Two tax stories have dominated the news this week.
Let’s start with a developing tax scandal. This is an unusual tax scandal as it seems that the UK Government has gone out of its way to help a small number of highly paid people, people working for the UK Government, to pay less tax. I shall try and ignore the urge to say it was ever thus.
Last week I wrote about how the Chief Executive of the Student Loan Company has his salary of £182,000 paid via a company and without tax being deducted. This arrangement allowed Ed Lester to pay corporation tax of 21% rather than up to 50% income tax on his earnings. It also transpired that officials from both HMRC and HM Treasury were aware, and even formally approved, the arrangement.
The Guardian reported today that the same tax arrangement has been approved for 25 of the most senior staff at the UK Department of Health. The Guardian’s article can be found here. As the Guardian says in its article in relation to last week’s Student Loans Company revelation: “At the time it was presented as a rare practice.” Surprisingly, note the sarcasm, it was not. Great work by the Guardian again.
Does this matter? Yes it does. Am I surprised that the present and past UK Governments thought this was acceptable? No. Is this a one-off example of Government hypocrisy. No. The UK Government regularly lectures all and sundry on tax avoidance and evasion. Earlier blogs have commented on HMRC’s dealings with Goldman Sachs and Vodafone. A few years ago it was discovered that HMRC transferred ownership of its own property portfolio offshore to save tax. Now it transpires HMRC and HM Treasury have approved dozens of tax saving arrangements for highly paid officials.
Is this a scandal? Yes it is. Will anyone be held accountable? I suspect not. Is Danny Alexander, Chief Secretary to the Treasury, or Andrew Lansley UK Health Secretary, thinking about returning to the back benches? Probably not. Although Andrew Lansley does have other problems to deal with just now. Will the officials blame the politicians? Probably. Will the politicians say they did not know. Probably. The more everything changes the more everything stays the same.
Three questions need to be asked and answered as soon as possible:
1. When did this start?
2. Who approved these arrangements?
3. What is the total loss to the taxpayer?
I will no doubt come back to this issue.
Now to Glasgow Rangers FC. Glasgow Rangers has effectively been forced into administration by HMRC. HMRC is trying to recover at least £49m in tax and penalties resulting from Rangers use of employment benefit trusts to pay some of its players. The final cost could be £75m. There is also a dispute over £9m of PAYE and VAT following the takeover of the club in May 2011. It also seems Glasgow Rangers are not alone. Several English clubs are also in serious tax trouble.
I am glad that a number of commentators have noted that there may be a cost to the general public here. If the tax is owed and is not paid then the Government either raises taxation, borrows even more or cuts public spending. Even in these times £75m is a huge figure. Again this is a story that is going to run and run. The tax Tribunal that is dealing with the employment benefit trust issue is likely to announce its decision in the next few weeks. It will be fascinating to see what if any comment is made on the dealings between Glasgow Rangers and HMRC to date.
I also noticed with interest this week that Hearts announced that they had now paid in full an outstanding tax bill that threatened their existence.
One final point on these matters. Scotland is likely to have its own Exchequer in the next few years no matter what happens in 2014. This gives us an opportunity to think about the tax system we want. That is a matter I will no doubt keep coming back to.
Now to more mundane matters.
The battle between Eric Pickles, UK Communities and Local Government Secretary, continues unabated. It is reported that at least 26 English councils intend to defy the UK Government’s proposed council tax freeze.
Now to some good news. HMRC has temporarily scrapped its Business Records Checks project under which it planned to visit small businesses and fine them if their cash accounts were not up to date. HMRC has said it will consult again before resurrecting this idea. More information on this can be found here.
Now to the news that a number of bankers have been arrested in a tax fraud investigation. The arrests include four current employees and one former employee of the Royal Bank of Scotland. HMRC said the arrests concerned the financial affairs of the individuals and were not related to their work for the bank. The background to this is an HMRC investigation into tax fraud through investments in UK film partnerships. A BBC news website article on this can be found here.
Now to the land of the free and how tax is dominating the never ending US presidential campaign. Both the leading candidates for the Republican nomination, Newt Gingrich and Mitt Romney, say that they will abolish estate tax and freeze the top rate of income tax at 35 per cent. Newt Gingrich is also proposing that each taxpayer can opt for a flat 15 per cent income tax to replace all other taxes. In response President Obama has proposed to raise taxes on the “wealthy” in his 2013 budget. Obama’s proposal includes $1.5 trillion (£950bn) in new taxes. The majority of this arises from allowing Bush-era tax cuts to expire. Obama is also calling for a “Warren Buffett” type plan tax hike on millionaires. It seems that there is going to be a clear choice as far as taxation policy is concerned for the American people come November.
A brief mention of the fiscal powers debate. David Cameron can surely do better than offering the possibility of unspecified greater fiscal powers if there is a “no” vote in 2014. Also what does the fact that the Scotland Bill was barely mentioned tell us? More on this next week.
Finally some good news for all of us who watched and supported Scotland over the last two weekends. The Six Nations takes a break this weekend.
Have a good weekend.
