Taxing issue of tax evasion

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It’s reasonably typical in an economic downturn, especially in economic downturn that is so manipulated by political houses to demonstrate who is right and who is wrong, but the issue of tax avoidance is never far from the news nowadays.

In line with this, the work by the Coalition, comprised of the centre-left Liberal Democrat presence and the centre-right Conservative presence is always presented in two lights to the media; and as a result nobody wins.

Today’s issue in question is that of those wealthy individuals that make large-scale donations to charity so that they can write this off as non-taxable income. Donations to charity which can gain such relief will now be capped at £50,000 or 25%. Spare change to many people, but certainly not spare change to charities.

From the left perspective, this is surely fantastic? All of the protests against the rich can now cease because we are tackling one way that they are avoiding paying tax and therefore gaining more income to repay the deficit and reduce pressure on the individual. Or so you would think.

With campaigns like Occupy still going strong in various guises, alongside apparent civilly disobedient, but often just bored teenage UKUncut, one would think that such proposals by the Chancellor would be met with pleasure.

But no. Already, the left-wing press is calling it an attack on philanthropists, an attack on charities who may not receive as much money and not good enough.

However, far from causing a philanthropic crisis with charities dropping like flies, we should look at the statistics before denouncing the move. According to the Charity Commission, just 21.9% of charities earn over £250,000 on an annual basis. Or five major donor donations. Out of the 6% of charities that earn over £1 million, it is highly unlikely that, as insinuated by Number 10, people are setting up charities for non-charitable pursuits as a way of avoiding tax, or certainly not in the UK. So the hyperbole being stirred by the left-wing press is highly unlikely to cause charities come crashing to the ground.

In direct comparison, the right-wing press are accusing the government of picking on those poor millionaires, misrepresenting them all as tax avoiding, tax dodging, malevolent spendrifts. Ironically, where as the those of right wing internation tend to believe in capital and all-encompassing punishment, their press now state that we should be using the carrots not sticks to encourage tax donation. We should be throwing parties for every millionaire that pays tax. Not quite what the Coalition had in mind.

If the cap on donations to charities prevents a percentage of people from avoiding tax deliberately on minimal parts of their income (Bear in mind that the average house price for a three-bedroom home in Kent is £242,000 and hardly what one would consider to be a millionaire’s salary), then that’s fantastic. It stops the wealthy from exploiting another tax loophole in the future.

When taken in line with the coalition policy to tax offshore bank accounts introduced in the summer last year, as a key part of the Liberal Democrat manifesto, it’s clear that there is a significant crackdown on tax avoidance, and evasion, going on. Take into account the raising of Capital Gains tax which was one of the first moves by the Coalition in 2010, there seems to be little way that these (nefarious) millionaires can escape their duty as British citizens.

However, it is worth noting that a full-on crackdown on those of us who find tax avoidance morally repugnant would like to see is unlikely to happen just yet.

The report that George Osborne has recently conducted into anonymised miscreant millionaires identified the key ways in which wealthy individuals avoid paying tax. Outside of capital gains in offshore bank accounts, and other way was through charitable donations.

However, there does not yet seem to be a plan in place, for tackling the largest area of tax avoidance; offsetting business losses.

Of course, if the Coalition, that perpetual battle between left and right, were to start denouncing businesses and preventing offsetting business losses, then the Conservatives would find themselves severely criticised.

There must be a way around people offsetting business losses as the huge form of tax avoidance without penalising all businesses unfairly. To do so without such guidance would result in stalling growth, impacting on jobs and businesses across the country and on our import/export market. A significantly detrimental move for any country in an economic downturn.

In the meantime, we should be rejoicing significant inroads into tax avoidance and evasion through measures already implemented by the coalition, not whingeing about non-existent statistics that will apparently bring the charity industry to its knees.

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