FREELANCER
ISSUE 29, JUNE
CONTENTS:
The Tories on tax – haven’t we heard this one somewhere before?
It's worse than you think...
Hide out on Herm!
Welcome to Britain – the VAT friendly country!
The ‘five a day’ way to financial security…
WHAM-BAM, THANK YOU CAM
Tax. It might just win or lose the election for someone. David Cameron certainly thinks so. He’s hardly paused for breath in the last few weeks, ripping into Gordon Brown for his 10p tax slip-up and putting everything behind his ‘tax bad - Tories hard on tax and hard on the causes of tax’ mantra.
While he’s full of the promise of a more tax-kind future, it’ll be up to shadow chancellor George Osborne to somehow make sense of it all – get ready to watch him squirm as the promises mount up. But of course, that’s assuming the Tory tax plans carry them to victory at the next election. (And you can get odds of 5/4 on that taking place in 2009 incidentally!)
In his clearest message yet, David Cameron has come out of the moderation closet and professed his allegiance to the tax cutting cult of Thatcher et al. Setting out his party’s spending plans at an invitation only gathering in Birmingham last month, he called for a massive reduction in public spending to help cut taxes and relieve taxpayer misery.
No pain, no gain
Bullish and buoyed by traditional Tory tax-cut fervour, it’s the clearest message yet that the policies beloved of Thatcher and Lawson are set for a 'noughties' makeover, courtesy of Cameron and Osborne. In fact he very deliberately echoed the spectre of Grantham’s famous daughter, calling for a return to “good housekeeping” under the Conservatives. “Any woman who understands the problems of running a home” or who remembers one of Margaret Thatcher’s famous inaugural speeches will know what that means!
We have, according to Cameron, gone as far as we can: “we’ve reached the acceptable levels of taxation and borrowing.” “With the rising cost of living, taxpayers can’t take the pain.” It’s a popular line; a vote winner – and it’s another jab to the solar plexus for the beleaguered Gordon Brown.
So – big question: where’s the money coming from. Poor old George Osborn would probably quite like to be let in on that one too! Answer: it’s easy – provided we live within our means.
Share the wealth
Cameron has promised to share the proceeds of economic growth. Apparently, living within our means will fund our promised tax cuts. (Sounds like a rather left-of-centre way of cutting taxes to us!) Allied to that, cutting public spending (that means not spending money we don’t have thrift-fans) will go some way toward funding tax cuts – and even – provided the sums add up – diminish government borrowing in the long term.
Looking even further ahead, Cameron knows that tightening the purse strings isn’t going to support essential services. There’s still plenty to spend our money on: care facilities and kit for the armed forces; prisons and police…
So the Tories will introduce school reforms and stricter controls on public sector spending to fund a few bare necessities. And to cap it all off (with thanks once again to his muse Margaret), a return to good old fashioned family values to ease welfare expenditure.
If nothing else it’s good to see the Tories following through on their Corporate Social Responsibility – recycling decades old policies has got to be good for the environment!
THE TRUE COST OF TAX EVASION
Footballers, racing drivers, aging
rock stars – they’re just some of the UK’s super rich tax émigrés – and
they’re getting away with murder.
We’ve baulked at the figures, furrowed our brows and railed at the injustice of it all, but it seems there’s an even bigger inequality at work here. Our tax émigrés aren’t just lining their pockets and living the high life on foreign shores, they’re doing their bit to scupper the UN’s Millennium Development Goal (set in 2000) of halving world debt and eradicating extreme poverty and hunger by 2015.
In other words, tax evasion doesn’t just batter the economy, it costs lives.
This salutary message comes from the Christian Aid charity. And they’re not pulling any punches. In their recently published report – ‘The True Toll of Tax Dodging’ they’ve calculated that tax evaders can be held partly accountable for the deaths of 5.6 million children. Tax dodging, they say, is the new slavery.
It’s calculated that some of the world’s poorest nations are being denied circa $160bn in tax revenues. And that dwarfs the (relatively) paltry sum of $40-$60bn the World Bank says is needed to sustain the Millennium Development Goals. That adds up to about 350,000 children’s lives every year.
Now extrapolate those figures over the fifteen years of the UN plan and it equates to around 5.6 million children’s lives lost. In the starkest possible terms that means that there are1000 children (under the age five) dying every single day, because so many of the world’s biggest tax payers are evading their responsibilities on a grand scale.
Hall of shame
So who makes the hall of shame? Footballers? Too many to count. Racing drivers? Lewis Hamilton takes pole. Rock stars – Phil Collins has got it coming. Bono certainly wouldn’t approve. Oh dear, seems he’s on the list as well!
While the celebs are a good hook, they are, of course, only a part of the problem. In fact, tax evasion is reaching endemic proportions. There’s a very blurry line between what’s acceptable and unacceptable for organisations and individuals looking to reduce, or even avoid their tax burden altogether. Christian Aid cites a sliding scale of legitimacy, from offshore banking to outright evasion of taxable responsibilities (step forward Bono, Hamilton et al) – and lumps the super-rich celebs in with the corporate fat cats like BP and Wal Mart.
The sum total
Christian Aid is turning the focus now on the Government, urging them to straighten out the inequalities and ‘board up’ the bolt holes, like offshore banking on the Isle of Man (or Herm – check out our next story).
The incentives are clear. And the sums are pretty simple: at least half of those 350,000 deaths are avoidable, just by eradicating a couple of the big tax get-outs: false invoicing and abusive transfer pricing (the price charged between associates within multinationals to take advantage of higher and lower tax rates between associate countries). Case in point: GlaxoSmithKline. The group’s US subsidiary overpaid its UK parent company to take advantage of the relatively favourable tax exchange; thereby reducing US profits and bringing down its tax bill. Tax burden comes down, profits go up.
That’s tax that could and should have gone toward meeting UN targets and saving kids’ lives. Not something any amount of Zantacs could achieve.
We’ve already seen how tax could define the next general election. We’ve seen how it could shape the lives of millions of people worldwide. So we’re proud to say that through continual, ethical performance, CPM remains a truly tax efficient resource for our clients. We pay our dues; we meet our Corporate Social Responsibility – so you can enjoy the benefits with a clear conscience.
FANTASY ISLAND
If the prospect of the un-sweetened tax bill is too abhorrent then you could do worse than hide out on Herm! Just get in line between Messrs Ronaldo, Collins and co!
For those that don’t know (and who don’t bank there), Herm is one half holiday destination, one half tax haven. Just a mile and a half long and half a mile wide, Herm is actually the smallest Channel Island open to the public. No cars, but plenty of tax brakes.
And the lease is up!
Herm comes under Guernsey’s jurisdiction, and they’ll act as landlord to the lucky tenant with the money to splash out on a little piece of ‘paradise’ (that’s according to the brochures)!
Lord or lady of the manor
Some of the privileges of tenancy
include a manor house, a 13th century church and 80 odd
acres of
farmland – (so don’t forget the sit-on mower) – not to mention some
significant tax breaks. In common with the rest of the Channel Islands,
income is taxed at just 20%; death duties don’t apply; neither does capital
gains tax.
The tenancy agreement does stipulate that the island should be kept open to visitors (but you could always restrict the flow to a bare minimum if it all gets too much!)
The letting agents are on the lookout for an affluent young family (presumably with a keen interest in gardening) or a hospitality company. Sadly we can’t guarantee the lucky tenants will be met on arrival by Ricardo Montalban and Hervé Villechaize but there’s only so much your tax breaks can buy!
WITH FRIENDS LIKE THESE...
If your tax dues ever get you down – and you can’t manage a move to Herm, you may be able to console yourself with this: the UK is top of the VAT-friendliness leagues! (For a wile at least.)
A new feel-good survey of 500 corporations spread over 22 countries reckons our tax system makes it simpler for taxpayers. Ten per cent of overseas respondents even went so far as to say as the taxman actually made it very easy for them to conduct their business transactions here. Apparently we’re just so much more understanding when it comes to dealing with errors.
Can you feel the love?
And the benefits aren’t limited to
overseas organisations. Even three of our own home based FTSE100 big-shots
found ways of offsetting foreign earnings against domestic liabilities for a
blank corporation tax bill last year.
Don’t get too carried away though. It won’t last for ever. A new, stricter regime is on the way in – and it’ll push that love to breaking point – there’s nothing quite so sad as the love of a favourable tax regime gone sour is there?
The brush-off
The report suggests that organisations all over the world are struggling with VAT and other indirect taxes while corporate taxes decline. In fact 82% of respondents suggested that their annual VAT throughput came in somewhere between $200mn and a whopping $1bn per anum.
And it’s only going to get worse. The focus on indirect methods of taxation has been rising steadily – due in part to legislative change and economic uncertainty. By next April, companies will have to foot far bigger penalty payments too. The pressure to get the sums right is going to be huge – not always easy when VAT systems are so markedly varied even between European member states.
Nationally it ramps up the pressure too. As penalties escalate, we’re all going to be beholden on our accountants and finance directors to keep us competitive. And there are certainly ways in which they can minimise risks and maximise VAT opportunities to deliver real cost savings and competitive advantage. From setting product prices to selecting new operational locations, shareholders need to invest a little faith in the money men from here on in.
AN APPLE A DAY...
Some say we could all do with
a few pointers from the money-men and women. City investors have warned that
we’re sleepwalking our way into a debt crisis – and that the government
isn’t doing enough to address it. 
The middle classes are the worst affected – and bankers are calling for a back to school style programme of personal finance awareness training, backed up with a five-a-day style education campaign. Well, it worked for fruit and veg!
Even the well intentioned scrimpers and savers are at risk it seems: some savers are balancing savings against costly debts, whilst others are letting the lolly languish in ineffectual cash accounts – when they could be earning big interest on investments. Well, you’d expect an investment banker to say that wouldn’t you?
Time to wake up?
It may be galling that it’s the investment bankers who are telling us this. But are they right?
Let’s hedge our bets. Yes – we know there’s a huge shortfall between people’s pension expectations and their abilities to realise them. Yes, too few of us have adequate life and income insurance; too few have something set aside for the inevitable ‘rainy day’.
But sleepwalking? Hardly. We’re surely all too aware that life is costly and times are hard. And surely no amount of re-education is going to change that.
What you can do is carry on contracting! Because we’re still doing our bit to make the contracting life an easy one. No evasion – and no shortage of benefits for you.