The national insurance bill, published this month, seems like a win-win
situation for the government, squeezing much-needed revenue for the Treasury
coffers from those poor City types who attempt to shield their six-figure
bonuses from the taxman. An open and shut case surely?
But not far beneath the surface of this seemingly innocuous piece of
legislation lies another example of the government’s increasing fondness for
retrospection, seen before with the pre-owned assets legislation.
As things stand, national insurance liabilities can only be charged on
particular transactions from the date that the regulations are brought in. The
purpose of the new NI bill is to allow retrospection – any schemes used since 2
December 2004 may be brought within the NIC net. This complements the income tax
provisions brought in under the second Finance Act 2005.
By imposing retrospective tax provisions, the government is asking us to
trust them to act objectively and fairly at all times. This is tantamount to
saying: ‘We’ll only do this when we know it is right.’ But can we really trust
Well, this is a chancellor who talks about people paying the ‘right amount of
tax’ – a completely nebulous concept designed to suit the needs of the
government rather than the taxpayer. This, combined with retrospection, sets a
dangerous precedent. It is well documented that the chancellor’s budget figures
are starting to look shaky. So will he be able to draw the line between the need
for fairness with growing pressures to balance the books?
I am uncomfortable with a government that is so quick to shift the goalposts
and penalise people for something that at the time was legal. In recent history,
this route of retrospection has been used to bring war criminals to trial. I
think we can all agree that city slickers failing to ‘pay the right amount of
tax’ are in a completely different league.
The government will no doubt claim victory against excess, but I would
question its right to take the moral high ground.
Nigel May is tax principal at MacIntyre Hudson LLP
Avoision hurts the economy
There is a fundamental misconception of tax avoidance as it relates to the
creation of tax structures. Those structures, which stimulate business both at
home and abroad, clearly maximise economic growth.
Therefore tax advice that assists in minimising foreign taxes to maximise
returns to the UK is unlikely to attract condemnation.However, there are
structures that are created subsequent to income and gains having been earned,
whose sole function is to avoid paying legitimate tax bills. These should quite
rightly be the target of HM Revenue & Customs.
It has been clear since the disclosure rules were announced last year that
reforms to tackle tax avoidance are becoming more draconian, and that they are
likely to be retrospective in nature. Any persons involved in ‘immoral’ schemes
should be reminded of the fundamental difference explained above; tax avoidance
should encourage investment, not take money from the public purse.
A basic economic theory promulgated in the depressed 1930s was that savings
equals investments. The more one saves, the more investment activity is created
and therefore the more an economy can grow.
We have often seen how a reduction in taxes stimulates entrepreneurial
activity, and is therefore good for the UK economy if it increases the amount of
potential investment. But this should be distinguished from people shirking
their UK tax responsibilities, as this inevitably leads to the rest of us being
forced to pay more to support the state, hence reducing the amount we have to
invest in growing the UK economy.
It is pivotal to remember that tax avoidance of liabilities to income
actually earned must be differentiated from mitigating tax liabilities (whether
UK or foreign) on business ventures just about to be undertaken.
Not all tax avoidance is detrimental to the UK economy and the individuals
who thrive on its success, but the national insurance contributions bill is a
step in the right direction to remove immoral tax structures that do not benefit
Roy Saunders is chairman of International Fiscal Services
Does Darwin's theory apply to taxation? Colin ponders...
The UK tax gap fell in 2014-15 to its lowest-ever level of 6.5%, revealed official statistics published today
Changes to the tax system is urged to support the growth of entrepreneurs, found a report from the Grant Thornton UK, the Institute of Directors, and the Prelude Group
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states