Tim Worstall

Abusing the Law

This is going to cause tears you know:

In a statement, the Treasury said: "This case has
brought to light the need for the Government to ensure that there is
greater clarity in the law regarding the tax treatment of
‘income-splitting’ arrangements which are used by some taxpayers to
achieve an unfair advantage over others.

"The
Government will therefore bring forward proposals for changes to
legislation to ensure that the principle of fairness is maintained. The
Government’s intention is that genuine and commercial business
arrangements will not be affected by this legislation and we will
consult to ensure this is the case."

Effectively what will happen is that clear law will be replaced by the discretion of the taxman looking at the case. That’s the only way it can be done, differentiating between "genuine and commercial business arrangements" and those deemed not to be.

Replacement of the rule of law by rule by bureaucratiuc diktat. This is not an advance in human civilization.

In

13 responses

  1. Kay Tie Avatar
    Kay Tie

    “ensure that the principle of fairness is maintained”
    That would not be the OED definition of “fairness” but the Gordon Brown one (“fair. n. the payment of higher taxes to the Government for redistribution to favoured State clients”).

    Reply
  2. dsquared Avatar
    dsquared

    “Rule by bureaucratic diktat” is a pretty novel description of a fairly fundamental principle of tax law on artificial transactions, and in any case it’s not as if there is no such thing as judicial review.

    Reply
  3. dearieme Avatar
    dearieme

    Good to see you defending the arbitrary decisions of the new aristokracy, d^2.

    Reply
  4. dsquared Avatar
    dsquared

    I am hoping for a commissar’s job in the totalitarian state that many of Tim’s commenters seem to literally, non-ironically believe is days from being announced. Judicial review, by the way, it’s that thing that HMRC decisions are subject to. It’s also known as “the rule of law” – I don’t actually understand why Tim chose to illustrate his claim that “the rule of law is being replaced by the arbitrary decision of the tax man” by linking to a report of a court case in which the tax man’s opinion was reviewed in a court.
    Tim adds: Because the taxman’s response is to insist that that situation must no longer be possible.

    Reply
  5. Effing and Blinding Avatar
    Effing and Blinding

    This is one of the big stories of the day and yet has been all but ignored. The fate of that cow in Wales got more air time this morning, for goodness sake!
    As for fairness: who says income splitting between an entrepreneur and his/her (mostly his) stay-at-home spouse is unfair?
    Under the current system, a married couple both earning £50k (i.e. a £100k household) pays less tax than if one earns £100k and the other stays at home. Same family income, different tax liabilities. What is fair about that? Surely income splitting redresses that unfairness.
    The only unfair thing is that individuals in paid employment don’t have the opportunity to do this.
    There is a human rights issue at stake – the right of non-working spouses (the vast majority being female) to own shares in their own name, with the rights to income that flow from ownership. The fact they may not be actively involved in the company is irrelevant, and to make it a requirement would set a dangerous and unfair precedent.
    It is really going back to the days when women were treated as chattels, and they needed their husbands to carry out their commercial transactions. I thought those days were long past.

    Reply
  6. Kay Tie Avatar
    Kay Tie

    “It is really going back to the days when women were treated as chattels, and they needed their husbands to carry out their commercial transactions. I thought those days were long past.”
    This is just New Labour reverting to its Old Union origins. When they said a “fair deal for the working man” it wasn’t a turn of phrase.

    Reply
  7. dsquared Avatar
    dsquared

    [who says income splitting between an entrepreneur and his/her (mostly his) stay-at-home spouse is unfair? ]
    five Law Lords, HTH.
    [There is a human rights issue at stake – the right of non-working spouses (the vast majority being female) to own shares in their own name, with the rights to income that flow from ownership. The fact they may not be actively involved in the company is irrelevant, and to make it a requirement would set a dangerous and unfair precedent.
    It is really going back to the days when women were treated as chattels, and they needed their husbands to carry out their commercial transactions. I thought those days were long past. ]
    I’ve written in the past about how hilarious the tax loophole whiners get when they try to pretend that the latest loophole to fall foul of HMRC is a fundamental human right.

    Reply
  8. geoffh Avatar
    geoffh

    This MUST be tax evasion. Prem Wotsisname and most CIF commenters would agree.

    Reply
  9. Steve Roberts Avatar
    Steve Roberts

    dsquared, you’re dead wrong on this. Since independent taxation, it has always been OK to transfer shares between spouses to use up tax allowances, it’s just that a few years ago the revenue decided, in the face of the actual statutes, to say you couldn’t if a) you owned the company in question and b) you worked for it and c) it was selling services rather than buying and selling or manufacturing things. On this pretext, two people were given an out-of-the blue tax demand for £42k. With the support of The Professional Contractors Group they took the assessment to the Commissioners – the result was the two commissioners disagreed, the senior commissioner using a ‘casting’ vote in favour of the revenue [why have a second commissioner there vote can’t have an effect?]. Next stop was High court – Revenue win again; Court of Appeal, Revenue lose, House of Lords, Revenue lose 5-0. End result, HMRC spent c£2m of taxpayers money chasing £42k in vain.
    Side-issues: a)tax law is so complicated even a high court judge gets it wrong but we have to decide for ourselves under self-assessment; b)despite the fact this case potentially affected many thousands of family firms, the revenue refused to treat it as a test case, meaning the whole of the costs would fall on the losing party despite the obvious public interest in the central question being settled.
    Well, I could go on but as far as I am concerned it’s not about whingeing, its about a government department that is out of control

    Reply
  10. v8gaz Avatar
    v8gaz

    [who says income splitting between an entrepreneur and his/her (mostly his) stay-at-home spouse is unfair? ]
    [five Law Lords, HTH.]
    Er, I think you’ll find that they said it was perfectly fair. Get your facts right, pillock.

    Reply
  11. pewkatchoo Avatar
    pewkatchoo

    This is simply HMRC trying to bully people into submission. I think that you should remember that these arrangements have been legal for years and were actually previously recommended by HMRC themselves. Until they saw what they thought was an easy way of getting money out of small businesses. Note they did not try it on with the likes of Philip Green.

    Reply
  12. dearieme Avatar
    dearieme

    MPs famously “employ” their wives, don’t they? What does HMRC say about that?

    Reply
  13. dgh_3007 Avatar
    dgh_3007

    I noticed from an article not so long back that good old Gordon is quite happy to “gift” his flat to his wife so as to give her an income stream from the rental of the flat and to also allow the Browns to take advantage of his wifes tax allowances.
    An IT contractor and his wife run a business together and suddenly its a big tax “evasion” issue (in quotes because really its is just avoidance which is not against the law). The HRMC try to bully them into bankruptcy.
    The attitude of this government seems to imply that its morally wrong for a couple to exercise there right to manage their affairs in such a way as to pay as low a level of tax as possible.
    When did this become a problem ?

    Reply

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