6% of UK’s wealthiest pay under 10% in tax


9:15 am - April 16th 2012

by Newswire    


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Around 6% of the wealthiest people in Britain use tax relief to reduce their tax bills to less than 10% of their incomes, according to figures published today.

The startling figures are released by the Treasury today. It found that of 200 taxpayers earning more than £10m a year, 12 are paying less than 10% in taxes.

The Treasury’s numbers also revealed that a thousand taxpayers earning more than £1m a year have a tax rate of less than 30% of their income.

Theoretically, anyone earning up to £34,370 pounds is liable to pay income tax of 20%, while those earning over £150,000 a year must currently pay 50% for earnings above that sum.

The Treasury says 10,000 taxpayers earn between £1m and £5m. Of those, 10% pay between 30% and 40% in tax, 5% pay between 20% and 30% tax, and 3% pay less than 10%.

Of those earning between £250,000 and £500,000, the Treasury found that 27% were paying tax of less than 40%.

It’s not clear whether this rough but shocking picture of tax avoidance by Britain’s super-rich takes secretive tax havens into account. It is usually impossible to detect money funelled through tax havens.

The Treasury says its figures illustrate the importance putting a cap tax-relief via charities.

Yesterday, the Mail on Sunday also found that the big five internet firms paid 0.8% tax on UK profits.

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1. Giles Bradshaw

So let’s have constructive engagement with treasury proposals to cap tax rebates. There must be a way forward on this without damaging charitable giving.

2. Shrugged...

What a load of old tosh, it’s hard to know where to start. Tax incentives are there to incentivise behaviour. What about Corporation Tax and VAT? What about EIS schemes and pension deductions. What about the personal risks some of these people will have taken to get where they are?

On the other hand, funneling cash through a fake charity is plainly wrong.

I am sorry but this article simply does not tell the whole story.

A great deal of tax imposed on the wealthy is paid through capital gains which, quite rightly, is charged at a lower rate. There is one primary reason for this. Many of these ‘wealthy’ people receive money from their companies which they wholly own. Use for example the structure put in place by Ken Livingstone. The company receives the money instead of the person. It is disingenuous to then say that the ‘person’ is only taxed at the CGT rate, ie – usually 28%. This is because the profit from which they have made the capital gain has already been subject to corporation tax. The fact that the liability for payment falls on the company rather than the individual is irrelevant because taxed profits of the company still decrease the amount available to the businessman from which to take a dividend. In many cases around the world there is an even higher tax liability for CGT. Take for example Mitt Romney. He did not pay 13.5% tax as was claimed. He paid far higher. His company made a large profit which was subject to corp. tax. He was then subject to a dividend tax, and then he was subject to the capital gains rate of 15% (minus the contributions he made to the church giving 13.5%) The fact that his company paid the tax is irrelevant because his shareholding (he and his family owns 100%) would have been worth a great deal more had it not been subject to the corp. tax or the dividend tax as it was.

This idea is really rather simple. Companies don’t pay tax. They are created entities through which operations can be run. People pay tax as they are the only ones capable of creating money. All tax liability eventually passes to people, whether it be through the passing on of costs, or deductions to employee numbers or income. Those who deny the existance of tax incidence are living on another planet. Please please please educate yourselves about tax before simply believing headlines.

Once again, there’s a table which lists European companies which have sales in the UK but operate from other EU countries. And then estimated profits from sales in Britain and a calculation of tax if this profit was taxed in Britain.

But the countries have set up shop somewhere else in EU, not in Britain. They have their valid reasons for this. It is the very idea of EU common market that one EU company can sell to other EU countries. They are paying their due taxes where they reside (if not, then the matters can be handled by local tax authorities and eventually in courts).

If you don’t want to be in the EU common market, then you should withdraw from it. Simples. But remember, it works both ways; there are also many of companies that reside in Britain and that sell to the rest of the EU. Set up a customs and tax boundary, and it works both ways. And not necessarily in the way you think. The “law of unintended consenquences”, you know.

A great deal of tax imposed on the wealthy is paid through capital gains which, quite rightly, is charged at a lower rate.

And helps them avoid taxes, actually.

@5. Sunny Hundal

You really didn’t follow what the whole comment said did you?

7. Robin Levett

Does anyone have a reference to the Treasury statement? It’s not obviously on the Treasury site.

I find it difficult to understand how Giift Aid is the problem here. In order to get your income tax bill down to under 10% in any year, you have to give to charity in the relevant tax year more than your pre-tax earnings for that year.

As a simplified illustration – say I earn £10m gross in a given tax year. Neglecting personal allowances and the basic and 40% bands (which are all negligible over an income that size) I will pay tax at 50%, £5m – leaving me £5m net.

If I give away £5 million – equivalent to my taxed earnings – during that year: (i) the charity will get back tax at basic rate on the grossed up gift – £1.25million; (ii) I can claim back tax at the rates above BRT – £1.875 million – so I still pay a balance of £3.125m tax. That produces an effective tax rate of 31.25%.

To get my tax bill down to £1m (10% of gross income), I need to get relief at higher rates of tax of £4m, which would be available only on a gift of or gifts totalling £10.67m.

So if it’s not Gift Aid, which legitimately claimed reliefs are getting the rich’s effective tax rate down to less than 10%. Does the Treasury statement go into any detail – does it show its workings?

I sorry but you’ve really got me confused now Sunny.

If Ken plays fast and loose, purely to avoid tax, that’s ok because it’s Ken.

If a legitimate company which trades across the whole of the EU happens to be paying tax in another EU state, then that’s somehow avoiding paying tax.

Then there’s the fact that, as other commentors have pointed out, this is exactly what the EU os for… but anyone who is against continued membership of the EU is a “little englander” or a xenophobe.

I’m sorry, but this kind of daft argument explains exactly why the bastards in the coalition are guaranteed another win.

@7

Tim W tries to explain it here:

http://www.forbes.com/sites/timworstall/2012/04/16/now-its-hm-treasury-spouting-nonsense-about-tax-avoidance/

The main point being that not all the ‘Income’ is taxable income – some having been taxed already and thus not subject to income tax. See Ken Livingstone’s tax arrangements.

@9: Yup, the whole text of the Treasury statement is there.

And my God it’s a complete horlicks.

Simply nonsensical.

So the Government want to curb the creation of naff charities that allow the rich to keep their earnings from the tax man. They also accept that not all charitable giving is a tax fiddle and want to retain the philanthropic contributions of the caring rich. As far as I can see the problem lays squarely on the doorstep of The Charity Commission and the criteria that they use to approve charities. I think that rather than focusing on re-writing laws and upsetting the governmental apple cart, they should focus on a review of currently licensed charities and filtering out the obvious tax scams.

It gets worse when you think that Amazon have picked up a large amount of their business from stores such as HMV who would have had to pay taxes since their stores are in the UK. Even though Amazon’s tax arrangements may be legal it still leaves the treasury £42 million down on what it would have been.

13. Reduced Salt

How can people defend (say) Amazon when it makes its millions from UK citizens cash? Surely it is morally right that it contributes back to the people who have made it so successful?
Am I missing something here??

14. Charlieman

@13. Reduced Salt: “Surely it is morally right that it contributes back to the people who have made it so successful?”

You do realise that Amazon paid for a post office to be built next to one of their UK distribution depots? And that they pay UK workers to pack and deliver the goods sold to UK citizens?

@13

‘Am I missing something here?’

Yes – in the EU there is a single market. This means you can be based in Luxembourg and sell to the UK and pay tax in Luxembourg. This is entirely the intention of EU legislation.

The only way to change this is to withdraw from the EU treaties involved.

Remember – Richard Murphy and his friends make numbers up i.e. what Amazon should have paid in UK tax. The answer is what they did pay – not some spurious figure.

“How can people defend (say) Amazon when it makes its millions from UK citizens cash? Surely it is morally right that it contributes back to the people who have made it so successful?”

It does.

Amazon is a company, owned by (mostly) Americans, with European headquarters in continental Europe, that makes millions from UK citizens cash. It also makes millions from German and French citizens’ cash. amazon.co.uk, amazon.fr and amazon.de are just websites. Amazon operates in the EU single market precisely as UK’s EU membership intends.

There are also companies who are headquartered in the UK, making money from other countries’ citizens cash. For instance, my family members recently bought some fashion items over the Internet from a UK shop called Endless. I myself bought photographic equipment from a company called BV Limited.

Now, are you saying that these UK companies should pay their taxes to my country instead of UK? Wake up, it’s the EU single market.

17. Robin Levett

continuing from my #7:

There is one issue I;ve left out of account; which means that it is impossible by any means which includes Gift Aid to reduce one’s effective tax rate to nil. This is because Gift Aid primarily permits the receiving charity to claim back the BRT paid on the gift; and it is a requirement of the scheme that the giver has paid enough Income Tax to cover that claim. The larger the Gift Aid donation, therefore, the more Income Tax must be paid. Just as pertinently – the more other reliefs available and claimed, the less BRT paid available for the charity to claim back, and therefore the less available Gift Aid relief.

@Tim W #10:

If that’s the entirety of the Treasury statement…


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