Categorized | news, tax avoidance

Tax Evasion: It’s All Greek To You AND The Taxman

Today’s article was going to be all about the differences between the UK and US tax systems. Set against the backdrop of the Greek tragedy, it may have given contractors and freelancers some hope that HMRC (and the IRS) are getting some things right.

Why write an article that uplifts the spirits when those accused of exorcising any hope are so clearly guilty?

Well, that’s just the point. With so much of the buzz around the Exchequer about how it’s going to screw limited company contractors for the deficit in taxes, self-employed people need that lift.

The research started well enough. A pleasant read on Bankrate.com explained that tax evasion is not limited by international boundaries. In the Med/Aegaen, the sport of dodging the taxman may have become “Greece’s national pastime”, and indeed be the reason that the country’s economy is the lame man of Europe.

But the fact is, everyone’s having a go.

The Global Threat of Tax Evasion and Avoidance

Tax avoidance in the US is between 83-85%, the additional 2% coming after a friendly nudge from the IRS. Bang, that was one of my points nailed.

I then found another friendly article on Sollertia, this one providing an overview of the differences between HMRC and the IRS. Yes, that’s what I needed. It points out the differences of our tax systems, but something struck me as odd.

The Bankrate.com article suggests that Americans don’t want the IRS to transform from an ambivalent overseer to a tax enforcement agency. The Sollertia article then suggested that the US method of collecting taxes is even more complex than that imposed by HMRC.

A conflict of opinions? Or a different attitude to taxation?

Could a more relaxed attitude to taxes encourage taxpayers to be more forthcoming?

Heaven knows, trying to crack down on tax caused Harry Theoharis to quit the role he assumed in Greek parliament before he’d been in it a year and a half. Death threats and warnings from those in government to ease up on the wealthy would do that to you, I guess.

Well, God bless everyone in the Land of the Free, where pundits forecast 50% of workers to be self-employed by 2020. They must have undying faith in their government that their taxes are going towards just causes.

Until this week, there was a similar forecast for self-employment in the UK labour market: half of the workforce to be their own bosses by 2020. But ONS figures published on Friday saw a huge drop of 131,000 self-employees year-on-year. Perhaps Britizens don’t have the blind faith engendered by our US cousins.

The tax gap – is it really unfathomable?

Looking to end my confusion, I turned to the one man I know who’d give me a no-bull answer on the difference in the tax gaps across the Atlantic: Richard Murphy.

As if it was written in the stars, his most recent publication (and he writes 3-4 blog posts per day) was bang on the money. Entitled The National Audit Office, the tax gap, HMRC and ‘other estimates’, it promised to fill in the missing blanks for my article here.

The problem is, it seems that HMRC has so many holes in its own calculations, any estimates the NAO can give are ‘wishy-washy’ at best.

You must go and read Richard’s article to see the extent of the problem. The more worrying thing for contractors is this: when justifying the amount HMRC is going to take from you, they have no real benchmark.

They don’t know the deficit they need to make up in the tax gap. They don’t even know if their estimates are close, despite the IMF encouraging them to take America’s lead in how they work out how much they are due.

The Exchequer believes it needs protecting from £430M of tax avoidance from disguised employees masquerading as limited company contractors and freelancers. To me and you, that may seem like a drop in the ocean.

For the taxman? Trying to work out how much evasion is happening here in Blighty is a ship that’s already sailed…

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