For the third day running, The Times has splashed on elaborate tax avoidance schemes used by the rich. Today’s story (£) is about investors using special schemes designed to support the film industry. Yesterday’s (£) was about Icebreaker, a music and intellectual property development company connected with Take That crooner Gary Barlow, which an unrelated tax adviser has claimed provides investors with major tax avoidance opportunities. Both Icebreaker and HMRC have refuted the claims. On Tuesday Jimmy Carr featured (£) in a story on a different scheme called K2, which works by arranging for customers to transfer their income into an offshore trust which is then loaned back and is not subject to tax. The front page media attention is particularly unfortunate for the comedian. He roundly mocked tax avoidance when he presented The 10 O’Clock Show on Channel 4, performing this sketch:
Jimmy Carr today tweeted a grovelling apology and promised that he would “in future conduct my financial affairs much more responsibly”. Beyond the frankly less-than-shocking celeb-hypocrisy angle, the story reveals an interesting aspect to the cat-and-mouse game of tax avoidance played by the rich, their tax advisers and HMRC. Undercover reporters filmed practitioners apparently discussing how they could swerve around roadblocks put in their way. The many choice quotes in the piece ultimately amounted to variations on this theme:
“The Revenue closes one scheme, we find another way round it”
Our mind-bogglingly complex, Byzantine tax system, riddled with special schemes and particular rules that don’t seem to fit in with the whole is what happens when politicians continually apply patches to fix a system that is fundamentally broken. Closing loopholes and removing distortions here and there amounts to little more than pointless tinkering – however much the individual measures might make sense in isolation. The resulting complexity and the punishingly high tax rates that creates ends up inevitably with people like Jimmy Carr trying to avoid their liabilities. Those with enough money to pay specialists to minimise their tax bill will do so. Clever accountants and lawyers will continue to outsmart HMRC, who appear to be struggling to keep up with the legislation passed in parliament. As The Times noted in Tuesday’s leading article (£):
“Can the Government blame people who avoid tax when the top rate is, by international standards, high, when the system of reliefs is Byzantine and easy to exploit and when the HMRC is so outgunned? Taxes should be lower. They should be simpler.”
It’s no use for the Prime Minister to grandly pontificate about the morality of people trying to avoid his Government’s extortionately high taxes. Politicians must now accept that they have lost control of the tax system. Tinkering with specific schemes simply leads to new avoidance opportunities opening up, often discovered within days of old ones being closed. The only agenda for anyone seriously interested in fair taxes is a complete overhaul.
Last month we published the Single Income Tax, the final report of the 2020 Tax Commission. It outlines a plan for dramatically simpler, substantially lower taxes that would remove distortions, loopholes and drastically reduce the incentives – and opportunities – to minimise punitive tax bills.
The Single Income Tax might not have stopped schemes like K2, which appears to be in a legal grey area under current law. But it would free up HMRC resources to focus on what matters and what they should be doing: investigating what they believe are egregious actions. It would also put a stop to the kind of scheme revealed in today’s Times. The simple 30 per cent Single Income Tax rate would have no special exemptions, reliefs and exclusions. And it would also close off suggestions related to the Icebreaker scheme that a combination of loans could offer a tax advantage: under the Single Income Tax all income types would be taxed at the same rate and would be taxed only when distributed to individuals.
Millions of ordinary taxpayers get sent the wrong tax bill at the wrong time by an incompetent HMRC. Small and medium-sized businesses feel they cannot get on with things and create prosperity because they forever feel the breath of HMRC down their necks. Anyone who thinks it’s time that Jimmy Carr, Gary Barlow and City bankers – or anyone else – should pay their fair share must accept that serious tax reform is the only realistic way to fix our broken tax code. Lower rates, simpler rules, no exceptions. In other words, the 2020 Tax Commission’s Single Income Tax.