I am on Tom Tiddler's ground". Those still waged or salaried with lower household costs are spending what used to be the mortgage money at the sales, rather than saving it for a rainy day as many of us might think they should. They are in the privileged if uncertain position of Tom Tiddler's ground. Saving is bound to be rather discouraged also because of the lower interest rates, but people have forgotten how to be prudent and save.
 
I worry that the whole effect of a 0.5% bank rate is to distort the true economy (understandably in many ways) but means that many more chickens are likely to come home to roost as small business struggles along, the jobs market contracts on some of the current big spenders, and the tax hikes bite after the election. The latter will come, no matter who is in Government. Thus the double-dip graph of the nation's economic forecast - a "W" - seems the most likely scenario with little sustained improvement for two or three years.
 
That is how it seems on the ground as a small business owner looking after other small business owners, and I wish it were different.
 
© Jon Stow 2010
 

Business, Small business, House of Fraser, Employment, John Lewis, Money, Economy, Marks & Spencer, interest rates, double-dip, taxation, hike, tax increase

More on catching the tax dodgers

It was announced last month that HMRC's New Disclosure Opportunity deadline for those with undeclared offshore assets to come clean has been extended from 30th November 2009 to 4th January 2010. This is no doubt because rather fewer delinquent “customers” have come forward than Permanent Secretary for Tax Dave Hartnett hoped, despite the prospect of much more serious penalties for those who are caught or come forward later.

HMRC has also revamped its process for receiving anonymous tip-offs concerning tax evaders, details of which are here. To be truly anonymous, one would suppose that many would baulk at filling in an on-line form, given that web masters can generally see the IP address of whoever logs in to a web page; that is if they really want to. Similar identification issues would deter people from sending faxes.

I have a vision of the other choices:

1.Telephoning the 0800 number, remembering to withhold the caller's number, and then speaking in a hoarse whisper to drop the malefactor in it.
2.Sending an anonymous missive either with letters cut out of newspapers and stuck on to another sheet of paper, or longhand notes in purple or green ink, signed “Well-wisher” or “Bystander”.

The mind boggles, or at least mine does, but that may be the effect of Christmas being nearly upon us and my having done far too many Tax Returns for my own good.

© Jon Stow 2009

Fairer and more reasonable - equitable liability survives

Not all was bad news in the Pre-Budget Report. I wrote in September about HM Revenue & Customs' intention to abolish the practice of Equitable Liability. I said that if HMRC thought they did not have a legal basis for this discretionary power then legislation could correct this. Mr. Darling is to introduce just such a measure.

I think this is a rare victory for the taxpayer and I congratulate Keith Gordon for his campaign and petition which I feel must have contributed to this change of heart.

Dodging the Excise Men – encouraging a tax evasion society

In my business we frown upon tax evasion. It is our duty to uphold the law through helping our clients in their self assessment of their income, profits and their company accounts. We have to tread a firmer line than Joe or Jo Public, though unrepresented taxpayers may make mistakes in the Revenue's favour as well as their own. It is my experience that they do.

This week we have seen further hikes in taxation, principally through National Insurance and more obviously the return to 17.5% VAT. Personal Allowances are frozen for next year, so there will be some increase in the tax take through fiscal drag if there is any inflation in the interim. We will have to see. The Government has to balance the books having borrowed and spent so much on the banks and on the reduction in VAT this past year, the latter with no perceivable effect on the economy as many of us predicted in November 2008. It has to be paid for, and the full horror of the eventual deficit has yet to be revealed, and will only be known after the election next May, when either the Tories will be biting the bullet amidst squeals, or New (Old) Labour will have to come clean.

In the past, the higher the level of taxation, the less actual tax take. The lower the rates, the higher the honesty level and the better the tax take. This was seen notably in the tax-cutting eighties in the UK and especially under Reaganomics in America when the IRS profited greatly from lower rates of taxation.

People are going to be much less willing to pay their legal dues and HM Revenue & Customs do not have the resources to enforce payment through more investigation. I am not sure they even have enough resources (people) good enough to deal with the Liechtenstein Disclosure Facility. If you want a steady flow of anything including tax, you need a reliable channel. If you hike up tax, especially with HMRC's technical staff pared to the bone it is like trying to collect rainwater in a cup. In a deluge your cup will overflow. Most of it will escape. You need a measured channel and that means a more prosperous economy with a population willing to pay tax rather than driving more people into dishonesty to feed their families.

I think we will inevitably see a return to more dodgy dealing, and it will become popular like the public support for smugglers against the Excise Men in the eighteenth and nineteenth centuries. You will get more questions in shops such as “Do you want a receipt because I will have to charge VAT? Can you give me cash?.” and we know into whose back pocket those notes will go. The trouble is the tax which should have been paid by the trader will be coming out of your and my back pockets instead. How can we have got back to the bad old days?

© Jon Stow 2009


References

Smugglers and Excise Men
Liechtenstein Disclosure Facility

Quasi prospects, time-wasters and an experiment in human nature

Sometimes we know what is going to happen but we just carry on anyway to see if we are right, even if we get nothing out of it except the satisfaction of being prescient. So it was the other night when events unfolded as expected.

It began with a telephone call from the wife of a former client whom I had dug out of a big hole he had got himself into. She said she was starting a business and was worried about tax issues. Could I visit her? “The initial consultation is free isn’t it?” I already knew how the cards would fall as I confirmed there was no charge for the first meeting. “How much will you charge for my tax return and accounts?" I told her a figure if her records were in good order.

My caller then asked for an evening meeting not before 7:30 to 8 and only on certain days; very inconvenient for me, but I do normally try to accommodate people. I ended up seeing her after a long day with other clients and frankly wishing I could put my feet up.

I had a long discussion with her about this and that. I did not give too much away in terms of free tax advice (I am not that daft) but did give a fair number of tips about starting in business, networking, and recommendations for SEO experts (mentioned Nikki Pilkington) and was generally helpful. She then asked me how she should keep her accounting records for me, on which of course I advised her.

She then asked me whether I could reduce my quote given on the telephone as she did not have much money yet (she had spent four times as much as she needed to on a new computer). I said that my figure was very reasonable for my excellent service. She then said that she would try to do her first accounts and return herself and thanked me for my time. I was able to make a joke as I left, because after all, I was only acting in a play and knew how it would end.

One puzzle is that I do not understand why people cannot see obvious value in good services whilst overspending on shiny gadgets they do not need. However, the real mystery is how people who have no intention of buying deliberately try to suck what they can from those around them without any intention of giving anything in return.

I had put myself out to attend the meeting just to see if my instincts were still on the button but I will avoid getting myself into the same situation anytime soon as it will spoil my average. Normally I only have warm leads anyway but I count this as only about the third time I had failed to “close” a tax client in half a dozen years. It was worth the time cost, though, in terms of this experiment in human nature.

© Jon Stow 2009