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This seems to fit in with the UKs ambivilence towards tax evasion. On the one hand whenever there's another leak of all the lengths people have gone to avoid/e

This seems to fit in with the UKs ambivilence towards tax evasion. On the one hand whenever there's another leak of all the lengths people have gone to avoid/evade taxes (e.g. panama papers) the government will pledge to "get tough". But then when it comes to practical measures like reining in the tax havens which are used to hide the details of people's finances, they seems to throw up their hands and say "nothing we can do" despite the fact that many of these havens have strong connections to the UK and there is a level of pressure that could easily be exerted by the UK government for more transparency. The dissembling you see from government ministers when asked to explain why these tax havens are so popular for company formation if it's not for tax evasion reason is comical.

DyslexicAtheist 9y ago
The UK is ranked 23rd on the 2018 Financial Secrecy Index. with the Crown¹ being especially dependent on things staying this way. __ ¹ http://www.financialsecrecyindex.com/PDF/UnitedKingdom.pdf http://www.financialsecrecyindex.com/PDF/UnitedKingdom.pdf
krona 9y ago
This seems to fit in with the UKs ambivilence towards tax evasion. Do you have any evidence of that or are you just confusing evasion and avoidance, the latter being by definition legal? All the official statistics (from HMRC, not the government) on the matter point to the overall tax-gap doing down steadily over the past 10 years, as well as the proportion of that classified as either tax evasion or avoidance.
- jimnotgym 9y ago
  The campaigning tax lawyer Jo Maugham suggests that HMRC are being pushed by the government into allowing tax evasion by Uber (in this case). He has been privately pursuing them for VAT (sales tax) evasion for some time. He alledges some kind of sweetheart deal between UK government and USA to clear the way for big tech firms. https://waitingfortax.com/2017/10/27/something-is-very-wrong-at-hmrc/ https://waitingfortax.com/2017/10/27/something-is-very-wrong...
- raesene9 9y ago
  I'm not conflating avoidance and evasion (although it's a fairly fuzzy line between them at times, and things which were once avoidance have been deemed illegal schemes after the fact on many occasions). Unsurprisingly I don't have obvious evidence of the UK government breaking UK law. However what I would suggest as evidence of ambivalence is the fact that several jurisdictions which are considered friendly to tax evasion and avoidance (so called "noncooperative tax jurisdictions") are UK dependencies. The UK could, if it really wanted to, crack down on the tax and company formation regimes in these locations, but they choose not to. That, to me, is evidence of ambivalence.
Silhouette 9y ago
Meanwhile, the UK government has recently hit shareholders, including most small business owners and solo freelancers/contractors, with a 7.5% increase in their tax rate on dividends. This after a succession of other changes in recent years that have all made starting or running a smaller business less attractive. It's very strange how they turn such a blind eye to massive tax avoidance (or even tax evasion?) schemes from large businesses, while simultaneously leaning on by far the largest part of the business economy. Leaving aside the ethical considerations, I have never understood how this makes much economic sense either.
- madeofpalk 9y ago
  Why do countries like, the UK, tax income from dividends differently to regular PAYE income? By creating a complicated system like they have it seems like they just invite people to create structures to pay themselves in dividends and reduce the tax they should pay.
  - Silhouette 9y ago
    Why do countries like, the UK, tax income from dividends differently to regular PAYE income? I suppose there are two basic reasons. The first reason is that the two types of income derive from different mechanisms, and have different contexts. If you're working as an employee and receiving a salary through PAYE, then in places like the UK that comes with many rights and protections. Those are supported by legal obligations and risks borne by the employer (and to some relatively small extent the government). In contrast, if you're working through your own company, you take on all the risks and overheads of the employer as well as the employee. More generally, if you're receiving income from dividends whether from your own company or someone else's, it's because you have invested in one way or another in supporting that company. The dividend is your reward for taking that risk if things work out, and unlike PAYE salary, there is no guarantee that you will get that money, or even get back whatever you invested in the hope of receiving that return. The second reason is that as a practical matter, it is necessary for the health of the economy to support the creation and growth of new businesses. That requires a mechanism for progression: someone has to stop being an employee of someone else's business and transition instead to either being self-employed (which is OK for very small businesses, but limits growth in many practical ways) or forming a separate legal business entity (typically a limited company or partnership in the UK). But if you start your own company, its profits are already going to be subject to corporation tax before you can pay out anything left over as a dividend. If you also imposed the same income tax on the dividends themselves, you would essentially be saying a solo founder or small group must accept being double-taxed on the money the business makes in return for operating through a legal entity, which in itself already comes with various overheads and costs. Clearly that is a huge deterrent to anyone taking the step from operating solo to creating a more robust and scalable business structure, which is something that needs to be incentivized for the general development of our economic and business environment. In short, the reason you get some income via PAYE salary is completely different to the reason you get it from dividends, so there's no reason the tax treatment should necessarily be the same. Attempting to equate the two scenarios penalises investment and heavily penalises setting up new businesses, and if people aren't willing to take on those risks and overheads, you won't have businesses creating new jobs and opportunities that will support tomorrow's PAYE employees either. By creating a complicated system like they have it seems like they just invite people to create structures to pay themselves in dividends and reduce the tax they should pay. This is a real danger, and the government has repeatedly tried to clamp down on "disguised employment", for example via the IR35 rules that essentially say if you're working like an employee, you get taxed like an employee, even if your contract claims you're a freelancer or contractor. These measures were spectacularly unsuccessful for many years, essentially just creating a new industry around insurance for legitimate independent workers that was a drag on the whole sector, while pulling in very little extra money from those who really were abusing the loophole before. A lot of people in the independent sector believe that the massive increase in dividend tax was basically the government giving up on IR35 and just hitting every small business without discrimination. Of course, while that certainly pulls in a lot of extra tax money that the government wanted, it also hurts all the people who were quite legitimately operating as independent businesses that just happened to have only one employee but otherwise still had all the normal control, risks, overheads, reporting, etc. like any other business.
mjw1007 9y ago
It isn't just a reluctance to put pressure on the tax havens; the UK government has been actively working to defend them (eg pressuring the EU to keep Bermuda and the Cayman islands off their list of "noncooperative tax jurisdictions").

DyslexicAtheist 9y ago

The UK is ranked 23rd on the 2018 Financial Secrecy Index. with the Crown¹ being especially dependent on things staying this way. __ ¹ http://www.financialsecrecyindex.com/PDF/UnitedKingdom.pdf http://www.financialsecrecyindex.com/PDF/UnitedKingdom.pdf

krona 9y ago

This seems to fit in with the UKs ambivilence towards tax evasion. Do you have any evidence of that or are you just confusing evasion and avoidance, the latter being by definition legal? All the official statistics (from HMRC, not the government) on the matter point to the overall tax-gap doing down steadily over the past 10 years, as well as the proportion of that classified as either tax evasion or avoidance.

jimnotgym 9y ago
The campaigning tax lawyer Jo Maugham suggests that HMRC are being pushed by the government into allowing tax evasion by Uber (in this case). He has been privately pursuing them for VAT (sales tax) evasion for some time. He alledges some kind of sweetheart deal between UK government and USA to clear the way for big tech firms. https://waitingfortax.com/2017/10/27/something-is-very-wrong-at-hmrc/ https://waitingfortax.com/2017/10/27/something-is-very-wrong...
raesene9 9y ago
I'm not conflating avoidance and evasion (although it's a fairly fuzzy line between them at times, and things which were once avoidance have been deemed illegal schemes after the fact on many occasions). Unsurprisingly I don't have obvious evidence of the UK government breaking UK law. However what I would suggest as evidence of ambivalence is the fact that several jurisdictions which are considered friendly to tax evasion and avoidance (so called "noncooperative tax jurisdictions") are UK dependencies. The UK could, if it really wanted to, crack down on the tax and company formation regimes in these locations, but they choose not to. That, to me, is evidence of ambivalence.

Silhouette 9y ago

Meanwhile, the UK government has recently hit shareholders, including most small business owners and solo freelancers/contractors, with a 7.5% increase in their tax rate on dividends. This after a succession of other changes in recent years that have all made starting or running a smaller business less attractive. It's very strange how they turn such a blind eye to massive tax avoidance (or even tax evasion?) schemes from large businesses, while simultaneously leaning on by far the largest part of the business economy. Leaving aside the ethical considerations, I have never understood how this makes much economic sense either.

madeofpalk 9y ago
Why do countries like, the UK, tax income from dividends differently to regular PAYE income? By creating a complicated system like they have it seems like they just invite people to create structures to pay themselves in dividends and reduce the tax they should pay.
- Silhouette 9y ago
  Why do countries like, the UK, tax income from dividends differently to regular PAYE income? I suppose there are two basic reasons. The first reason is that the two types of income derive from different mechanisms, and have different contexts. If you're working as an employee and receiving a salary through PAYE, then in places like the UK that comes with many rights and protections. Those are supported by legal obligations and risks borne by the employer (and to some relatively small extent the government). In contrast, if you're working through your own company, you take on all the risks and overheads of the employer as well as the employee. More generally, if you're receiving income from dividends whether from your own company or someone else's, it's because you have invested in one way or another in supporting that company. The dividend is your reward for taking that risk if things work out, and unlike PAYE salary, there is no guarantee that you will get that money, or even get back whatever you invested in the hope of receiving that return. The second reason is that as a practical matter, it is necessary for the health of the economy to support the creation and growth of new businesses. That requires a mechanism for progression: someone has to stop being an employee of someone else's business and transition instead to either being self-employed (which is OK for very small businesses, but limits growth in many practical ways) or forming a separate legal business entity (typically a limited company or partnership in the UK). But if you start your own company, its profits are already going to be subject to corporation tax before you can pay out anything left over as a dividend. If you also imposed the same income tax on the dividends themselves, you would essentially be saying a solo founder or small group must accept being double-taxed on the money the business makes in return for operating through a legal entity, which in itself already comes with various overheads and costs. Clearly that is a huge deterrent to anyone taking the step from operating solo to creating a more robust and scalable business structure, which is something that needs to be incentivized for the general development of our economic and business environment. In short, the reason you get some income via PAYE salary is completely different to the reason you get it from dividends, so there's no reason the tax treatment should necessarily be the same. Attempting to equate the two scenarios penalises investment and heavily penalises setting up new businesses, and if people aren't willing to take on those risks and overheads, you won't have businesses creating new jobs and opportunities that will support tomorrow's PAYE employees either. By creating a complicated system like they have it seems like they just invite people to create structures to pay themselves in dividends and reduce the tax they should pay. This is a real danger, and the government has repeatedly tried to clamp down on "disguised employment", for example via the IR35 rules that essentially say if you're working like an employee, you get taxed like an employee, even if your contract claims you're a freelancer or contractor. These measures were spectacularly unsuccessful for many years, essentially just creating a new industry around insurance for legitimate independent workers that was a drag on the whole sector, while pulling in very little extra money from those who really were abusing the loophole before. A lot of people in the independent sector believe that the massive increase in dividend tax was basically the government giving up on IR35 and just hitting every small business without discrimination. Of course, while that certainly pulls in a lot of extra tax money that the government wanted, it also hurts all the people who were quite legitimately operating as independent businesses that just happened to have only one employee but otherwise still had all the normal control, risks, overheads, reporting, etc. like any other business.

mjw1007 9y ago

It isn't just a reluctance to put pressure on the tax havens; the UK government has been actively working to defend them (eg pressuring the EU to keep Bermuda and the Cayman islands off their list of "noncooperative tax jurisdictions").