The tax system needs an overhaul, not mere tampering

Chris Roe assesses Vince Cable’s plan to attack ‘sham’ company directors, but suggests that it is the over-complicated tax system which needs looking at

Photo credit: bisgovuk

Photo credit: bisgovuk

Tax avoidance has been in the headlines a lot in the past few months. It all kicked off with Jimmy Carr and the K2 scheme, but the media is now focussing on the big stuff; those companies which dodge tax and unfairly hold on to millions of extra pounds. The fact that businesses are avoiding tax should not be surprising. After all, they are there to make as much money as possible. However this is clearly immoral and people are not happy. So now the government have decided to “get tough”.

The latest announcement from the government is an examination into sham nominee directors, following an investigation by the BBC’s Panorama, the Guardian and the International Consortium of Investigative Journalism. These sham nominee directors pretend to control a company (often without even knowing anything about the business) while in reality another anonymous person is in charge. This essentially means that the anonymous person can secretly evade tax.

Vince Cable has promised to examine this problem and look at specific allegations. He warned “We are not complacent or naive. We recognise that there are individuals who will seek to abuse or evade”.

Such a scam is certainly worth tackling, but I can’t help feeling that the wider problems with the taxation system have been ignored. It’s worth pointing out that to have any director who is unaware of what their company is doing is already illegal. This “crackdown” is a reinforcement of an established rule.

Elsewhere, HMRC are targeting specific sectors where there is evidence that tax evasion is common, and sending suspected tax avoiders letters to warn them that they will be investigated. Once again it looks like action is, potentially, going to be taken, but that action does not address the fundamental problem.

The taxation system is incredibly complex with a large amount of clauses and loopholes. If you have enough money to hire a clever person who can navigate their way around those complicated documents then you may well find a way to pay less tax. At the moment there seems to be a focus on punishing individuals or specific companies. This is certainly important, but the most important measures should be simplifying our taxation system, tightening laws, closing loopholes and giving no one an opportunity to avoid tax in the first place.

While Vince Cable has said he will review the role of nominee directors, at best this will result in one way to avoid tax being closed, with many other avenues which journalists have not yet spotted still available. If it really wants to sort out this mess, then the government needs to look thoroughly at the whole system and work out how to change the entire structure for the better.

That is not an easy task, and targeting individuals or specific high profile schemes would definitely be easier. But dealing with the whole problem would be far more worthwhile.

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