It’s complexly-simple to avoid tax, so I’m going to give you a quick how-to.
Anyone who has ever owned their own company has done this to some extent. Things have been tightened up over recent years for freelance contractors and lone-wolf operations, but what I’m about to describe is still broadly possible. First, set up a company. When you do some work, your company is contracted to do the work, not you. On pay-day, your company is paid instead of you. Your company then pays you a substantially smaller wage than it was just paid. In fact, the company pays you a wage you could only just live on. You pay tax on that small wage. You now own a company with a fat wedge in the bank. You can’t touch it – it is company money. However, your company can then “invest” in things your company “needs” – like buying you a car, or paying the portion of your mortgage that is used for company business (ie: sometimes you “work” from your living room). It’s amazing the things your company can “need” for “business”. Clothing, transport, mobile phone, part of your domestic bills, dining expenses, gifts for people.
I have just described the smallest of the tax avoidance fish, and the above, or something very like it, is a method used by anyone who is freelance / owns their own company, and to a degree it’s fair enough. You run more risks if you’re a company owner. Nobody is going to pay you for your holidays. Nobody is going to pay you when you get ill. You probably do work all the hours god sends. If your business folds you will probably lose your house and your car.
Let’s talk about the bigger fish. When you earn a stupid amount of money, you can afford the expense of setting up offshore – the Bahamas, say. It’s expensive because you need some specialist people to do it. Everyone blames accountants for tax avoidance, but accountants are the people helping the small business owners. The people who shunt millions offshore are being aided more by specialist offshore tax lawyers than accountants. Having positioned your lawyer on an idyllic beach with an iPad (no, really, I know lawyers who do this for a living), you then pay legitimate tax in the UK on the very small wage your company has paid you. You pay whatever small taxes are necessary on the offshore amount. And the rest – the vast majority of your money – basically sits there. Getting bigger. Being invested. Spinning off into subsidiaries to further minimise your profile. Running businesses – you name it. Your money becomes a series of plates kept spinning by some very, very clever people. In shorts. Tax doesn’t have to be taxing, you know.
The whole thing is morally repugnant. If you don’t understand why it is morally repugnant, I will explain it for you.
Let’s say there’s a businessman. He was born in this country, in a hospital we paid for. He went to schools that were paid for by – by us – the taxpayer. He drove to school on roads we paid for. He went to university, and we paid for that (or loaned him the money for it). He set up a business with a clever idea of his own. He got a loan for it, and it wasn’t that hard to get a loan, because this country is stable and safe, and we have a good legal system if loans go wrong. All of which we paid for. His stock, when he bought stock, was safe because of the police we paid for. He used a telephone and internet network we subsidise for him. When he delivered his items, his driver was licensed to be safe on the road by an organisation we paid for, and he drove on a road we paid for.
We paid for that because we want him to have a successful business. We want businesses to succeed. We want society to be a place that encourages people to have ideas and flourish – it’s great to be part of a society where that is true. Businesses benefit us all. When we want services, we want to be able to choose which service we prefer. When we want goods, we want a broad selection of goods.
There’s another reason we want businesses to flourish. The government tells us that businesses generate wealth. They employ people. They make money. They pay tax on that money. Tax that props up the services we all use.
Except what happens is, if the business owner is clever, he takes his company offshore. He moves his head office offshore (hello, Virgin!). He pays a tiny amount of UK tax on his own very small wage, and the rest … well, the rest, like Elvis, has left the building. That money that he made using the education, the infrastructure, the support systems, the law, the health service that we all paid for has gone. Goodbye. You don’t even get a thank-you note.
Do you understand that this man has just burgled you?
If you complain, you are told that what he is doing is entirely legal. This is how it has been done for ever. Tax is optional for the wealthy. Most opt out.
The club of people at the top who shunt millions of pounds directly out of your pocket and into a tax dodge are the people who run this country. It is a club. They don’t eat where you eat, they don’t drink where you drink, you’re not going to bump into them at the school gates because they don’t educate their children where you educate your children. They take advantage of the stability and security of this country – which you paid for – and cherry pick private alternatives to the bits which clearly aren’t very good: health care and education.
Jimmy Carr has united us. We find his tax avoidance morally repugnant, and we are right to. But we are wrong to demonize Jimmy Carr – he is one of a sea of well-paid people who do this precisely because doing it is considered normal, and the laws of this country have been carefully arranged so that it remains possible to do this. Credit where it’s due, when busted on this issue, Carr put his hands straight up, apologised for it, and fixed it. Virtually everyone else you can think of who is successful will be doing the same thing Carr did, and I’m not seeing an avalanche of people rushing to correct their “terrible mistakes”. Quite the opposite, a silence descends, broken only by those who are too stupid to realise how dangerous it is to break it. Jim Davidson appeared on This Week last night, snorting about how ridiculous it was that people should be required to pay tax. His attitude is the norm.
In fact, the exceptions are so exceptional that we know some of them by name – J.K. Rowling and James Dyson, aside from being famous for being good at what they do, are also both famous for being passionate tax-payers. That’s how unusual it is.
The law broadly exists to prevent people from doing things that we find morally repugnant. Murder, rape, theft. Those things which cause a natural human being to bristle, and which spark feelings of injustice and the potential for conflict. Yet for some reason, this particular variety of theft goes not just un-punished, but quietly propped up, quietly protected.
The day the Jimmy Carr story broke, Number 10 shuffled its plans to show us ministers’ tax returns from the “to do” list, to the “to avoid doing for as long as possible” list.
Why? Take a guess. The roar of disapprobation that greeted the breaking Carr story must look very alarming to anyone who has more than a couple of million pounds to their name. The peasants are revolting. Let them revolt at one of their own, who has done well. Give them the head of Jimmy Carr.
Recently I had someone take me to task about this country being free of corruption. There are no back-handers here. No paying off petty officials. No greasing of palms. No, there is no corruption in this country.
You never have to put your hand in your pocket because theirs has already been there. You already pay their entire wage. You are not permitted to question their tax arrangements, though they – the people whose wages you are paying – are permitted to question yours. Anyone – like Carr – who is found to be operating within the letter of the law, but not the spirit, will be hounded by the press, decried by the highest members of the establishment, and hung out to dry. It is naughty to operate outside the spirit of the law.
It is naughtier to be noticed.
It is telling that the establishment’s first response to having the unwelcome finger of public concern intruded upon its person, was to close the door on any idea of exposing its tax affairs to us.
Over the coming weeks it will conclude that some changes are necessary and they will be made, and we will be told about them with a flourish, in the manner of a child producing a slice of burnt toast and a tray with half a glass of orange juice slopped over it at five a.m. “Look what I made for you!” However, the changes will not tighten the laws up such that avoidance is no longer possible. There will be a sense, in some circles, that we ought to rely on people’s inherent decency. If we create laws that are TOO draconian, laws that actually work, it’s almost as if we’re questioning people’s honour. We don’t want to insult anyone by having tax laws that actively prevent them from stealing our money.
We ought not to waste our time complaining about Carr – nor about the doctors petitioning to be paid the wage and the pension that is in their contract. We are focusing on the wrong thing. Carr is a tiny fragment of a big picture where the more money you have (as an individual, or as a company), the more avoidance you can get away with – up to the point where the Treasury will apparently allow the very largest companies to break the law, if they want.
We must change that system. If we do, we will be a rich country again, with an infrastructure which benefits not just from the small tax input of the workers, but from the large and fair tax input of individuals and companies which have flourished precisely because of the system we have all paid for.
If we leave it as it is, we remain a rich country full of surprisingly poor – and increasingly disgruntled – people.