28/07/17

'Disgusting and astonishing': how do the UK's top 1% view tax avoidance?

The Guardian -- As a new study names the UK as one of the main conduits for corporate tax avoidance, we ask members of Britain’s highest pay bracket for their insights.

Corporate lawyer, earns more than £300,000 annually:

“The position of the UK as a major player in the global financial secrecy world, presumably through crown dependencies such as the British Virgin Islands and the Caymans, is disgusting. I have no problem with low-tax countries so long as they are transparent, and people who are using them can be taxed in their own countries. But the fact the UK allows its territories to openly flout international tax transparency principles is astonishing.

The industry I work in, private equity, is built around the use of legal tax planning to avoid the payment of taxes, and around the classification of executives’ performance-related compensation as capital gains [profit from an asset] rather than income. These things do not even amount to tax avoidance; they are simply the way the tax system works for private equity investment. Whether you agree or disagree, it’s the way UK tax law works and has been accepted for decades.”

Corporate financier, annual income around £170,000:

“I’ve come across people I believed were defrauding the state - mainly by putting significant personal expenses through their own privately held companies, passing them off as business expenses, and thereby reducing their companies’ taxable profits. It’s not that uncommon.”

The Inequality Project: the Guardian's in-depth look at our unequal world

This respondent’s most recent full-time job was working for a hedge fund, making £450,000-£600,000 per year:

“Whilst working for an investment bank that was part of a major UK bank, I was offered the choice to get paid via dividends from a Jersey-registered company but turned it down – which annoyed them, since they would have saved on employer’s national insurance. I think it’s okay to use ISAs [individual savings accounts which are tax-free] and put money into pensions, or put money in your spouse’s name to reduce your tax bill. The difference is that ISAs are very commonly used and accessible to everyone ... Something that’s designed in an obfuscated way, that only the very wealthy can access, which isn’t commonly used – that’s not on in my book.”

Management consultancy partner, earning £500,000-£700,000 per year:

I know high-net-worth individuals who use tax havens. While the ethics of doing so are questionable, the responsibility lies with politicians and lawmakers to use legislation to plug the loopholes and incentivise the right behaviour.

If a colleague was avoiding tax in a dubious way, would you blow the whistle on them?

Works in recruitment, earns between £150,000 and £300,000 per year:

“Probably not, for the simple reason that it’s extremely difficult to tell if someone is legally or illegally avoiding tax. These types of schemes are frequently so complex that even international tax lawyers often don’t agree, so how could a relative layman make a judgment? Also, because the damage caused by such actions is more hidden than that by other crimes, it’s often seen as less serious. And who do you start blowing the whistle on: the hedge-fund manager, or the cash-in-hand cleaner?”

Have you ever felt unhappy with your company’s approach to paying corporation tax?

Worked for a hedge fund, making £450,000-£600,000 per year:

“The last company I worked for ... did the ‘normal’ thing of having funds managed in offshore jurisdictions. This didn’t reduce the corporation tax payable, but could help others evade tax. It doesn’t have any effect if you’re an honest UK taxpayer, since you pay tax when the funds are repatriated. But if you were dishonest and failed to declare the funds, you’d get away with it.”

What one measure would you like to see introduced to improve the tax system?

Corporate financier, annual income around £170,000:

“Do away with all credits and reliefs and all tiered rates of tax on income and capital gains. Instead, introduce a flat rate of tax for everyone on all income in excess of £20,000 per year (to protect the poorer members of society, who should pay no tax at all), regardless of whether that is employment or investment income. There would no longer be an incentive for people to try to reframe income as capital gain. Tax deferral/avoidance/mitigation schemes would be made redundant - as would a number of tax advisers.”

Works in recruitment, earns between £150,000 and £300,000 per year:

“Taxation is a bit like climate change – unless everyone’s on board, it’s difficult to be truly effective. Until countries stand together and say ‘corporations must pay their taxes regardless of where they are based’, the problems will continue – with corporations exploiting opportunities for tax minimisation wherever they might be. In short, legislation needs to be more global.”

Former hedge fund manager, making £450,000-£600,000 per year:

“Universal basic income, or a Piketty-style tax on wealth. To earn £100,000 risk-free, inflation-protected at current interest rates, you need around £3 million. If you have more than that, you pay 1% a year on the extra. More than £10 million: 2% a year. More than £100 million: 5%. More than £500 million: 10%. Taxes can be deferred until death for old ladies on low incomes living in big houses that, selfishly, don’t want to sell. Payable on all UK assets, regardless of who owns them, and payable on all assets held worldwide by UK residents.”

Management consultancy partner earning between £500,000 and £700,000 per year: “Income inequality is a red herring. Market pay tends to follow the principles of meritocracy – compensating for talent, effort and risk-taking (at least for 99.5% of earners), whereas much of extreme wealth is inherited or the result of cronyism or monopoly. We therefore need to ‘follow the money’ back to its roots, and redistribute wealth by taxing assets above a certain threshold.

Corporate lawyer, earns more than £300,000 annually:

“Bring tax rates and minimum thresholds for capital gains in line with income tax. At the moment, I can make capital gains of up to about £44,000 per annum on my investments and pay no tax on it – despite being a maximum-rate income tax payer in the same year, and despite £44,000 being nearly twice the average income.”