Election Year or Fear!

[SithHappens]

A mate of mine has always regularly taken cash and squirreled it away. He is finding it harder these days as people move away from paying in cash, especially as although he's technically self employed his work is through a company and quoted by them.

Ive always wondered how hes managed as there is a paper trail of the jobs he does.

He does put receipts for personal stuff against his tax return. Fuel , mobile etc, clothing etc.

I know its fairly insignificant when compared with some of the bigger players, but as an industry it is significant, certainly amounting to billions in lost tax.

[ramAnag]

Whatever

There are a dozen blowhards like your acquaintances in any given pub, there's one that sits behind me at the match, claiming all sorts of financial *******s that is clearly bragadaccio. But lets assume their conversations had a basis in truth. Were they talking about NOT paying all the tax that they should (illegal) or paying ONLY paying what's due (legal)?

Not paying would be achieved by doing work 'for cash' and leaving it off 'the books' or claiming non-business expenses as business expenses. The former is the easiest, in fact we've had that discussion on here before, with a lot of erring and umming about whether we here assembled had ever asked for a price 'for cash'. Overstating business expenses is a bit more sophisticate but its still basically lying

However, HMRC rules are there for a reason, and a good, trained, expert accountant would work the HMRC rules as hard as possible to minimize 'tax exposure', including advising on if/how a business is incorporated. I don't see any problem with that, the rules must be there for a purpose and and have been set by administrations of more than one colour.

Maybe your acquaintances were just braggards and their accountant was an absolutely solid citizen staying the right side of the rules, who knows?

Okay, you’re right, we have been here before and you’re clearly getting a little tetchy which, when coupled with GP’s mildly insulting and typically incorrect asides, means we’re getting nowhere.

Returning to some sort of sense…I think the point is (certainly mine and probably others)…we live in a society where the top 1% hold roughly 20% of the nation’s wealth, the top 5% account for 40%, while the lower 50% hold less than 5%.
Against this background we allow some to earn extraordinary - and, imo, obscene - amounts of wealth while getting our collective knickers in a twist about the affordability of raising the minimum wage to 12.71 per hour.

I doubt I’m alone in challenging the fairness/acceptability of such a scenario and I’d be genuinely interested in your own (preferably polite) response to and possible justification of the situation described.

[MadAmster]

Apologies to those who can't/won't access FB but I saw this video on there earlier. As well as showing what appears to be the truth, I also found it amusing.

https://www.facebook.com/reel/1518555279871192

... don't forget to turn the sound on, on the link

[Andy_Faber]

Okay, you’re right, we have been here before and you’re clearly getting a little tetchy which, when coupled with GP’s mildly insulting and typically incorrect asides, means we’re getting nowhere.

Returning to some sort of sense…I think the point is (certainly mine and probably others)…we live in a society where the top 1% hold roughly 20% of the nation’s wealth, the top 5% account for 40%, while the lower 50% hold less than 5%.
Against this background we allow some to earn extraordinary - and, imo, obscene - amounts of wealth while getting our collective knickers in a twist about the affordability of raising the minimum wage to 12.71 per hour.

I doubt I’m alone in challenging the fairness/acceptability of such a scenario and I’d be genuinely interested in your own (preferably polite) response to and possible justification of the situation described.

It wasn't tetchy it was dismissive (said he pedantically)

You still seem to be conflating (never used that word before) the 'filthy rich' and the 'well off' so I'll stick to answering your points

Agreed that's the society we live in

Personally I have no objection to people earning large amounts if they've done so legally and morally, in particular without stiffing the plebicite. Be careful who you tar and feather, our saviour DC is in the 1% I presume you refer to, I personally don't begrudge him a penny and wouldn't whether he'd saved our club or not. You can be sure by the way that he employs accountants to ensure he only pays the correct amount of tax which puts him, just in my estimation, on a higher plane than the fellah selling disposible vapes and contraband fags in our nearest shopping precinct .

One area of remuneration I don't agree with is where pay comes from public funds either directly or indirectly and there is (or appears to be) 'reward for failure'

In my case only (not sure who else you are referring to) I have no objection to any level of minimum wage, but be careful what you wish for especially if you have young family members looking for work. Personally I'd rather see 100 people employed at £10 per hour than 80 at £12.71 and so would the youngsters being passed over forthe already experienced at the same pay rate. Its not an easy balance to get right, I think the current administration (and low pay commission) have ****ed up with recent awards

[ramAnag]

In my case only (not sure who else you are referring to) I have no objection to any level of minimum wage, but be careful what you wish for especially if you have young family members looking for work. Personally I'd rather see 100 people employed at £10 per hour than 80 at £12.71 and so would the youngsters being passed over forthe already experienced at the same pay rate. Its not an easy balance to get right, I think the current administration (and low pay commission) have ****ed up with recent awards

I think you’re looking at the wrong choice, Andy. The choice isn’t - or shouldn’t be - between being paid ten pounds or 12.81 per hour. The choice is whether we find it acceptable for individuals to be allowed to earn hundreds of thousands per week while others are struggling to take home as much as 400-500 quid per week.

There are a great many extremely wealthy people in this country who have acquired their riches on the backs of people earning between ten and 12.81 per week (80 - 102.48 per 8 hour day). I’m questioning how fair that is.

[Geoff Parkstone]

A mate of mine has always regularly taken cash and squirreled it away. He is finding it harder these days as people move away from paying in cash, especially as although he's technically self employed his work is through a company and quoted by them.

Ive always wondered how hes managed as there is a paper trail of the jobs he does.

He does put receipts for personal stuff against his tax return. Fuel , mobile etc, clothing etc.

I know its fairly insignificant when compared with some of the bigger players, but as an industry it is significant, certainly amounting to billions in lost tax.

I suspect most self employed people "take cash" on occasions, which not only avoids VAT for the buyer but also Income tax and NI for the trader - the buyer (Joe Public) saves 20%, the trader may save between 28% and 42%. Its a win-win. Doesnt make it right but its extrenmely hard to detect and prove when both parties are united in a common cause of reducing their own costs. As you say its getting less and less viable as banking controls look into mystery cash withdrawls and deposits far more and its actually not easy to spend pound notes any longer. Notwithstanding, the self employed who squirrel away cash are simply cheating the system and no accountant I know would either recommend or tolerate this.

Deductions for expenditure are different for PAYE employees and the self employed - eg phones, internet, IT costs etc, elements of motor expense are tax deductible for the latter but not the former. Clothes are not deductible for anyone unless health and safety and similar. Here the self employed person is in a preferred position. Similarly the self employed person pays a bit less NI. Anybody claiming excessive deductions are simply cheating the system and no accountant I know would either recommend or tolerate this.

But then again the person under PAYE is in a far more protected position work wise. No holiday pay, employer funded pension, sick pay etc for the self employed, who also has no guarantee of continuous work, nor protection by employment rights. Thems the rules and its up to the individual's risk-reward appetite which way of earnings they chose - we still live in a relative democracy. Pay a little less tax and NI and sacrafice job security and benefits.

For so long as these rules are complied with, there is nothing wrong with the governing principles ane rules treating the employed and self employed differently.

The third option of being "self employed" via your own company - the reason why so many eg brickies only earn 12,570 pa - has rapidly reduced in value to the point where the difference/advantage is marginal. This is likely where so many people brag of paying so little tax THEMSELVES - because their company pays a load of the overall bill due to HMRCfrom the enterprise. Ive heard so many people in this scenario bragging about how little tax they pay, conveniently forgetting the 35% that their company (ie them in effect) pay.

Sure there will be a few dodgy accountants around who may get creative but the biggest issue is with those taxpayers who do things themselves and have very poor memories as to what they earn, and very expansive thoughts on deductible expenses. But these guys arent the big fish, they dont use offshore options, trusts etc where avoidance of tax is primary (or at least deferral mainly).

I'm n ot defending amoral accountants bending the rules - and these will be relatively rare - any more than Im sure rA wouldnt defend *****phile teachers - equally rare. But all get tarred with the same brush

[ramAnag]

Sure there will be a few dodgy accountants around who may get creative but the biggest issue is with those taxpayers who do things themselves and have very poor memories as to what they earn, and very expansive thoughts on deductible expenses. But these guys arent the big fish, they dont use offshore options, trusts etc where avoidance of tax is primary (or at least deferral mainly).

I'm n ot defending amoral accountants bending the rules - and these will be relatively rare - any more than Im sure rA wouldnt defend *****phile teachers - equally rare. But all get tarred with the same brush

No they don’t, but the small minority do exist, in the form of corruption, laziness and/or incompetence in all professions…and yes, you’re right, ‘these guys aren’t the big fish’ but let’s go after those you speak of who use, in your own words, offshore options, trusts etc where tax avoidance is ‘primary’.

[Geoff Parkstone]

Note Tax avoidance is legal.

You want to "go after them" you have to redesign the global rules - which is not something the UK can do on its own, as by definition the use of the word "offshore" puts the ball equally in overseas tax jurisdictions as well. Now if I am an economy that taxes at, say 10% to attract high earners, am I going to toughen those rules and thus lose my revenue stream: which in some cases may be crucial to my own country's GDP - am I fxxx.

This global structure creates/facilitates the inequities you so deplore. But I contend that its insoluble. Its like the call to increase tax on non doms - you risk losing the tax they do pay by driving them out due to your seeking more from them. There is a balance, but where that tipping point lies is hard to spot.

We live in a multinational economy - no longer with the ability to tax either our wealthy or those who trade in our own country. Case in point - those wonderful "influencers" who buggered off to Dubai to avoid paying tax, yet whinged about not receiveing help to bring them home when the war kicked off making them potentially collateral damage. Those guys, in the greater scheme of things, were equally small fish income wise, but in today's tech based working could simply shed tax residence for the cost of an air fare (in simple terms).

I'd argue that when even the small fish can easily minimise their tax bill, what hope do you have of getting the big fish to even pay attention. These people have no loyalty to the country of birth, you cannot change other country's tax rules (especially where its not in their interest to).

This is another realpolitik v idealpolitik scenario Im afraid

[ramAnag]

Note Tax avoidance is legal.

You want to "go after them" you have to redesign the global rules - which is not something the UK can do on its own, as by definition the use of the word "offshore" puts the ball equally in overseas tax jurisdictions as well. Now if I am an economy that taxes at, say 10% to attract high earners, am I going to toughen those rules and thus lose my revenue stream: which in some cases may be crucial to my own country's GDP - am I fxxx.

This global structure creates/facilitates the inequities you so deplore. But I contend that its insoluble. Its like the call to increase tax on non doms - you risk losing the tax they do pay by driving them out due to your seeking more from them. There is a balance, but where that tipping point lies is hard to spot.

We live in a multinational economy - no longer with the ability to tax either our wealthy or those who trade in our own country. Case in point - those wonderful "influencers" who buggered off to Dubai to avoid paying tax, yet whinged about not receiveing help to bring them home when the war kicked off making them potentially collateral damage. Those guys, in the greater scheme of things, were equally small fish income wise, but in today's tech based working could simply shed tax residence for the cost of an air fare (in simple terms).

I'd argue that when even the small fish can easily minimise their tax bill, what hope do you have of getting the big fish to even pay attention. These people have no loyalty to the country of birth, you cannot change other country's tax rules (especially where its not in their interest to).

This is another realpolitik v idealpolitik scenario Im afraid

I don’t know, GP. With your sensible head on you seem, on the one hand, much more critical of those who avoid paying their fair share of tax than has often previously been the case, while on the other you just seem to regard the whole issue as unresolvable.

Not for the first time I will readily concede that, where matters relating to finance/taxation are concerned, you are infinitely more knowledgeable than me. As regards idealism v realism…I recognise the conflict but, imo, something has to change and idealism has often been the major instigator of significant change.

[Andy_Faber]

I think you’re looking at the wrong choice, Andy. The choice isn’t - or shouldn’t be - between being paid ten pounds or 12.81 per hour. The choice is whether we find it acceptable for individuals to be allowed to earn hundreds of thousands per week while others are struggling to take home as much as 400-500 quid per week.

There are a great many extremely wealthy people in this country who have acquired their riches on the backs of people earning between ten and 12.81 per week (80 - 102.48 per 8 hour day). I’m questioning how fair that is.

Its probably not 'fair' but no government has solved the puzzle, and as GP points out, its not really a national issue its a global one.

[MadAmster]

If a company trades in the UK and makes a profit on UK transactions, IMO, wherever their head office may be, they should pay UK tax on those profits.

I have the same view online. If an item is sold to a UK citizen/company/address, irrelevant of where the company is registered, annual profit derived from UK sales should be taxed in the UK.

It won't happen, I know, but it should.

[Geoff Parkstone]

The only way to get a grip on both those points would be to put some sort of sales tax on transactions, but how you can impose that on the seller is another question entirely

[Andy_Faber]

There are a great many extremely wealthy people in this country who have acquired their riches on the backs of people earning between ten and 12.81 per week (80 - 102.48 per 8 hour day). I’m questioning how fair that is.

How do you think many of those 'extremely wealthy people' started off?

Probably earning the equivalent in their youth of £12.71 per hour (significantly less if my first pay packed was anything to go by), or by starting, at their risk, a sole trader/kitchen table enterprise, which in some very rare cases grow to enterprises large enough to employ one or more (possibly thousands) of other people on £12.71 per hour who then have their own chance to shine.

[Geoff Parkstone]

People make choices in life. Some are entrepreneurial and take risks with their career choices. Others opt for the security of a PAYE based job with its bolt on benefits. Those who take the risks can reap the rewards and accumulate significant wealth; those who prefer the safety of a regular income may accumulate some wealth but never the really big money (except maybe hedge fund managers and the like who take massive career risks every day with other people's money.

Sure people may make extreme wealth on the backs of other more risk averse "plodders" on relatively low remuneration. But those individuals dont want to risk all to obtain wealth (or dont have that magic spark that eg Richard Branson does). It does piss me off when those non risk takers demand a share of the rewards obtained by risk takers. They didnt stake their reputation on an idea for a business, they didnt maybe put their house in hock to get started. No they came in to work 9-5, went home and didnt have sleepless nights sweating on whether a deal would make or break the business or "live the dream" 24/7.

Some here feel its not fair that the rewards are not shared more widely. Personally I feel the unfairness lies in the entitled people who think the non risk takers should be rewarded. Different perspectives of the same issue. I am whole heartedly in favour of incentive schemes, profit sharing, employee stock options schemes etc - that way everyone grows together, but these need to be performance related: but looking to achieve it through punitive taxes to redistribute wealth regardless of performance is abhorrent.

You could argue the current system is exploitative of the British worker - but squeeze the lemon too hard and entrepreneurs will simply take the jobs and profits overseas crippling the UK economy with job losses / tax revenue declines and still getting the work done in (say) Bangladesh for a fraction of the cost of the UK. Its so much easier to do this in a multinational global economy.

It wasnt impossibly difficult 60 years ago (remember the plastic toys "made in hong kong" in your Christmas stockings - well maybe not Sith) but now its something that is so simple. On a global basis one could even say its fairer because it spreads wealth to the more needy genuinely poor people, not those looking on a pay rise to buy an extra pint or two, holiday, car or other semi luxury item.

[MadAmster]

How do you think many of those 'extremely wealthy people' started off?

Probably earning the equivalent in their youth of £12.71 per hour (significantly less if my first pay packed was anything to go by), or by starting, at their risk, a sole trader/kitchen table enterprise, which in some very rare cases grow to enterprises large enough to employ one or more (possibly thousands) of other people on £12.71 per hour who then have their own chance to shine.

My first pay packet was a tenner, take home, for a 40 hour week and I was 17. It was 55 years ago, admittedly.

The bit in bold. Many do, indeed, start as a sole trader with all the risks involved. That's why, in a previous recent post in this thread, I advocated for higher tax on income NOT generated through work but with tax incentives for the first few years after which the incentives would reduce over a number of years. Helping people to get a start. When a company has become established, the risk has all ut disappeared. It's at that point that they should start paying PAYE levels of tax or we see PAYE reduced to corporation tax/dividend tax levels.

Yes, help starters. There really should be a point at which profits/dividends should attract the same levels of income tax as PAYE. There should also be a Law against people starting a business, reaching the point where they'd be paying PAYE tax levels on profits/dividends, shut up shop, basically restart the same business under another name and sinply carry on. Same would apply to someone else buying the now successful business. If it's well established and paying PAYE tax levels then the new owners pay that level too.

There will be those who disagree with me but I have no issue with a wealth gap. I do, however, have issues with the chasm it has become. Over the past 3 decades we've had several crises. Short term, just about everybody got hit and there were some who actually profitted. Mid to long term, the richest 5%, large corporations and multinationals came out of each and every one, better off than they were before. There may be the odd exception to that but the vast majority were better off.