The cost of unjustified tax breaks to business and wealthy landowners continues to soar, new figures show
The cost of tax breaks awarded by the government to businesses and the already wealthy continued to soar in 2018, according to new figures released on the same day that millions will file their tax returns.
Figures from the HMRC released today show billions were awarded in tax breaks for ‘entrepreneurs’ and already wealthy landowners, despite public services in the UK continuing to be affected by austerity.
Tax Justice UK Executive Director, Robert Palmer, said: “Many of the reliefs are simply giveaways to companies and the wealthy. HMRC rarely looks at whether they are good value for money and are actually doing what they are meant to.”
Just two tax giveaways that need to be re-examined include:
Robert Palmer said: “Many of these reliefs are simply giveaways to companies and the wealthy. HMRC rarely looks at whether they are good value for money and are actually doing what they are meant to.”
“As millions of people across the UK file their tax returns, many will be appalled at the levels of tax breaks doled out. While some of these reliefs are sensible, there are still billions of pounds spent on unjustified giveaways to the wealth and big companies, which make little, or no, economic sense.”
Notes to editors:
Details of the costs of tax reliefs given out last financial year are available here.
With the 31 January self assessment deadline looming, Tax Justice UK highlight statistics showing the ongoing unfair tax advantage available to self-employed business owners
Figures from the Institute for Fiscal Studies (IFS) show that an employee earning £40,000 a year will pay £12,262 in tax. This is £4,556 more than a self-employed person who earns the same but has opted to incorporate as a self-employed company manager/owner. The overall rate of tax paid by self-employed manager/owners can be as low as 19%, far less than the 32% rate likely to be paid by an employee earning the same salary.
Robert Palmer, Executive Director of Tax Justice UK said: “At a time when people will be rushing to file their tax returns ahead of the self-assessment deadline, it seems unfair that a self-employed company owner can pay significantly less overall than someone doing the same job for the same wage, but as an employee of a company.”
In recent years the difference in tax between the employed and self-employed has regularly been highlighted by the Institute for Fiscal Studies (IFS) * and the Office for Budget for Responsibility (OBR) **.
Instead of paying employment income tax and national insurance, people who incorporate can pay income tax on dividends, which are wholly untaxed up to £2,000 and avoid national insurance contributions altogether, whereas a normal employee is liable for income tax and national insurance
Treasury takes a £3.5 billion hit, but the economic benefits are questionable
Despite self-employment being a significant driver of employment since 2008, the OBR predicts tax revenues will be £3.5 billion lower in 2021/22 as the rate of people incorporating grows faster than employment. Research by the IFS has shown that the number of owner managed businesses (one owner and manager) has increased by 600% to 300,000 since 2007/08. People working in ‘business services’ make up by far the biggest proportion (30%) and owner managers earn up to 4.5 times more than others in self-employment. Meanwhile the share of these business owners investing, or employing others has dropped dramatically in recent years, according to the IFS research.
Mr Palmer said: “Self-employment has been a significant driver of overall employment in recent years, but the move from employment to self-employment can come at a cost in terms of overall tax revenue This reduces the money available to fund public services like health, housing and social care.
“The government needs to explain why owner managers are able to pay less tax and consider removing the tax difference between owner managers and those in other forms of employment, altogether.”
* Institute for Fiscal Studies, IFS Autumn Budget, 2018, Helen Miller: ‘Patching up business taxes.’ (from 10 mins 14 secs)
** Office for Budget Responsibility: Fiscal Risks Report, July 2017 (pg 112)
*** Institute for Fiscal Studies: Self employment and entrepreneurship: tax records and challenges for policy 4 Jun 18)
More information is included in the IFS publication: ‘Tax, legal form and the gig economy’ (Section 7)
It is one of the classic refrains of social media: “Who funds you?” a demand for openness and transparency, rightly levelled at campaigns whose aim is to influence government policy.
Tax Justice UK is a campaigning organisation and our aim is to make the case for the positive role that tax plays in our society. We seek to champion changes to make the tax system work better, while at the same time supporting a fair, sustainable and thriving economy.
We have three long term goals:
Tax Justice UK Executive Director, Robert Palmer, said:
“In 2017, Tax Justice UK was incubated out of the Tax Justice Network, a global network of organisations committed to transparency on tax and financial affairs.
"Never has it been more incumbent on campaigns in the UK to be open about who funds them, that’s why I am happy to see our annual accounts published.”
You can view our latest annual accounts here.
Corporation tax a shrinking part of the pie as UK tax take is increasingly focused on taxes that hit the poor
VAT, which hits the poorest hardest, is a growing proportion of UK government revenues, while corporation tax is shrinking as a percentage of the total tax take, according to figures released yesterday by the OECD.
Between 2010 and 2016 the proportion of tax the UK raises through VAT grew from 18.7% to 20.8% of total tax, an increase of 2.1%. By contrast the proportion raised by corporation tax decreased from 8.9% to 8.3% over the same period. Over the last eight years the government has slashed the corporate tax rate, and it’s due to fall further to 17% by 2020.
The figures come after a separate report by the OECD last week that ranked the UK 21st out of 33 countries for the amount of overall tax raised as a proportion of GDP.
Tax Justice UK Executive Director, Robert Palmer, said it was time the UK looked at rebalancing the UK’s tax take, away from regressive taxes like VAT, towards a greater focus on fairer taxes, such as those on wealth:
He said: “These figures, show that VAT is making up a growing proportion of the amount of tax raised in the UK, whilst the contribution made by corporation tax is decreasing.
“The UK needs to be looking seriously at how it taxes in a fair way, including through smart taxes on wealth. We should be correcting the over-reliance on VAT if we want truly good public services funded through fair taxes.”
In its pre-budget report, The World We Want, Tax Justice UK set out a range of reforms to wealth taxation to secure greater investment in the NHS and other public services.
The OECD revenue statistics report ‘Revenue Statistics 1965-2016’ is available here.
Contact: Paul Heden, Head of Communications, Tax Justice UK: 07413 729 505 or email@example.com;
Robert Palmer, Executive Director, Tax Justice UK: 07817 406618 or firstname.lastname@example.org
Following recent discussions on social media, which cited Tax Justice UK, we want to make clear our support for trans rights as set out in our equality and diversity statement. We have updated this statement to make it clear that all staff, technical advisers, and consultants are expected to follow to it, and to include details of how we will deal with any complaints. Our advisers are volunteers who provide technical advice to the organisation on an ad hoc basis.
By Robert Palmer, Executive Director
I’m delighted to announce the appointment of Paul Hebden as Tax Justice UK’s new Head of Communications, starting on 19 November.
Paul joins TJ-UK having worked within the NGO and charity sectors, and as a journalist, for a number of years.
He will take a hands-on role in developing a communications strategy and work with the media, and across social and digital channels, on practical and creative tactics to help reframe issues around tax.
Paul was previously Head of Media at the disability NGO, Sightsavers, and held similar roles at the International HIV / AIDS Alliance and World Cancer Research Fund. As a journalist, he was news editor of Inside Housing magazine and worked in regional newspapers and as a media consultant for social housing and homelessness organisations.
I’m looking forward to working with Paul as we campaign for everyone in the UK to benefit from a fair and effective tax system.
Robert Palmer, Executive Director of Tax Justice UK said:
“Austerity isn’t over after all, and the tax system is still unfair. Our schools, hospitals and prisons urgently needed major injections of cash today. Instead the Chancellor made some eye-catching tweaks to existing pledges while awarding tax cuts to corporations and the wealthy. That is a missed opportunity.”
On digital tax reforms:
“Digital companies make an awful lot of money from our economy and haven't put enough back in to date. But £400 million won't go very far towards the £20 billion a year the government has said we need for the NHS. We need companies across the board to pay more - raising corporation tax is the best and fairest way to generate the money we need to fund our public services.”
For interviews contact: Robert Palmer on 07817406618 or email@example.com or Oliver Courtney on 07815 731889 or firstname.lastname@example.org.
Tax Justice UK is a new campaigning and advocacy organisation, with a mission to ensure that everyone in the UK benefits from a fair and effective tax system. Tax Justice UK is a partner of but independent from the Tax Justice Network. It is not-for-profit and politically non-aligned.
For more information and to download a copy of the latest report on how the government should raise taxes on wealth to fund the NHS visit www.taxjustice.uk.
The government has talked a lot about tools to curb corporate tax avoidance. A key power, which it has available to it, is to require multinational corporations to publish their accounts on a country-by-country basis. This information is already collected by companies but is currently only available to HMRC. Making this information public would help expose the extent to which companies can slash their tax bills.
Building on two academic studies, Tax Justice UK and our sister organisation, Tax Justice Network, estimate that this move could bring in £2.5 billion in tax a year by deterring corporate tax avoidance. In the run up to the budget statement, we’re calling on Chancellor Philip Hammond to make use of the legal power.
Read the full briefing paper
Read the methodology
At least part of the extra £20bn a year the government has promised for the NHS should come from additional taxes on wealth, according to a new report from the campaigning organisation Tax Justice UK (TJUK).
Ahead of the budget later this month, the organisation is calling on the government to raise corporation tax, abolish entrepreneurs’ relief, reform council tax, make older workers pay National Insurance Contributions (NICs), curb the pension subsidy for the wealthy, and tax income from wealth at the same level as income from work. Together these proposals would raise over £23bn.
“A clear majority of the UK public support increasing tax to help fund the NHS. This is a golden opportunity for the government to reform the tax system so that wealth tied up in property and other assets is taxed fairly,” said Robert Palmer, CEO of Tax Justice UK.
In June 2018, Theresa May announced an extra £20 billion a year for the NHS by 2023. She promised that part of this would come from ‘fair and balanced’ tax increases. The NHS is facing rising costs due to an aging population, increasing obesity, and expensive new treatments.
Estimates suggest that just to maintain the current service, spending will have to rise by 3.3% annually for the next 15 years, with increases of 4% per year if services are to be improved. This represents an extra £95 - £124 billion by 2033-34 – a lot more than the Prime Minister promised.
In the current political and economic climate, further cuts to other government budgets such as defence, local authorities and housing would be difficult. Tax rises will have to form part of the solution to the NHS’s needs, and TJUK argues that the government should look beyond the three main taxes: income, VAT and National Insurance.
The organisation proposes four guiding principles to determine which taxes should go up: companies and the wealthiest should pay their fair share to ensure trust in the system; tax should increase in proportion to a person’s wealth and income; a sustainable tax system needs to look beyond increasing taxes on just those at the top and companies; and the poorest should be protected from tax rises.
In line with these principles it suggests raising the corporation tax rate to 20%, which would generate £8.4bn, abolishing entrepreneurs’ relief, which would raise £2.7bn, taxing income from wealth at the same level as income from work, which could raise £4bn, reforming council tax to more accurately reflect real property values, which would raise £5bn, applying NICs to earnings of those older than the state pension age, which would raise £1.3bn, and curbing the pension subsidy to the wealthy, which would raise £2bn. In total these reforms would raise £23.4bn a year.
Robert Palmer: “Our proposal is just one way in which the government could raise taxes to fund the NHS and promote a more equal and fairer society. Any reforms along these lines would need to be accompanied by greater efforts to clamp down on tax avoidance and evasion. Ultimately this should be seen as a real opportunity to have a broader debate about the level of public services we want and how to pay for them.”
Contact: Amy Barry on 07980664397 or email@example.com; Oliver Courtney on 07815 731889 or firstname.lastname@example.org; or Robert Palmer on 07817406618 or email@example.com
Tax Justice UK submitted evidence to the Treasury sub-committee inquiry into tax avoidance and evasion.
You can read the full text of what we submitted here.
The summary is:
The last decade has seen a shift in the way the UK government tackles tax avoidance and evasion. Responding to public anger over wealthy individuals and companies not paying their fair share of tax, and the need to plug holes in government revenue, the UK has joined countries around the world in closing loopholes and tightening enforcement. Following the financial crisis, the G20 declared in 2009 that ‘the era of banking secrecy is over’. There is anecdotal evidence that FTSE 100 companies, especially those with a high public profile, are less likely to use some of the more complicated tax avoidance schemes than used to be the case.
At the same time, the Conservative-led coalition government that came to power in 2010 pledged to create one of the most company-friendly tax regimes in the world. With a corporate tax rate heading to 17%, from 28% in 2010, there is simply less tax to avoid in the first place. The UK government has set out a policy to use the corporate tax regime to attract foreign investment. Mechanisms such the the Controlled Foreign Companies (CFC) rules and the Patent Box are part of this approach. Companies can use the UK’s light touch corporate tax regime, and the UK’s tax treaty network, to reduce their tax bills in other countries, including developing countries.
The risk of tax avoidance is still high for private companies and wealthy individuals. HMRC’s budget has been cut and it does not have the resources it needs to properly target tax evasion and avoidance. The agency’s governance also needs to be overhauled to insulate it from corporate capture, while at the same time responding to the needs of all stakeholders.
There are a range of things the government should do. They include:
We also submitted to the inquiry on tax disputes. You can read the text of our submission here.