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9 May 2020updated 09 Sep 2021 3:14pm

If we want tax exiles to contribute to the recovery, then we need to tax them

Attempts to ban tax haven companies from receiving bailouts are eye-catching and popular, but won’t touch Britain’s tax exiles

By George Turner

The public had already had enough of tax avoidance by the time the Coronavirus hit Europe in February. But the prospect of billionaire tax exiles asking the British taxpayer for cash has provoked fresh outrage. 

Keen to be seen doing something, a number of governments have said they will ban companies registered in tax havens from receiving any government support and there have been calls for the UK government to do the same. The policy is not without merit but, ultimately, it won’t make much difference. 

Few companies have their headquarters in tax havens. Virgin Atlantic, which has been the focus of a huge amount of attention since Richard Branson asked the UK government for a £500m loan, is a UK company headquartered in Crawley. It just happens to be owned by someone who moved to the British Virgin Islands a long time ago.

Arcadia, the owner of TopShop, is also a UK company. It is just owned by the Green family who apparently moved to tax haven Monaco for health reasons. 

Leaving aside the question of whether billionaires should be asked to dip into their own substantial pockets before asking us for a bailout, it is difficult to see how you could exclude any UK company from wage support programmes for their UK workforce, regardless of who owns them. After all, the Greens, Richard Branson, and other tax exiles are free to live wherever they like. 

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The real question is: why do we allow British citizens to become tax exiles in the first place?  There is no reason why anyone should not pay tax on profits they receive from companies in the UK regardless of whether or not they chose to live in a tax haven. 

As this crisis has demonstrated, their businesses are entirely dependent on the British taxpayer for their survival. On top of the government support currently keeping bankruptcy away, their workforce is educated at the expense of the UK taxpayer, looked after by the NHS, and gets to work on our roads and railways. In the case of Branson’s Virgin Group, the company receives substantial public subsidy via its rail franchise and the planes take off from runways built by the British government. 

In order to solve the problem of British citizens yachting off into the sunset the moment they see fortune there is a simple solution – just tax them. 

Taxing the tax exiles on their profits would be relatively straightforward. At a minimum, all that would be needed is for UK companies to pay out dividends after UK income tax had been paid to HMRC. This is how PAYE works for wages. Most workers don’t pay the income tax on their earnings themselves, their company pays it on their behalf. 

There of course would have to be allowances for people who live overseas and pay income tax locally. But these allowances would not be available to residents of no-tax jurisdictions like Monaco, the British Virgin Islands or Jersey. 

The United States goes further and operates a worldwide tax system based on citizenship. Citizens of the United States are liable to pay income tax in the US, regardless of where they live and what the source of their income is. Just ask Boris Johnson, who realised he was liable to pay tax in the US on profit he made selling his London home when he was Mayor. The Prime Minister was born in New York and as such had dual US / UK citizenship. After initially saying he would refuse to pay the bill he soon realised that he had no option but to settle before later renouncing his US citizenship. 

The system of worldwide taxation causes huge headaches for Americans living abroad, who have to deal with complex filing arrangements even if they end up not having to pay any tax in the US.  However, the American approach does highlight the relative generosity with which the UK treats its tax exiles. 

The Chancellor has already signalled his intent to change the tax system to eliminate the lower rates of national insurance paid by the self employed, saying: “If we all want to benefit equally from state support, we must all pay in equally in future.” 

Why not apply the same approach to Britain’s tax exiles? If you want your companies to benefit equally from state support, you should pay taxes on the profits you earn from those companies.

George Turner is the director of Taxwatch UK

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