Tax Avoidance

Although an issue I have mixed views on – it does annoy me quite a lot.

The recent scandal with comedian Jimmy Carr transfering millions of his money to a company abroad in order to receive most of the money back as a loan on which he has to pay no income tax, has made the relatively eternal issue resurface. As well as this K2 scheme, there are many other ways that people can avoid tax, including tax reliefs and other schemes. George Osbourne hopes that GAAR (General Anti-Abuse Rule) will attempt to tackle this but most realise similar schemes will then by concocted to adapt to this.

Now there is a difference between tax avoidance and tax evasion. Tax avoidance = using all means to exploit the tax regime legally for personal advantage. Tax evasion = the same thing but by illegal means.

Since tax avoidance is legal, the issue is a moral one. Some say that paying any more tax than you absolutely have to is a gift to the government, and it is every citizen’s right to avoid doing so. However the blatant fact is the poor are paying a greater rate of tax than the rich. This is because they can afford the financial advisors to assist them in these schemes and activity with off-shore companies etc… that ordinary people simply cannot. Jimmy Carr was revealed to be paying only 1% income tax and the top earners paying a rate of only 10%. This is costing the exchequer £25bn every year, probably much more than the “benefit scroungers” that so many have been complaining about.

Bill Bragg put it well yesterday: “Who was it who said “taxes are the price we pay for a civilised society”? Jimmy Carr is just the tip of a massive iceberg that includes individuals and corporations who cost us much more each year than ‘benefit scroungers’. You’d think making millions every year would be reward enough, but no – so many high earners do everything they can to avoid making their contribution, often while complaining how uncivilised society has become.

Having said all of this, the focus really should be redirected. It is the tax system created by politicians that has allowed people to avoid making their tax contributions. After all, Jimmy Carr disclosed the scheme to HMRC.

The conclusion is that we need to reform the system rather than dishing out moral criticisms – and simplicity is key.

Funny side-note:

“In the United States, thieves are required to report their stolen money as income when they file for taxes, but they usually do not do so, because doing so would serve as a confession of theft. For this reason, suspected thieves are sometimes charged with tax evasion when there is insufficient evidence to try them for theft. “

The Legal System hmmmm….

So after spending a week at the Old Bailey (not as a defendant don’t worry) some general thoughts have arisen regarding the nature of our legal system. Things that annoy me about it mostly. Even though I might point these out, I’m not actually smart enough to offer any solutions or alternatives.

Speed: Well it’s rather slow isn’t it….. A particular case I was following was dealing with an “event” that occured in 2007. It is now 2012. That is quite a long time… Although out of all the cases I saw that week that was an exception, none of the cases had reached trail less than a year after whatever had occured. I’ve got to say that is seems the only reason this is happening is because of resources, or a lack of them. Preparation would take a few weeks maximum if there were enough courts, barristers and time.

Jury: As rude as this may seem, allowing any Tom, Dick or Harry to decide ultimately someone’s future based on a complex presentation of a case seems odd. However, having said that, it is the job of the prosecution and defence to present their argument in a way that is clear and understandable. My main issue really is that cases more often than not (especially for the more serious or copmlex) run into well over 2 weeks. In this case, the jury is only really representative of the people who can afford to take months at a time out of their life and cannot manage to ABSV themselve of their jury duty. Instinctively I would prefer our fate to be decided by a legal expert (the judge) who will consider the arguments (as he is supposed to act neutrally anyway) and come to a conclusion, since the decision is probably needed because of a breach of the law. But then all the other arguments obvious arguments come in. Misquoting Churchill when he spoke about democracy, something along the lines of…”It’s the worst system, except all others that have been tried”, which I think fits rather well to trial by Jury. Juries are already being removed for complex fraud cases, will this expand into other cases or is that just a horrible slippery slope fallacy? In some cases, despite clear instructions from the judge, the jury have ignored what has been said and either convicted or accquited, giving ordinary people a say as to the actual law…. a little worrying no?

Legal Aid: This is a good thing. Why are we (well the tories anyway) cutting it down? Isn’t equal access to justice quite an importnat principle in our society? I know Michael Mansfield agrees with me anyway! The fact that Barristers were recently thinking of striking should send out a strong messgae. £350m out of the MOJs legal aid budget – really? Couldn’t you just cancel the stupid olympic posters floating around every street corner annoying my eyes instead. Health, Education and the Legal System – the 3 main things I think a government shouldn’t mess with. Please.

Access: To the profession I mean. It is getting more and more competitive every year, which isn’t such a horrific thing in itself. The horrific thing is that by the time I finish my legal education I will be almost £50,000 in debt. Loans and all that jazz do exist, true, however you can’t argue that the figure may be slightly off putting to those who aren’t from bakgrounds used to those sums. And although there is an “equal opportunities” obsession going on at the moment, 2/3 of the bar are privately educated. 93% of the population are not. I’m sure (I hope) this will improve over time though.

I’m sure I have many other things to complain about – especially in relation to law – but my head is aching for my pillow so I think I’ll let you wait till next time!

 

Hedge Funds, Currency Trading and other Financial mysteries…

So although the Occupy movement is dwindling, especially after its eviction fromSt Paul’s, it has certainly left a big impact onLondon. The battle between the ‘evil 1%’ and ‘angelic 99%’ is something all of us have spent a least a little time thinking about. I think they do make a certain point, especially about the people with the economic power causing the mess that ordinary people have had to clean up. However criminalizing capitalism isn’t going to work. They attack “the system” without providing a viable alternative. They want “a system that operates in the interest of the people” but how exactly, besides going on endless marches and protests, do they propose to do so? Capitalism works effectively at creating wealth, though not necessarily distributing. The importance of the second part is something the various existing political ideologies will continue to disagree on.

Now all this inevitably made me think, what does the British economy rely on now? Certainly not manufacturing and this is a shame – arguably inevitable but then there is always the black sheep Germany as an example. Financial services now define us. Much of this sector has encouraged economic growth over the past few decades and are extremely useful to us so it is careful not to lump everything in the same boat. The problem that I have, which is largely due to my ignorance in this subject, lies mainly with hedge funds and currency trading. What the hell do these people actually do? They get paid for….investing and transferring money? The second especially, the only thing that I can see it leading to is a volatile and fragile economy. Where is the stability in this?? I really need to get around to reading this… http://www.amazon.co.uk/The-Hedge-Fund-Mirage-Illusion/dp/1118164318/ref=wl_it_dp_o_pC_nS_nC?ie=UTF8&coliid=IZMBM4T8WR3AB&colid=1VSRPWB2GRAB0

Personally I think we should focus on improving our manufacturing sector, in particular technology firms that provide a relatively stable business base for developed countries. Even other services, as a deficit on the goods market…. is fine as long as we have an overall surplus.And please stop the obsession with deregulation! Good to an extent but a dangerous path. Also, we need to find demand before increasing the spare capacity in our economy even more.

P.S. If any hedge fund managers or traders are reading this and would like to enlighten me to the magic of their profession, I would be very grateful.