More thoughts on these PAYE changes

OK, there's 2 ways that this Conservative plan can work:-

1. Company pays money to Inland Revenue who subtract the PAYE amount before passing it onto the bank account of employee
2. Company pays money to Bank Account and then sends a notification to the Inland Revenue that they paid employee 1234 the amount of £1800 and to remove the tax from the bank account of the user.

Now, I really can't see #2 flying with the population of this country. The Inland Revenue regularly deducting pay a few days. Will go down like a lead balloon.

Which leaves #1. Firstly, this relies on the Inland Revenue calculating the amount correctly and quickly posting to someone's accounts. That means not fucking it up, not having system crashes and so forth. And with the normal Fred Karno's Consultancy Armies that get hired, I wouldn't bank on that.

But it's also going to require a complete reworking of processes to support this (in fact, either one will). It will mean changes to existing payroll packages to also send additional packets of information to whoever receives this stuff. Now, what's the cost of that going to be?

And how much is it going to replace software anyway? If you're a business, you're still going to want to track payroll costs, you're still going to want to have some software to calculate things like bonuses, overtime etc.

And what happens about payslips, notifying employees about the split between tax and NI? How's that going to be done?

Staff who are paid cash? Staff who have international bank accounts?

Lots of questions, and I doubt that Cameron has spent even 5 minutes thinking about them...

BBC Presenter Tax Avoidance

From the Telegraph:-

They are saving thousands of pounds by using the avoidance tactic – at the expense of the rest of the public.

Insiders say the BBC has advised them to set up 'service companies' so that they can convince the tax man they are legitimately working as freelancers.

Those that have done so include Fiona Bruce, the 10 O'Clock News presenter who also fronts Antiques Roadshow; Emily Maitlis and Jeremy Paxman from Newsnight.

Bruce has set up a company called Paradox Productions; Maitlis has Mouse Inc. and Paxman Out in the Dark.

There's a regulation known as IR35 which was designed to stop this sort of thing going on, what was known as "Friday to Monday" where you leave your desk on Friday as an employee and return on Monday as a freelancer which was only done to avoid tax.

Two of the tests are the time you've been with a client and the number of clients that you service. Paxman and Bruce are really going to struggle to get past that if the HMRC investigate.

A BBC spokesman said: "We are not going to discuss individuals tax arrangements. Clearly how people organise their tax status is something that they would need to take their own personal advice on.

"Some individuals working as freelancers in broadcasting, and a range of other sectors, like IT, set up service companies which deal with their tax arrangements and this is perfectly lawful."

The difference is that most freelance IT people don't spend 2 decades working at the same place, and mid way through set up a limited company (Companies House has all the details on these companies) to work as the contractual arrangement. Or, not if they don't want a visit from the taxman.

A Little Note About Capitalism...

Or Free Markets, if you like....

One of the things I find when people criticise either is that when you talk to them about their criticisms, you frequently find that it has nothing to do with capitalism (or free markets), and that government is more frequently the problem.

Reading an article about Michael Moore's new film Capitalism: A Love Story reminded me of this:-

alongside the corporations (including Wal-Mart and Amegy Bank) which take out insurance policies on their employees and cash in big when they die young. These ghoulish derivatives go by the charming name of "dead peasants" insurance – which says it all, really.

Now, this sparked my interest because I've heard of employee insurance policies which fit into the pattern of "derivatives", in terms of offsetting risk. Imagine a fragrance company - they employ a small number of highly paid, very skilled perfumers. If one of them drops dead prematurely, it could have a major effect on the operation of the business. Now, it's not likely to happen, so the insurance is very cheap. But it offsets some risk.

The thing is that companies don't generally bother for regular staff. It's not worth it. The impact of 1 shelf stacker dying young isn't that great on the profits.

But I found this on Everything2 (a bit like Wikipedia):-

Described as, " A product actively marketed by the insurance industry as an 'attractive, off-balance-sheet asset,'" so far it's been the source of an estimated $6 billion in lost tax revenue to the U.S. Treasury annually and the subject of several pending tax court cases.

So, it's really not about "capitalism", or the free market. It is instead about government and how they create labyrinthine tax rules (often to either please lobbies or to bury how much tax you are paying) and then companies exploit them. Simplify the tax system so that businesses can't bury away money in various ways and this will stop.

Err No, Mr Timms

From The Scotsman:-

Financial Secretary Stephen Timms denounced tax avoidance as "morally wrong" and said the PBR would contain measures to "tilt the game back towards honest, hard-working taxpayers".

Well, this is all somewhat dog whistle stuff, of course, hitting big, evil companies, when the 2 biggest problems in terms of the governments budget are the bloated public sector and the benefits system.

Personally, I don't see tax avoidance as morally wrong, especially avoidance of taxes at the current levels which pay for millions of pointless bureaucrats.

Mr Timms told a conference of international tax experts at the Treasury in London that the global economic downturn had created a "different world" in which tax cheats would be pursued more vigorously than ever before."

Fine. But tax avoidance isn't cheating. It's just working within the rules to minimise your tax.

A minority of companies – including large and small businesses – behaved as if they were playing a "game" with the tax authorities, in which their role was to find ways round government efforts to improve the efficiency and equity of the tax system, said the minister.

But the impact of their efforts to get round measures like the new 50p income tax rate was to increase the complexity of the tax system and harm the wider interests of British business.

Oh, do fuck off. The efficiency of the tax system? The government have done nothing about improving the efficiency. They've added more and more complexity to the tax system in order to create more stealth taxes to avoid people noticing that their taxes are going up.

And as for the 50p tax rate, that's completely the wrong way around. It's not that avoidance creates rules, it's that rules create avoidance. Really simple tax systems are difficult to avoid.