UK Tax Avoidance Schemes Unfairly Scrutinized

| 29 Jun 2012 | 0 Comments

 The recent bankruptcy of Greece has forced a number of European countries to take measures to increase their tax revenues and stabilize their economies. As the European debt crisis continues to hinder economic growth, the UK government in particular has turned its focus to tax avoidance schemes – scrutinizing the moral obligations of high net worth individuals who are using such offshore tax planning to reduce their tax bills.

tax avoidanceWhilst the UK struggles to inject capital into its economy, wealthy professionals are seemingly oblivious to the unstable financial standing of their nation, as they continue to engage in tax avoidance schemes, ultimately to pay a much lower tax rate. However, it is imperative that UK nationals unite in an effort to decrease their public debt, by complying with the necessary local taxes. Continued tax avoidance in the UK could be potentially catastrophic.

The recent exposure of the widespread tax avoidance schemes has lead to an uproar in parliament, and many well-known celebrities who partake in these schemes have been identified, and their finances reviewed. The infamous scandal surrounding Jimmy Carr (British celebrity comedian) and the K2 tax avoidance scheme is just one of the incidents in which high net worth individuals are avoiding extortionate taxes on their wealth.

However, with numerous events including the Royal Wedding, Queen’s Diamond Jubilee, and Olympics taking place at the expense of UK taxpayers, it is understandable why taxpayers are starting to feel burdened. It is thought that if the UK government’s spending on costly ‘events’ reduced, and more tax revenues were ploughed back into the economy to help business and employment growth, then fewer people would strive to keep their hard earned money offshore.

The UK government is under pressure to implement a tax reform that targets the wealthy and keeps their money onshore. The 50% income tax rate introduced by the Chancellor of Exchequer, George Osborne, was an attempt to lower the UK’s public debt, but which has in fact done little to aid debt reduction. Figures released by Office of National Statistics (ONS) show the UK borrowed £18 billion in May 2012, which was a significant increase from the £15 billion borrowing expected –in large part due to the unforeseen 7% decrease in income tax receipts.

As a result of the economic slowdown and ineffective tax reforms, Osborne is now seeking to implement a better tax regime in an effort to secure the future prosperity of the UK. The Budget 2012 report outlined the General Anti-Avoidance Rule (GAAT), which will be implemented to negate “morally repugnant” tax avoiders who take advantage of various schemes to pay a lower tax bill.

Irrespective of the extortionate 50% tax levied on high earners generating more than £150,000 a year, tax revenues seem to be unrelentingly low. It was expected that £3 billion in tax revenue would be generated from the 50% income tax rate for high-end earners, however only one third of this amount was achieved. This is a shocking and unforeseen miscalculation, and the reason behind it could potentially be aggressive tax avoidance.

The failure to generate the expected £3 billion from the tax reform has been an indicator for UK nationals that the economy of their country is still struggling to stabilize as financial matters take a turn for the worst. Recognizing the fact that the high rate of 50% was effectively pushing individuals to offshore their wealth, Osborne has reduced the rate by 5%, enabling high end earners to pay a 45% tax rate.

In light of the Budget changes and increase in borrowing, the question remains: Why are individuals moving their money offshore and essentially refusing to assist in stabilizing the UK economy through paying the relevant taxes? To accurately address this question, it is imperative to consider the government expenditure of the UK.

UK taxpayers reject government’s spending habits…

There are particular aspects that need to be carefully considered before a conclusion regarding tax avoidance can be determined. Wealthy taxpayers are seeking tax planning opportunities offshore in order to protect their wealth from the claws of the overspending UK government. Instead of generating jobs and injecting money from taxpayers into the economy, the UK government has been seen extravagantly spending the hard-earned taxpayers’ money on hosting various multi-million pound events during the recession.

With the Olympic Games scheduled in London for 2012, the UK is expected to exceed the £9.3 billion budget within the first half of 2012. It has been predicted that the Olympics total expenditure will reach an astronomical £12 billion, with an estimated £11.4 million spent on the torch relay and other events.

To further enrage nationals who are earning high salaries is how their tax money is being spent to celebrate a number of monarchy events. The public union of Prince William and the Duchess of Cambridge cost an estimated £20 million, with a certain percentage of the total amount footed by taxpayers, despite the financial crisis.

monarchyThe monarchy has not been sympathetic towards the struggling taxpayers, urging them to pay for many lavish occasions to mark Royal family events. The Queen’s Diamond Jubilee celebration in June 2012 cost an estimated £3 billion, with a lot of the money being drawn from taxpayers’ pockets.

Whilst Osborne strives to balance the finances and stabilize the economy, it is the expenditure allocation that should be reviewed in order to boost the economy and attracting taxpayers to keep their funds offshore to obtain the predicted revenues from tax reforms.

Tax Avoidance: A Gateway to Philanthropy  

With the number of public events being held in the UK, it comes as no surprise that UK taxpayers are seeking alternative solutions to have a lower tax bill as their tax money is not contributing to the economy in an effective way. The UK has been excessively careless in budgeting money for such events, with overspending and over-borrowing negatively impacting on public debt, instigating the movement of funds offshore by wealthy nationals.

Not all wealthy individuals are engaged in tax avoidance for their own gain, many use tax avoidance to increase their philanthropic effort as part of authentic charities and profitable trusts, offering their wealth to support the underprivileged, thus fulfilling their moral obligation to their fellow nationals. Through philanthropy and dedication to charities across the globe, high net worth individuals are able to contribute more to society than through taxes.

british moneyIt is evident that many people engaging in offshore schemes are doing so in an effort to ‘give back to society’. Recent trends show an increase in philanthropy as a number of affluent individuals are opting to donate to causes, including education, medicinal advancement, and assisting the disadvantaged. Interestingly a few of these wealthy professionals are donating to causes that promote entrepreneurship and instigate business. Topping the list of philanthropists is Sir Tom Hunter, who donated an estimated £1.01 billion of his £1.06 billion wealth to causes such as the Scottish educational program and overseas youth projects.

In line with this, donating to charitable causes enables high net worth individuals to exert more power with regards to where their money is invested, rather than the government deciding where the funds are invested. Tax avoidance may be a method that is frowned upon by the government, however many wealthy professionals have lost patience and trust in their government, and have instead become philanthropists and helping society through alternative schemes.

Review expenditures to boost UK economy

Despite the efforts of George Osborne to reduce debt and increase tax revenue, the UK has been an easy target for tax avoidance schemes due to the obscure and overly complex tax law. Additionally, the extortionate 50% tax rate placed on high end earners has spurred wealthy individuals to adopt offshore tax planning. With the planned 5% decrease in income tax on salaries over £150,000, Osborne is expecting to see an increase in tax revenues. However, only time will show how effective this decrease will prove to be.

It is evident that a change to income tax alone will not prove to be enough to boost the UK economy; therefore, the government has to take initiative by demonstrating their competency with regards to planned spending. Through an improved and effective expenditure plan, the UK government will be able to regain the trust of wealthy individuals to pay the relevant taxes to revitalize their nation’s instable economy.

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Category: Individual Taxation

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