Archives For VAT

Chas Roy-Chowdhury-14

By Chas Roy-Chowdhury, head of taxation, ACCA

I gave evidence to the House of Lords Select Committee on Economic Affairs recently about corporation tax and how revenue is now being secured from companies through other means.

The bigger picture needs to be looked at when it comes to how corporations are taxed in the UK. There are other and additional ways by which companies in the UK are taxed, for example through VAT and through National Insurance Contributions (NICs).

A publication produced by the Office of National Statistics back in March, shows VAT numbers have held up remarkably well since the economic downturn because, the VAT rate has gone up to 20 per cent. That is probably what we need to look at in terms of the basket of taxes that we have moved towards—those companies that we know are going to be tied into the UK rather than those that can look at different locations to do business that are more favourable for them, taking tax as one of the factors and one of the components that they look at.

The fundamental problem is that large companies are by nature multinational – their shareholders, activities and customers are spread across the world – whilst national governments are not.

There is a tax chasm between what governments seek to capture by way of corporation tax and what companies, many of which are global in terms of their shareholders, activities and customers, generate in terms of global profits.

In practice, existing rules are highly complex and differences between countries can be exploited well within the law. HMRC has adapted to this and is not sitting on its laurels as some other Parliamentary committees have suggested. They are quick and effective and have developed a greater understanding of how companies work. The majority of corporations go through the tax process with ease. HMRC has achieved this despite declining resources.

ACCA wants to see tax simplicity. But that’s a big ask. Adam Smith’s four principles of what makes a good tax system – proportionality, transparency, convenience, and efficiency – still stand centuries later. I don’t think we’re near this and I also think we are in danger of losing trust in the tax system.

The House of Lords Economic Affairs Committee also raised the issue of naming and shaming those who have promoted aggressive tax avoidance or tax evasion schemes.

ACCA believes if naming and shaming is going to be introduced for tax avoidance, which is legal, the bar needs to be set very high. The complexity of the tax system means there is a risk that mis-interpretation could result in naming and shaming of a tax adviser; this could result in severe reputational damage.

We have long been calling for greater regulation of tax advice. While ACCA and other accountancy bodies have strict regulation and standards, anyone can set up and offer tax advice without those safeguards in place.

There’s no denying that all this is a very tricky and complex situation. But it is heartening to see that the issue is being discussed at international level, from the EU, to the US; and of course the G8 will be looking at the avoidance/evasion debate in June when it meets in Ireland.


Fighting fraud

aksaroya —  25 March 2013 — 2 Comments

circuit board

By Peter Williams, accountant and journalist.

One of the comforting lies we tell ourselves as a society is that we take fraud seriously. Every politician in power at some point promises a crackdown on cheats and swindlers. Whether or not there is any crackdown, it is a story to tell ourselves so that the honest neither revolt nor despair.

Before we can tell ourselves that we are fighting fraud hard, fraud has to be established, even demonised, as a serious problem. So our thanks must go to those who do surveys such as BDO with its recent exposure on tax fraud in the UK. The firm’s Fraud Track showed the EU is losing €33bn a year in VAT fraud, with the UK one of the highest losers.

Just imagine what €33bn would buy Europe! In fact, no need to imagine, as BDO helpfully points out that if all the money lost to VAT fraud in the UK went to HM Treasury it would pay for the winter fuel allowance, free TV licences and compensation for pensioners on pensions credit (£1.4bn), with enough left over to build 17 new hospitals.

Clearly something needs to be done. Step forward HMRC and the Treasury ministers to tell us what they are doing. Two pieces of excellent news: first, governments is using social media, in this case Flickr (a photo sharing website), to display the faces of 30 top tax criminals of 2012, sentenced to a combined total of 155 years and 10 months behind bars. It’s the 21st century equivalent of displaying the heads of executed traitors. Whether it is a strong deterrent is hard to say. Treasury minister David Gauke said: ‘Most people play by the rules and pay what they owe, but HMRC is cracking down on those who don’t’.

This, we are told, is all part of the government’s £917m investment to tackle tax evasion, avoidance and fraud from 2011-12 and aims to raise an additional £7bn a year by 2014-15. The chances are that it won’t. Any finance professional who has been around for an economic cycle or two will have heard it all before. Waste, fraud, red tape – every government comes in determined to put them to the sword….and fails.

Take the VAT fraud highlighted by BDO. The material issue here is so called missing trader fraud and carousel fraud which involves a series of contrived transactions to create large unpaid VAT liabilities and fraudulent claims. We’ve known about it for at least a dozen years and, despite Gauke’s words, appear to be on the verge of giving up the fight. Back in 2006, Edward Leigh MP, chairman of the Public Accounts Committee, said missing trader fraud was costing the UK £2bn to £3bn a year despite efforts going back over six years to stem it.

Wind forward to 2013 and BDO says the government is finding the fraud difficult and time consuming to prosecute and it is not a main focus of Crown Prosecution Service policy. It says the Dutch and German governments provide examples of how to make progress – mostly by throwing resources at the problem.

Something more than rhetoric is required. It is clear that as a society we need to fight financial crime. It is equally clear we need to be honest in assessing how we are doing in that task.

This article first appeared in Accounting and Business, UK edition, February 2013.