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That’s Rich

By DeusExMacintosh

George Osborne 'shocked' by rich tax dodgers

Chancellor George Osborne says he is “shocked” that some of the UK’s richest people have organised their finances so that they pay virtually no income tax.

The Daily Telegraph reported that a study by HM Revenue and Customs showed the very rich had reduced their average income tax rate to just 10%. George Osborne said it was not right that the richest could legally arrange their tax affairs in such a way.

But Labour accused him of “synthetic shock”, having cut the top tax rate.

He said he would take “further action” but did not outline any new proposals.

HM Revenue and Customs provided the chancellor with “anonymised copies” of the confidential tax returns submitted to the organisation by the UK’s wealthiest people, the Telegraph reported.

He was not given the details of the individuals involved, but he said the returns he had seen had shown him the 20 biggest tax avoiders had legally reduced their income tax bills by a total of £145m in a year.

He told the newspaper: “I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs – and to be fair it’s within the tax laws – so that they were regularly paying virtually no income tax. And I don’t think that’s right.”

“I’m talking about people right at the top. I’m talking about people with incomes of many millions of pounds a year.

“The general principle is that people should pay income tax and that includes people with the highest incomes,” Mr Osborne added.

- BBC News

Whereas millionaire trustafarian George Osborne has only engineered his own financial affairs to avoid straying into the top tax-band – in effect, generously submitting his large ministerial salary to full taxation rather than his property portfolio and multi-million pound inheritance from the Osborne & Little decorating empire.

I think The Guardian is right – we should arrest the usual suspects

12 Comments

  1. Patrick
    Posted April 11, 2012 at 5:10 am | Permalink

    Only if you mean to start with sanctimonious pricks like Warren Buffett.

  2. Posted April 11, 2012 at 7:11 am | Permalink

    Scrap deductions.

    Ok, fine, then lower the top, nay ALL rates. People can take responsibility for where they spend it, and a system which allows spending on tax advice to be written off, but not spending on suits, public transport etc that is also wholly directed to the purpose of earning taxable income, is skewed and unfair.

    Use rebates if you really want to engineer investment in certain things, but keep the list small.

    There, lefty meets libertarians in the middle. These are the views I formed after a year studying tax law and I haven’t seen anything to budge them in the past 12 years. Oh while I’m ranting simplification is key to reducing avoidance/minimisation, as with the butchered mess that is social security law in the UK and Australia, removing the hundreds of little political add ons and making it as simple as possible makes it cheaper and easier to understand, follow, and administer.

    There. Coffee time.

  3. Posted April 11, 2012 at 8:44 am | Permalink

    The Australian tax system is far more coherent and fair than that in the UK (which is a giant, toxic, psychotic monstrosity that amounts to an attempt by both sides of politics to engineer their enemies into taxation disadvantage).

    This monstrosity produces the most remarkable desire to come up with canny tax avoidance schemes I have seen. I already know how to do several of them (tax administration in Scotland, with one or two exceptions, is mainly done by lawyers; in England it is accountants, with the exception of inheritance tax, which is handled by lawyers on both sides of the border).

    Osborne is actually being rather ‘good’ in UK terms, in that he isn’t avoiding tax on his ministerial income (the reason he’s still paying tax in the second top band; the highest is currently 50 p/£). I suspect he is only doing this because he is in the public eye; an unknown individual could indeed reduce their tax liability to about 10% of income, if they were willing to pay the lawyers’/accountants’ fees — the main offputting factor, which is why many moderately wealthy people (earning approx £150,000) don’t bother with the rigmarole. The fees are about the same as the tax bill to HMRC.

    Very wealthy people have a choice, as JK Rowling discovered (the original article has vanished behind the Times paywall, but the relevant par is quoted in this link):

    http://crookedtimber.org/2010/04/14/j-k-rowling-on-welfare-and-patriotism/

  4. kvd
    Posted April 11, 2012 at 1:34 pm | Permalink

    SL@3 tax avoidance is wrong; tax minimisation is fine. One of the many times I agreed with Kerry Packer, and I don’t think it helps to conflate the two.

    armagny refers to it, but the real difference between the wealthy and the not is that the wealthy are defending what they’ve already received, rather than asking for some small amount back by way of deduction. In terms of fairness and strategy that is not a small difference.

    And do please bear in mind that Div X Part C Section Y subsection aaa3 was introduced by one set of very clever lawyers to negate the efforts of another, equally determined, bunch.

  5. Posted April 11, 2012 at 1:34 pm | Permalink

    SL@3

    The Australian tax system is far more coherent and fair than that in the UK

    OMG

    Australians have one of the highest rates of using accountants for taxes in the developed world because of the complexity of our system. (As a small businessperson, having the ATO be completely unable to tell you your tax liability is a tad annoying–you are stuck with suck it and see. Can we think of anything else that is like that?)

    So the UK system must be truly awful.

  6. Posted April 11, 2012 at 1:35 pm | Permalink

    And what A@2 said.

  7. Ripples
    Posted April 11, 2012 at 3:06 pm | Permalink

    I will second Lorenzo’s OMG @5

    I admit I am essentially a coward and can be found rocking and sucking my thumb in the corner when tax is even mentioned around the office.
    I do rather enjoy negotiating with the ATO though as they tend to take no prisoners.

  8. Patrick
    Posted April 11, 2012 at 6:28 pm | Permalink

    Armagny is certainly right that the key to minimising minimisation is simplification. The other part is lower rates.

    But as is often observed complexity is the price we pay for fairness. After all, if I earnt revenue as a tradie of $550k but incurred expenses of $350k on materials and hired help, you would probably not expect me to pay the same amount of tax as someone who earned $550k in wages but only incurred expenses of $5k in ‘earning’ that wage, would you? The tradie might literally struggle to feed, shelter and clothe a family if so, while the wage-earning lawyer makes out like a bandit – I’m fairly confident this would not be a popular outcome!

    So deductions, it would seem, are definitely in, and it falls only to define which ones ;)

  9. Posted April 11, 2012 at 6:32 pm | Permalink

    My tax tutor here praises Australia’s system mainly for the following reasons:

    1. Less churn

    2. No IHT

    3. Lower rates

    4. Complicated but fundamentally sane CGT rules (in the UK you can finish up paying tax on a capital loss, which I find staggering).

    kvd: the UK version of Packer’s quip is that tax evasion is wrong, but tax avoidance is legal. Although the Blair government, according to my tax tutor, nearly wrecked this — previously — clear understanding, with the result that no-one knows where they stand and the Coalition (mainly Vince Cable, to be fair) are having to do do a lot of very careful repatching of the 5 volumes x 3000+ pages each printed on Bible paper UK tax legislation in order to make the distinction clear again.

    [I should note that the UK has no history of Labour governments being competent economic managers -- there is no cultural memory analogous to the Hawke/Keating government, for example].

  10. Posted April 11, 2012 at 9:38 pm | Permalink

    Only if you mean to start with sanctimonious pricks like Warren Buffett.

    Oi, lay off my hero, Patrick! He’s managed to keep a sense of humour and not take himself too seriously despite reaching billionaire status. If only more business leaders could be like that. I don’t think saying rich people should pay more tax is sanctimonious, he’s just pointing out that paying lower rates of tax than his receptionist not only looks unfair but *IS* unfair.

    Most other business leaders would scrabble around for arguments to justify the difference, proving that they’re worth more than the receptionist (usually to their own business but often to the wider economy once you’re into seven figure status). Sorry, the Loreal-line is just bunk. By and large, they’re NOT worth it…

  11. Patrick
    Posted April 12, 2012 at 6:22 am | Permalink

    I’m not sure any of that is really the case DEM.

    As an aside, most CEOs are worth much more to their companies than their PAs even if solely by virtue of their power as CEO. It’s the same principle which results in the world’s best left-backs being paid less than a middling striker in the same team.

    On Buffet, he is being sanctimonious because, amongst other things, his own companies treat tax, very sensibly, as an expense to be avoided wherever possible. He was in the same position criticising derivatives whilst making money writing them!

    Also, he could pay much more tax if he wanted to realise his income in the form of dividends instead of capital gains – he doesn’t, in part because, oh, that’s right, capital gains attract a lower rate of tax.

    Thirdly, he is essentially a Democrat sideshow – nothing in any ‘Buffet plan’ has much to do with fixing America’s tax system. Rather, it is a convenient distraction for Democrats hell-bent on not fixing anything. He’s smart enough to know this, too.

    Finally, if you couldn’t maintain a sense of humour as a billionaire you’d really have a problem!

  12. Posted April 12, 2012 at 10:57 am | Permalink

    DEM:

    prefer:

    round up the usual suspects.”

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