Chief Secretary to the Treasury, Danny Alexander, has said that if tax avoidance, or the UK tax gap, was reduced by a quarter that the average taxpayer would see their tax bill reduced by two pence per pound.
Despite choosing not to follow David Cameron in lecturing British funny man Jimmy Carr on the morals of tax planning; Cameron branded Carr as ‘morally wrong’ for using the K2 tax avoidance scheme to pay 1% tax on earnings. The Treasury minister has joined the Prime Minister in describing tax avoidance schemes as ‘morally repugnant’.
Speaking on the BBC’s Politics show on Sunday 24 June, Alexander attempted to shed light on tax avoidance schemes that act as legitimate tax planning and tax avoidance schemes that are ‘aggressive’ and should be shut down.
“What we are talking about is schemes that are set up, perhaps within the letter of the law as it stands at any particular moment, but which are set up purely with the purpose of reducing someone’s tax bill,” said Alexander.Tax Avoidance costs 2p per £1 of average taxpayers tax bill
“These sorts of schemes which save wealthy people potentially many tens of millions of pounds in tax, they are paid for everybody else. If we could narrow the tax gap in this country by a quarter we could reduce income tax for every basic rate taxpayer by 2p in the pound. So it’s the working people of this country who are paying the difference because so many of the wealthiest think they can get away without paying their fair share of tax,” the Treasury minister added.
During his stint on the BBC Politics show Alexander stated that the introduction of the general anti-avoidance rule in the 2013 Finance Act would pin point ‘aggressive’ tax avoidance at its worst.
In the Times newspaper, chairman of the House of Commons Public Accounts Committee (PAC), Margaret Hodge, wrote that tax avoidance practices which have emerged “wouldn’t look out of place in a banana republic”.
On Monday 25 June, Hodge announced that the PAC are to investigate the taxman’s’ work and how accountants and high profile Britons use loopholes and disregard rules to Margaret Hodge head of PACavoid tax. The Public Accounts Committee investigation comes into action after Jimmy Carr’s use of the K2 tax avoidance scheme revealed that many wealthy Britons pay as little as one percent income tax. It is thought that HM Revenue and Customs will now face a grilling from MPs as to how they are tackling such measures of tax avoidance and tax evasion.
Hodge has written in The Times for large companies to publish tax deals with the taxman and that the ‘shroud of secrecy’ should be taken from corporations that stay quiet over controversial tax deals with HMRC.
“In 2009-10, Her Majesty’s Revenue and Customs calculated the tax gap as £35 billion – that is nearly 8 percent of all tax due not being collected. In the same year, HMRC wrote of £10.9 billion in tax as uncollectable. There are still people funded by the taxpayer, working in local authorities and for the BBC who avoid paying tax this way,” said Hodge.
Chairman of the House of Commons Public Accounts Committee (PAC) said that a report would be issued in the next few weeks on the investigation findings and that the PAC would also be looking at tax avoidance loopholes uncovered by The Times; The Times investigation uncovered that wealthy people, including footballers, celebrities, medical professionals and financiers are using tax avoidance loopholes to reduce their income tax liabilities.