Brexit......what are the likely implications on UK and European boating?

[Markergi]

Going back to Henry's coffee shop analogy, which is not really an EU issue, I think there should be different ways of taxing UK registered companies with overseas holding/parent/subsidiary companies. Perhaps 0% corporation tax and and a much higher Employers NIC %. I can't see that stopping the likes of Starbucks opening coffee shops in the UK, they'd still be profitable although less profitable to the holding company than the current arrangement. But do we have the power to introduce something like that whilst we are member of the EU?

With regards to Deleted User's comments about responsibility to shareholders to pay the minimum amount of tax, I agree, although I struggle with the morality of using vehicles to avoid paying your fair share back to the country that's helped you to flourish. How many of these vehicles are legal anyway? I keep hearing that what these companies do is not illegal, they just use clever accounting techniques not available to smaller companies but that's not the case a lot of the time, they just haven't yet been challenged in court. There are two examples in the news today http://www.accountancyage.com/aa/news/2450403/banks-gbp135m-tax-avoidance-scheme-shutdown-by-authorities and http://www.accountancyage.com/aa/news/2450409/stagecoach-tax-avoidance-stopped-in-its-tracks-by-hmrc. How many more are there out there, how many small independent bus companies may have gone out of business due to the pressures of these larger companies having lower overheads for the last few years?

HMRC should be beefed up and made to go after the larger companies, this would help create a more level playing field for SMEs in the UK.

 

[Deleted User YDKXO]

If one company pays more tax than another but both are engaged in a comparable activity, ie selling things to UK customers then either one of them is being excused or the other is being penalised. That is a wrong that is not made right by accountants' exploitation of an overly complex tax system. I would not have the slightest objection to any multinational company I invested in paying the same amount of UK tax that an equivalent UK company paid. (Even if it reduced my dividends.)

Why on earth should I not want it to? We do not all have the narrow mentality of accountants.

OK parsifal here's an idea for you. Go through your pensions and investments and find those companies that you own a piece of and decide if any of them are not paying their 'fair share' of tax. Then calculate the proportion of that tax shortfall attributable to the number of shares you own and send a cheque to HMRC for the same amount. I'm sure HMRC will be delighted and you will sleep better at night

 

[Deleted User YDKXO]

Perhaps 0% corporation tax and and a much higher Employers NIC %.

In other words put extra taxes on employment? That would lead directly to job losses and is pretty much what some of the more bone headed member countries of the EU with 25% unemployment already do. Make it more expensive for employers to employ people and they will employ fewer people

HMRC should be beefed up and made to go after the larger companies, this would help create a more level playing field for SMEs in the UK.

You can beef up HMRC as much as you like but I say again it is not about companies getting away with paying lower taxes, it is about companies paying the tax that is due under the law. You can line up the best tax barristers in the world for HMRC against these companies but if they can prove they are complying with the law, it will just be a massive waste of taxpayers money

 

[Hurricane]

In other words put extra taxes on employment? That would lead directly to job losses and is pretty much what some of the more bone headed member countries of the EU with 25% unemployment already do. Make it more expensive for employers to employ people and they will employ fewer people

Agreed - an example
The English lady that used to clean our boat in Spain has "thrown in the towel" and has returned to work again in the UK.
She told me that she had to earn close to 1000 euros each month - jut to pay the Spanish equivalent of NI.
She just couldn't make ends meet.
She is also a grafter - made sure she had work back in the UK before leaving so she isn't a burden to our benefits system.
Seems to me that people who want to work are victimised.

 

[Markergi]

But that's just it Mike, many aren't complying with the law, they're running a scheme which they've paid the likes of EY or KPMG big bucks for that's yet to be challenged. These cases take an age to get to court, cost a fortune to fight but are often found to be illegal. Did you follow the links above? I read similar articles weekly, but HMRC are always playing catch up and I suspect held back by government at times.

My model of higher Employers NI is of course simplistic and I wouldn't want that model for all UK companies, just those who are likely to be pushing profits overseas, which cost the UK tax payer ultimately.

 

[Markergi]

Agreed - an example
The English lady that used to clean our boat in Spain has "thrown in the towel" and has returned to work again in the UK.
She told me that she had to earn close to 1000 euros each month - jut to pay the Spanish equivalent of NI.
She just couldn't make ends meet.
She is also a grafter - made sure she had work back in the UK before leaving so she isn't a burden to our benefits system.
Seems to me that people who want to work are victimised.

What I was proposing would have no adverse effect on your cleaner if she set up in the UK, in fact she might benefit because the income tax levels she will currently pay, could be reduced as she won't be subsidising the fat cats who are pushing their untaxed profit overseas.

 

[Deleted User YDKXO]

But that's just it Mike, many aren't complying with the law, they're running a scheme which they've paid the likes of EY or KPMG big bucks for that's yet to be challenged.

I'm afraid you're wrong. The likes of EY and KPMG are paid big bucks to find tax arrangements that comply with the law, not flout the law. Any accountant who helps companies evade tax (ie outside the law) rather than avoid tax (ie within the law) will very quickly be struck off

As for your NI model, how will you decide which companies are not paying enough tax and which are? In any case, such an arrangement would be challenged in the courts by any companies so discriminated against and rightly so. You can't have one set for rules for some companies and another set of rules for other companies based solely on somebody's opinion of what constitutes a fair amount of tax. In any case this is all totally hypocritical. None of us, you, me, nobody pays more tax than is strictly due under the law and the same goes for big corporations

 

[Markergi]

I'm afraid you're wrong. The likes of EY and KPMG are paid big bucks to find tax arrangements that comply with the law, not flout the law. Any accountant who helps companies evade tax (ie outside the law) rather than avoid tax (ie within the law) will very quickly be struck off

That's rubbish, I've worked with clients who have been advised by the above and later to be found non-compliant, the Stagecoach case I mentioned above mentions " The transport firm used the scheme while being advised by KPMG." Of course these companies are normally clever enough to cover themselves in the contract, they're selling expert opinion rather than a cast iron guarantee of legality, they'll offer to fight your case if challenged but I'm yet to see a large one who has indemnified the client against any potential claims by HMRC.

Of course defining which companies to catch with the increased Employers NIC will take a bit of thought but I'm sure you don't need super intelligence to come up with something that would catch the vast majority, the finance bill contains new legislation every year to shut down loopholes, it's nothing new. With regards to would it be lawful, I've no idea, but we already apply different taxes to different business types sole trader, LLP, CIS, LTD etc., can't see why not?

 

[Deleted User YDKXO]

That's rubbish, I've worked with clients who have been advised by the above and later to be found non-compliant, the Stagecoach case I mentioned above mentions " The transport firm used the scheme while being advised by KPMG." Of course these companies are normally clever enough to cover themselves in the contract, they're selling expert opinion rather than a cast iron guarantee of legality, they'll offer to fight your case if challenged but I'm yet to see a large one who has indemnified the client against any potential claims by HMR

I'm afraid it is that that is rubbish. KPMG will not be selling any scheme which they do not think complies with the law as they view it. The fact that HMRC challenges the scheme in court does not change that. In the end, the law is only ever a matter of interpretation and judgement

Of course defining which companies to catch with the increased Employers NIC will take a bit of thought but I'm sure you don't need super intelligence to come up with something that would catch the vast majority, the finance bill contains new legislation every year to shut down loopholes, it's nothing new. With regards to would it be lawful, I've no idea, but we already apply different taxes to different business types sole trader, LLP, CIS, LTD etc., can't see why not?

You can argue about this until you're blue in the face but no govt of any colour would ever bring in a scheme such as this which would be a legal minefield designed to enrich lawyors rather than taxpayers

 

[Markergi]

I'm afraid it is that that is rubbish. KPMG will not be selling any scheme which they do not think complies with the law as they view it.

Mike, you're twisting my words or at least modifying your own. First time around you said "The likes of EY and KPMG are paid big bucks to find tax arrangements that comply with the law, not flout the law", now that I've given you reference to a case where they've probably done just that, you're saying "KPMG will not be selling any scheme which they do not think complies with the law as they view it", which is different. I'm not saying KPMG would ever sell advice they didn't think was correct, what I'm saying is that they have sold advice on numerous occasions which when challenged by a court has been judged to have been wrong. Therefore, just because a company engages with one of the big boys, does not then necessarily mean they have now reduced their corporation tax or employment costs legally.

Let's drop the Employers NIC thing, perhaps you're right, it was only ever a suggestion as to how the government might get back what most people believe to be what's rightfully UK taxes, I wasn't expecting them to take me up on it!

 

[Hurricane]

Let's drop the Employers NIC thing, perhaps you're right, it was only ever a suggestion as to how the government might get back what most people believe to be what's rightfully UK taxes, I wasn't expecting them to take me up on it!

I thought that was a good idea - I hadn't heard or thought of it before.

 

[Cheery]

Actually, the NIC argument has some merit. The recently introduced carrier bag tax is levied by businesses employing more than 250 people so it helps SMEs. This is to stop franchises (of which some coffee shops and burger chains are) from getting round the problem by saying they only employ 80 people at their 3 shops, when the company is a multi national.

 

[gjgm]

I thought that was a good idea - I hadn't heard or thought of it before.

Making it more expensive to employ to people is a good idea...and we are not talking about the top of the tree here, but the lowest paid?

 

[Deleted User YDKXO]

Mike, you're twisting my words or at least modifying your own.

OK look at it from KPMG's clients point of view. If KPMG sold their clients tax planning schemes which were habitually challenged by HMRC and ruled illegal in court, KPMG wouldn't get much tax planning business would they? Big corporations are not stupid. If KPMG got a reputation for selling illegal tax planning schemes, nobody would employ them because it would be an obvious waste of money

 

[rafiki_]

What Starbucks and others do is make their higher performing businesses make a large contribution to head office overhead. Usually H/O is in a tax efficient territory. I'm addition, they are investing heavily in new operations, so their group profits are not as substantial as one might think. Corporation tax is paid on profits. If making little profit, then little Corp tax is paid. Simples ?

 

[Cheery]

They pay a royalty fee to HO, on a recent programme it was thought to be around 8%. The same programme, Fair Tax Town, did an experiment setting up Crickhowell the same way the large corporations operate. When they visited Holland they discovered that €8 trillion was funnelled through there.

 

[Markergi]

OK look at it from KPMG's clients point of view. If KPMG sold their clients tax planning schemes which were habitually challenged by HMRC and ruled illegal in court, KPMG wouldn't get much tax planning business would they? Big corporations are not stupid. If KPMG got a reputation for selling illegal tax planning schemes, nobody would employ them because it would be an obvious waste of money

Agreed, for the most part their advice is probably good. Their reputation goes before them and HMRC often have much lower hanging fruit to go after, so there's some comfort in engaging with them if you're big enough to afford them. I've sat in several meetings with them and others where they've gone through legislation looking for an angle, there's a lot of "it's my personal opinion" or "there's a common view that it's impossible for HMRC to challenge that" etc. Lots of wishy washy type info but no firm guarantees of compliance or at least if there is a guarantee, their liability is limited in the contract, maybe I haven't met the senior consultants.

My original response was really in reply to Henry's analogy about the independent coffee shop struggling to stay in business because the bigger players have lower overheads due to using aggressive tax avoidance schemes. Often these schemes are illegal and everyone involved knows it, but they get away with it because it's difficult to prove in court and HMRC do not have infinite resources to fight difficult cases.

An example one of these schemes involve a company setting up numerous small companies, selling shares in the company to highly paid employees in lieu of some salary, pumping most of that sacrificed salary in to that company and then, after the minimum amount of time, buying the company from the shareholders. Shareholders get most of their salary back and pay 10% capital gains tax after claiming entrepreneurs relief, instead of 45% tax and some NIC which they would have had to pay had they taken the salary. The employer also saves the 13.8% Employers NIC. So everyone's quids in except HMRC or normal tax payers if you like.

Is it legal? I doubt it, but there'll be sufficient paperwork and transactions to make it very difficult for HMRC to prove the company was setup as a vehicle with the sole purpose of avoiding tax. When the entrepreneurs tax incentive was setup to encourage investment, did anyone think there'd be far more 'entrepreneurs' in this category claiming it, than genuine one's who have made the investment, worked the long hours, made the sacrifices and created jobs along the way? I doubt it. Of course, advisors will muddy the waters, their PR people will keep making the point that tax avoidance is acceptable, it's tax evasion that's the problem. Sometimes if looks like a duck, quacks like a duck.... So paying these companies to advise and help set up theses doesn't necessarily make it ok, there's hard working people with zero hours contracts, paying tax for their long hours subsidising this tax avoidance. If all of these schemes were stopped, the tax thresholds could rise significantly, taking lower earners out of tax altogether. It would also create a better climate for genuine start ups to thrive. All IMHO of course!

 

[Markergi]

They pay a royalty fee to HO, on a recent programme it was thought to be around 8%. The same programme, Fair Tax Town, did an experiment setting up Crickhowell the same way the large corporations operate. When they visited Holland they discovered that €8 trillion was funnelled through there.

Yes, the dutch sandwich thing puzzles me, why are the Dutch as founder members of the EU allowed to operate something which costs other members billions?

 

[gjgm]

They pay a royalty fee to HO, on a recent programme it was thought to be around 8%. The same programme, Fair Tax Town, did an experiment setting up Crickhowell the same way the large corporations operate. When they visited Holland they discovered that €8 trillion was funnelled through there.

Transfer pricing is getting increasing topical, but there are,supposed, standard rates depending on the service provided, err plus vat.
Of course that still depends on how close to the wind. ..sorry wrong forum. ..you chose to sail.

 

[jfm]

An example one of these schemes involve a company setting up numerous small companies, selling shares in the company to highly paid employees in lieu of some salary, pumping most of that sacrificed salary in to that company and then, after the minimum amount of time, buying the company from the shareholders. Shareholders get most of their salary back and pay 10% capital gains tax after claiming entrepreneurs relief, instead of 45% tax and some NIC which they would have had to pay had they taken the salary. The employer also saves the 13.8% Employers NIC. So everyone's quids in except HMRC or normal tax payers if you like.

I'm intrigued. You've written that in some detail. Where did you hear of such a scheme? From some sort of professional consultant, or is it bar room talk? I'm asking because such a scheme is certain not to work and not to save one penny of tax,(since at least 2003, if not earlier. (Of course, if someone lied on their tax return, they might get away with it, as with any lying, but that's not what we are talking about). The scheme you describe is certain to fail if not lied about on a tax return, and I'd be truly amazed if anyone in UK is doing such a stupid scheme. HMRC do not need any resources to fight such a scheme: they would simply refuse to agree it works, and they would send an assessment demanding the tax. The taxpayer could appeal, if he wants to look a fool and a cheat in public rather than just in private, and still lose. AFAIK no taxpayer has appealed on this even to the very lowest courts in the UK, ever.