Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Tax Avoidance in the UK

The UK is a modern country that is home to many companies, ranking 7th in the World Bank’s ease of doing business index. But a big problem facing the country and indeed other nations like the USA is that companies are dodging taxes when in the country. In 2010, Apple only paid £10 million in British taxes despite making around £6 billion in sales. A similar story was reported on Amazon, after making £8 billion in sales in the UK they have yet to pay any corporation tax. This is a common practice by the big multinationals of the world; they can escape paying a large amount of the tax as they can use foreign subsidiaries where corporation tax is much lower, like the British Virgin Islands or Ireland. In fact, Facebook chose Dublin in Ireland as the location for its international HQ, as the corporation tax was very low.

Apples cash holding vs the amount of tax it pays to the USA

The British Virgin Islands has the unusual statistic of having 457,000 active companies, a ratio of 16 companies to every citizen. A lot of these are shell companies, set up by firms to hide accounts for the main purpose of tax evasion and money laundering. This is the big problem, as firms can hide funds from the government through lots of smaller shell companies and can even use these to place bribes to officials, showing corruption is still prevalent in society. In 2011, it was reported that 25% of the FTSE 100 companies were avoiding tax through foreign tax havens, this went up to 98% using the stricter US Congress definition of tax havens. While in 2010, tax evasion cost the UK government £15 billion compared to benefits fraud, which cost just £1 billion in comparison. Switzerland, a more famous location for secret bank accounts are now being cracked down on by the likes of Germany, pushing the UK into a decision on whether to toughen its tax agreements with the country (with a clause in the current deal making it possible). This could raise an estimated £5 billion for the UK government and could be worth pushing, though secrecy laws on the income of individuals would remain intact.

This shows the British Virgin Islands has very low costs for starting businesses

George Osborne has made public his stance on tax avoidance, calling it “morally repugnant” and suggesting a concentration on this subject is in the governments mind. This could mean extra powers given to HMRC, when there is already concern on the current powers afforded for example: being able to request information on an individual from third parties (like banks) and being able to inspect business premises unannounced. The concerns are also that tax payers won’t have much protection, with the appeal system time consuming and costly. But this is a popular method of dealing with the heavy budget deficit the government needs to dig itself out of, as it will mostly be a problem for the rich and businesses – current public targets. A recent success was a blocking two tax avoidance schemes by Barclays that would have amounted to £500 million in tax revenue lost.  But the recent budget also admits defeat in trying to tax the rich, as the 50p tax rate was dropped to a 45p tax rate, showing the government wasn’t confident in its ability to beat the rich and their accountants.

Gaining to many powers?

For now the wealthy individuals and firms remain slippery in the current tax system. They can afford better accountants than the government sadly and with small countries happy to offer tax havens there will all ways be a get out clause for them. But it is important that they are made to account for themselves, otherwise money that should be flowing into the government and therefore the countries itself is being cut off. This revenue for the UK is important in keeping the country running and any loss in it can have a negative effect on the rest of us as budgets are tightened. Even more so, it sends a bad message that the rich do not have any responsibility to finance the country they live in, when they should be treated as any other member of the UK.


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