Tax avoidance isn't a left or right issue, it's a cancer eating our democracy

Everything you need to know about tax.

I must confess, I am a tax-dodger. As I am a Tory, and you are a New Statesman reader, this may come as no surprise. My sin was grave - last night, on my way home from work I bought some biscuits on a two for one deal, thus avoiding several pennies of VAT. We all avoid tax to a certain extent; many people pay accountants to reduce their tax bills - indeed, anti-tax crusader Richard Murphy has written articles advising people on how to minimise their tax liability.

However, it's clear that, despite the frantic attempts of assorted people to claim otherwise, there is no moral equivalence between cutting your bill by a few hundred pounds and offshoring your entire income to cut your tax by 99 per cent while chortling about it into a cigar. One is prudence; the other smacks of outrageous dishonesty, no matter how "legal and completely above board" it may technically be. However, the debate is massively clouded by where you personally draw the line between the two. To paraphrase Justice Potter Stuart, hard-core tax avoidance is hard to define, but we know it when we see it.

Of course, once you start looking into this issue, you realise there is a titanic gulf between what you can avoid as an ordinary citizen and what you can avoid as a millionaire. Equally, millionaires look with envy at the truly astounding skyscrapers of tax evasion (sorry, "avoidance") carried out by multinational corporations and billionaires.

However, this truly shocking behavior has been partially obscured by a huge smokescreen of partisan rumour and innuendo that activism & counter-activism has built up around the issue. For example, Philip Green is widely held to be the biggest tax villain of all time, whereas, in fact, by the standards of the super-rich, he's actually very scrupulous indeed. That, and other surprising facts about personal and business taxation, are what I'm going to break down in an attempt to shed some light on the topic.

Billionaires and Us

In 2006 (when figures were last available) James Dyson contributed the bulk of the income tax paid by the 54 billionaires then resident in the UK. Out of £14.7m paid by all 54, he contributed £9m. That's a whopping 61 per cent of the total tax take from billionaires. Current figures are not available, but it is widely agreed in the tax accounting community that JK Rowling and James Dyson are the only UK billionaires who pay a tax rate even remotely proportional to their income. So, on average, your grandma pays tax at a rate roughly 250 times that of the richest people in Britain.

But presumably, the HMRC goes after all these billionaire tax-evaders, right?

No. Mostly because there is a difference between the theoretically legal "avoidance" and the illegal "evasion".

However, even high end evasion is hardly seen as a priority. Over the last few years HMRC spent £633,000 on publicity around tackling high-end tax evasion, compared to £17.5m on publicity around tackling benefit fraud. By that crude measure, HMRC considers tackling benefit fraud about 27 times more important than tackling high end evasion.

When HMRC does go after tax avoiders and evaders, it often attacks low earners with irregular incomes - see this Guardian article for a typical but absolutely shocking case.

Ah, but Willard, what about all our consumption taxes - surely VAT on high-spenders is also not ignored - that does affect non-doms. If you spend £1.1m on a sports car from a swish Park Lane garage you'll pay more VAT than I'll pay income tax in a decade, right?

No.

Very few sports cars, yachts & £1m-pound plus mansions pay a penny of VAT or stamp duty. Indeed, flyers at the motor show, the boat show and so on occasionally boast of this fact. The way the tax is avoided is the cars/houses/yachts are transferred as assets to a paper company, the company directors value them at zero pounds (usually by applying depreciation over 10 years straight away), then the company is sold, usually for a token amount.

Many choose to buy their sports cars in the Emirates and have them flown in, because it saves money. They then fly them out before they would be due to pay any importation duty. This adds up and becomes irrational over time, but for some people, tax avoidance has become a competition to see how little you can pay; some would rather spend more money than give a penny to the government.

Millionaires and us

By setting up a limited company and taking a dividend as a shareholder rather than earnings, high earners are often taxed at a lower rate than any other employee. Once you are earning over around £60,000, your tax rate can drop sharply if you so choose.  Once you hit an income of about £150,000, paying tax at a higher rate than corporation tax becomes essentially optional, as the accountant is always cheaper than the tax bill.

The idea behind this is to encourage entrepreneurial activity, by compensating you for the risk involved in running a small business - but in fact it's just turned into a huge tax dodge. For example, almost all hedge fund managers pay a 10 per cent tax rate on their income; it's estimated there are 15,000 earning more than a million a year, but they pay a lower tax rate than their cleaners. This is due to income from private equity and hedge funds being classed as "carried interest", a change brought in by Gordon Brown in 2002. This is why the 50p tax rate is a charade - for most people it isn't a factor, as they don't technically earn income.

How did this happen?

The UK’s tax code is now the longest and most complex in the world, according to Lexis Nexis. This makes avoidance incredibly easy. And the UK tax code has become tremendously more complex since 1999.

The complete Tolley’s Tax Guide – the handbook of tax legislation – is now 11,520 pages long, more than double the 4,998 pages filled by the 1997 edition.

Reading it out loud would take over 120 hours. Assuming eight hours per day, that’s over fifteen working days or three weeks. And that’s just to read it, of course, at top speed – not to understand it. That would take more than a lifetime, especially given that hundreds (if not thousands) of new pages are added every single year.

This illustrates the tax system’s absurdity. Nobody understands it, not even HMRC or any individual accountant. You would need a team of dozens of professionals to start to be able to navigate it properly in its entirety. Ordinary people and employers don’t stand a chance.

The section on corporation tax alone is now 1,897 pages, 185 per cent longer than it was in 1999-2000. The income tax chapter is 1,801 pages, 54 per cent longer; the capital gains tax guide is 1,463 pages long, 70 per cent longer; the inheritance tax guide is 958 pages long, 63 per cent longer. With every revision of the rules, high level avoidance has become easier.

But really, what does this mean to me? I mean, I might do it if I was minted.

It does affect you, because the more money that leeches out of the state in avoidance, the more you have to pay. Britain's most affluent determine where most of their earnings go, while we ordinary taxpayers often pour a much larger chunk of our cash into the communal pot. Nicholas Shaxon puts it brilliantly in his book, Treasure Islands:

Imagine you are in a supermarket and you see well-dressed individuals passing through a special checkout. There is also a large item added to your bill, extra expenses, which subsidises their purchases. Sorry, says the Supermarket manager, if we didn't charge you more they would shop elsewhere. Now, pay up.

Frankie Boyle put it more succinctly on Twitter this morning:

If you're rich, don't look at it as tax avoidance, look at it as a children's hospital buying you a pool table.

Corporate Tax Avoidance

Corporate Tax Avoidance in the UK is scandalous. Let's just take one example - bananas

In 2006, Dole, Chiquita and Del Monte sold £350m worth of bananas in the UK. That's a lot of bananas, I'm sure you'll agree. On that £350,000,000 of turnover, they paid less than £235,000 in tax.

Why?

First off, you only pay tax on profits. This means that it's possible to structure your company so, on paper, you are making almost nothing. This is incredibly widespread. For example, according to the National Audit Office, one third of Britain's 700 top businesses paid no tax at all in 2007 - and bear in mind that was at the end of a seven-year long boom. Indeed, many were net recievers of government money.

For example, how much tax do you think Debenhams paid in 2007?

It received around £9m of taxpayers' money, and paid zero pounds, zero pence.

It did this by having a complex chain of ownership, structured to take account of "liabilities" which its owners control. So, it can always make a loss, because the private equity firms that own it can juggle the interest rate on the loans which it bought the firm with. Other firms do it by having chains of ownership which stretch all around the world, but many of which end up in the British Channel Islands - a sleepy archipelago with 90,000 inhabitants but 800,000 registered firms.

There are estimated to be 400,000 corporations registered in Jersey alone, and around a trillion pounds worth of assets, all untaxed by the UK. Some Jersey lawyers "sit" on the boards of over 500 companies to grant them these exceptions. Plenty of perfectly ordinary buildings in St Helier are "home" to hundreds of businesses. For example, the New Raj Tandoori St Helier is home to around 800 UK businesses; next door is an office block which "houses" defence giant BAE systems and 1,108 other firms.

Oh, that's what all this UK Uncut stuff if about, isn't it? Philip Green, Topshop and all that.

Actually, no. Topshop pays 140 times as much tax as Google, despite being a smaller and less profitable business.

Arcadia, Green's retail business, is one of the most highly taxed and responsible companies in the UK. It's paid £290m pounds in corporation tax since 2006, paying at full rate - it is scheduled to pay £80m this year.

Green's personal tax affairs (where he took a £1.5bn dividend and paid no tax due to his wife's residence in Monaco) are of course open to criticism, but he is on the record as saying he made a conscious choice to pay business tax, but not personal taxes. In fact, the UK's biggest tax avoider is internet search giant Google. The UK represents 28 per cent of Google's earnings and is Google's second biggest market after the US. However, in 2009, it paid only £600,000 in tax, on £1.25bn of UK income; an effective tax rate of 3.2 per cent.

Google's European arm has a huge base in London - it has thousands of UK employees and uses local services and infrastructure. However, it pays its tax through a convoluted chain of foreign dependencies known in the trade as "the double Irish", where profits are siphoned between Ireland and Holland to get this low rate. The reality is, the more tax that companies like Google avoid, the more the tax burden falls on the rest of the public.

But HMRC cracks down on this, right?

No. In fact, last year, HMRC spent the bulk of its investigation budget investigating 20,000 small firms, none of which had a turnover of over £2m, to make sure they had at least seven years of paperwork for their taxes, and prosecuting those who could not produce it. It is unknown how many small firms were bankrupted arguing these cases, but Tory MP Priti Patel estimates it to be in the hundreds.

But there's another problem...

If Topshop pays 140 times as much tax as Google, despite being a smaller and less profitable business, then that creates a huge business problem.

It creates a situation where there is a race to the bottom - a UK-based business that doesn't avoid tax will be far less profitable, and far less able to expand and invest than a competitor who is cheating. Thus, honest businesses are forced into the tax evasion game.

Of course, because of access to international tax havens, and ever more sophisticated means of avoiding tax, this means that globalised multinationals have a titanic advantage in terms of taxation over their domestic rivals, stifling innovation and competition even more.

In conclusion, this isn't a left-wing problem or a right-wing problem - it's a huge cancer eating at our democracy, our business community and our ability to pay down the deficit.

Our tax code is fundamentally broken, easily abused by the unscrupulous, and HMRC is absolutely not fit for purpose. These are crucial national problems that can't be swept under the rug with a wave of the hand and saying "well, I'd do it too if I had the money".

If, like me, you're a Tory, and even if you don't think much of the crusty jugglers of UK Uncut, the next time you look at a Google doodle, remember, some poor bloke slogging in the heat of Afghanistan would be better equipped if they actually paid the same rate of tax as your greengrocer.

This article draws heavily on facts and figures from Robert Peston's book 'Who Runs Britain?' and Nick Shaxon's 'Treasure Islands'. If you want the complications of Britain's tax nexus explained, I cannot recommend a better place to start. 

Update: this article was edited at 17.46 on 21 June 2012.

Police guard the entrance to HMRC during a demonstration against corporate tax avoidance in 2011. Photograph: Getty Images

Willard Foxton is a card-carrying Tory, and in his spare time a freelance television producer, who makes current affairs films for the BBC and Channel 4. Find him on Twitter as @WillardFoxton.

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Snakebites and body parts

The city at the edge of an apocalypse: a love letter to Los Angeles.

I was emailing with Kenneth Anger, the film-maker, when the coyotes across the street in Griffith Park started howling.

That’s partially true.

I was emailing him to ask if he’d direct a music video for me. Maybe Lucifer Rising 2.0. Or anything.

Just him in the kitchen making tea, as recorded on his iPhone.

Kenneth Anger is alive and well in Santa Monica, so why not ask him to direct a video for me? Hopefully, he’ll respond. We’ve never met, so I sent an email to him, not with him. That’s the partial truth.

But the coyotes did start howling.

It’s the single best sound in Los Angeles, or any city. Is there another city where you can email an 89-year-old devotee of Aleister Crowley while listening to a few dozen coyotes screaming and howling and ripping the night into little pieces?

No. Just here. This oddness by the sea and an inch from a billion acres of Arrakis.

I never thought I’d end up living in Los Angeles, but I’ve ended up living in Los Angeles. This dirtiest, strangest paradise.

Yesterday I went hiking in a two-million-acre state park that’s 30 minutes from my house. A state park bigger than all of New York City. And it’s 30 minutes away. With no people. Just bears and pumas and coyotes and snakes.

And other things. Abandoned bridges. An observatory where Albert Einstein used to go to watch space.

What a strange city.

A perfect city. Perfect for humans at the edge of this strangely unfolding apocalypse. A gentle apocalypse with trade winds and Santa Ana winds and the biannual vicious storm that rips eucalyptus trees up by their roots.

What a strange city. And it’s my home.

Today I hiked to the back of the Hollywood sign. This was before Kenneth Anger and the coyotes.

The tourists were dropping like flies on the long, hot mountain trail, not aware that this isn’t a city with the safe European ­infrastructure that keeps them happy
and/or alive.

Every now and then, a tourist dies in the hills, bitten by a snake or lost at night. The emergency rooms are full of tourists with snakebites and heatstroke.

Where are the European safeguards?

Fuck us if we need safeguards. Go live in a place like this gentle wasteland where you’re not at the top of the food chain. If you’re not in danger of being eaten at some point in the day, you’re probably not breathing right.

I hope Kenneth Anger writes back.

 

22 May

I drove some friends around my neighbourhood. They want to live here. Why wouldn’t they? Pee-wee Herman and Thom Yorke live up the street.

David Fincher lives a block away. It’s blocks and blocks of jasmine-scented name-
dropping.

It’s warm in the winter and it’s weird all year round.

And there’s a Frank Lloyd Wright that looks like a lunatic Mayan spaceship.

And there go the coyotes again, howling like adorable delegates of death.

They’re so smart, I wish they would make me their king.

You hate Los Angeles? Who cares? You made a mistake, you judged it like you’d judge a city. Where’s the centre?

There’s no centre. You want a centre? The centre cannot hold. Slouching towards Bethlehem. Things fall apart.

Amazing how many titles can come from one poem. What’s a gyre?

Yeats and Kenneth Anger and Aleister Crowley. All these patterns.

Then we had brunch in my art deco pine-tree-themed restaurant, which used to sell cars and now sells organic white tea and things.

The centre cannot hold. I still have no idea what a gyre is.

Maybe something Irish or Celtic.

It’s nice that they asked me to write this journal.

Things fall apart.

So you hate Los Angeles? Ha. It still loves you, like the sandy golden retriever it is. Tell me again how you hate the city loved by David Lynch and where David Bowie made his best album? Listen to LA Woman by the Doors and watch Lynch’s Lost Highway and read some Joan Didion – and maybe for fun watch Nightcrawler – and tell me again how you hate LA.

I fucking love this sprawling inchoate pile of everything.

Even at its worst, it’s hiding something baffling or remarkable.

Ironic that the city of the notoriously ­vapid is the city of deceiving appearance.

After brunch, we went hiking.

Am I a cliché? Yes. I hike. I do yoga. I’m a vegan. I even meditate. As far as clichés go, I prefer this to the hungover, cynical, ruined, sad, grey cliché I was a decade ago.

“You’re not going to live for ever.”

Of course not.

But why not have a few bouncy decades that otherwise would’ve been spent in a hospital or trailing an oxygen tank through a damp supermarket?

 

24 May

A friend said: “The last time I had sex, it was warm and sunny.”

Well, that’s helpful.

October? June? February?

No kidding, the coyotes are howling again. I still love them. Have you ever heard a pack of howling coyotes?

Imagine a gaggle of drunk college girls who also happened to be canine demons. Screaming with blood on their teeth.

It’s such a beautiful sound but it also kind of makes you want to hide in a closet.

No Kenneth Anger.

Maybe I’m spam.

Vegan spam.

Come on, Kenneth, just make a video for me, OK?

I’ll take anything.

Even three minutes of a plant on a radiator.

I just received the hardcover copy of my autobiography, Porcelain. And, like anyone, I skimmed the pictures. I’m so classy, eating an old sandwich in my underpants.

A friend’s dad had got an advance copy and was reading it. I had to issue the cautious caveat: “Well, I hope he’s not too freaked out by me dancing in my own semen while surrounded by a roomful of cross-dressing Stevie Nicks-es.”

If I ever have kids, I might have one simple rule. Or a few simple rules.

Dear future children of mine:

1) Don’t vote Republican.

2) Don’t get facial tattoos.

3) Don’t read my memoir.

I don’t need my currently unmade children to be reading about their dear dad during his brief foray into the world of professional dominatrixing, even if it was brief.

The first poem I loved was by Yeats: “When You Are Old”. I sent it to my high-school non-girlfriend. The girl I longed for, unrequitedly. I’m guessing I’m not the first person to have sent “When You Are Old” to an unrequited love.

Today the sky was so strangely clear. I mean, the sky is almost always clear. We live in a desert. But today it felt strangely clear, like something was missing. The sun felt magnified.

And then, at dusk, I noticed the gold light slanting through some oak trees and hitting the green sides of the mountains (they were green as we actually had rain over the winter). The wild flowers catch the slanting gold light and you wonder, this is a city? What the fuck is this baffling place?

I add the “fuck” for street cred. Or trail cred, as I’m probably hiking. As I’m a cliché.

You hike, or I hike, in the middle of a city of almost 20 million people and you’re alone. Just the crows and the spiralling hawks and the slanting gold light touching the oak trees and the soon-to-go-away
wild flowers.

The end of the world just feels closer here, but it’s nice, somehow. Maybe the actual end of the world won’t be so nice but the temporal proximity can be OK. In the slanting gold light. You have to see it, the canyons in shadow and the tops of the hills in one last soft glow.

What a strange non-city.

 

25 May

They asked for only four journal entries, so here’s the last one.

And why is # a “hashtag”?

Hash? Like weird meat or weird marijuana? Tag, like the game?

At least “blog” has an etymology, even if, as a word, it sounds like a fat clog in a drain.

A friend who works in an emergency room had a patient delivered to her who had a croquet ball in his lower intestine. I guess there’s a lesson there: always have friends who work in emergency rooms, as they have the best stories.

No coyotes tonight. But there’s a long, lonesome, faraway train whistle or horn. Where?

Where in LA would there be a long, lonesome, faraway train whistle or horn?

It’s such a faraway sound. Lonesome hoboes watching the desert from an empty train car. Going where?

I met a woman recently who found human body parts in some bags while she
was hiking.

Technically, her dogs found them.

Then she found the dogs.

And then the sky was full of helicopters, as even in LA it’s unusual to have human hands and things left in bags near a hiking trail a few hundred yards from Brad Pitt’s house.

What is this place?

When I used to visit LA, I marvelled at the simple things, like gas stations and guest bedrooms.

I was a New Yorker.

And the gas stations took credit cards. At. The. Pumps.

What was this magic?

And people had Donald Judd beds in their living rooms, just slightly too small for actual sleeping – but, still, there’s your Donald Judd bed. In your living room at the top of the hill somewhere, with an ocean a dozen miles away but so clear you can see Catalina.

They drained the reservoir and now don’t know what to do with it.

Good old LA, confused by things like empty reservoirs in the middle of the city.

Maybe that’s where the lonesome train lives. And it only comes out at night, to make the sound of a lonesome train whistle, echoing from the empty concrete reservoir that’s left the city nonplussed.

“We’ve never had an empty reservoir in the city before.”

So . . . Do something great with it. I know, it’s a burden being given a huge gift of ­empty real estate in the middle of the city.

Tomorrow I’m meeting some more friends who’ve moved here from New York.

“We have a guest bedroom!” they crow.

A century ago, the Griffith Park planners planted redwoods across the street. And now the moon is waning but shining, far away but soft, through the redwoods.

No coyotes, but a waning moon through some towering redwoods is still really OK. As it’s a city that isn’t a city, and it’s my home.

Goodnight.

Moby’s memoir, “Porcelain”, is published by Faber & Faber

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad