Tax avoidance by companies

and the wealthy costs

everyone at work £1,000 a year

New research for the TUC published today (Friday) reveals that the public purse loses £13 billion a year through tax avoidance by the wealthy and £12 billion a year through tax avoidance by corporations. Altogether this adds up to £25 billion - or around £1,000 a year for everyone at work in the UK.
The research, conducted by accountant and tax specialist Richard Murphy, is published in The Missing Billions, the first in a new series of TUC pamphlets designed to stimulate debate called Touchstones. The research includes the analysis of 344 sets of accounts from Britain's 50 largest companies and analysis of HMRC and other official statistics.
Analysis of the top 50 companies' accounts shows that their effective corporation tax rate is 22.5 per cent - not the 30 per cent agreed by Parliament. The companies almost always pay 5 per cent less tax on average than they declare in their accounts and in the seven years up to 2006 their effective tax rate fell by 0.5 per cent each year.
The report shows how super-rich individuals avoid paying their fair share of tax. £3.2 billion tax is lost by turning earned income into investment income (which is taxed more favourably) or by shifting the income to others (such as spouses) in lower or nil tax bands. Another £3.8 billion is lost moving transactions out of the UK, £0.5 billion by turning income into a capital gain and £4.8 billion from various kinds of tax planning.
Half the amount lost to tax avoidance could raise the level at which higher rate tax starts being paid by £10,000 a year, which would also offer significant help to those on middle incomes; or increase the state pension by 20 per cent; or reduce income tax by 3p in the pound; or build an extra 50 hospitals a year.
The Touchstone pamphlet calls for:
a minimum rate of tax to be paid by all those earning more than £100,000 a year to limit their use of tax avoidance and tax planning, without affecting the tax rates of middle Britain
a stop to HMRC staff cuts so that there are sufficient resources to effectively collect tax
the non-dom tax loophole to be abolished
capital gains on assets held for less than a year to be charged to income tax
a change to the tax treatment of charities to give them more income and close a tax loophole, and
the introduction of a new 'general anti-avoidance principle' to make it easier to tax the super-rich and large companies.
TUC General Secretary Brendan Barber said: 'There is mounting concern at the growing gap between the super-rich and the rest of society, but so far there have been few practical proposals to do anything about it. This TUC pamphlet is therefore doubly helpful. First it carefully works out just how much the super-rich and big companies rip the rest of us off by not paying their fair share of taxes. Secondly it sets out a practical set of policies that close loopholes, end abuse and starts the process of making the super-rich make a proper contribution - all without raising a single tax rate.
'Our strong view is that the proceeds should be used to properly fund public services, where six million are facing cuts in their real pay, and relieve poverty - particularly child poverty. But you do not have to agree with our spending priorities to back our call for fair tax, and we recognise the argument at this difficult economic time for boosting the income of low and middle Britain through tax cuts.
'This is not the politics of envy but the economics of fairness. It is all about getting rich and powerful people to understand they must play by the rules, not look for ways round them.
'Most people think that we have a progressive tax system, but it has now been hollowed out by so many loopholes and allowances that too much tax is now voluntary for the rich. It's time for a new campaign for a fair tax system - a campaign that can unite the vast majority of the population who do play by the rules and have nothing to fear from our proposals.'