Last week The Times newspaper broke the story that comedian Jimmy Carr was avoiding paying tax, using a system based in the Channel Islands called K2 allowing him to only pay 1% tax on his income. Mr Carr is one of Britain’s highest earning comedians so by reducing the amount of tax he paid he has been (potentially) better off by hundreds of thousands of pounds, that would otherwise have gone to HM Revenue & Customs (HMRC).
Jimmy has now apologised, and it’s well worth watching this week’s edition of 8 Out of 10 Cats, a panel show that he presents and that was recorded after the allegations came to light.
Carr’s tax affairs have been condemned by a number of people – particularly the Prime Minister David Cameron who called it “morally wrong”. Because what Carr did is in fact entirely legal, and, unfortunately, rather common.
Take a few minutes and read ‘Tax avoidance isn’t a left or right issue, it’s a cancer eating our democracy’ from New Statesman. You’ll read about how overly complex the UK tax system is – probably one of the most complex in the world – and how little of our taxes are paid by high earners; there are 54 billionaires in the UK and yet between them they only paid £14.7 million in tax in 2006 – and £9 million of that was from just one man, James Dyson.
There are the creative ways that large companies avoid tax – Amazon isn’t mentioned in the article, but Google is – profits are passed between Ireland and the Netherlands to reduce its UK tax bill to around £600,000 – despite making £1.25 billion from us Brits. And Debenhams, the large high street department store chain, paid nothing, because on paper it makes no money due to some creative accounting involving the private equity firms that own it. As it happens, it’s bringing in several millions a year in profit, and not a penny of that is being paid in tax.
According to the article, there are 800,000 companies registered in the Channel Islands – which have a combined population of only 90,000. A balti house in St Helier on the island of Jersey is the registered address for 8000 UK companies; all, presumably, registered there purely to take advantage of the more generous tax regime there.
Separately the Telegraph alleges that Vodafone didn’t pay any corporation tax last year, against revenues of over £1 billion. This is apparently due to Vodafone making a deal with HMRC to settle 10 years of unpaid back tax.
It’s a massive problem, and one with major implications. Less income from tax means less money for public services, which are already being stretched to the limit by government austerity measures. If we still want funding for education, health, transport and all of the other things that we rely on the public sector to provide, then more has to be done to clamp down on tax avoidance. Sadly, it’s the wealthy and the powerful who can afford to invest the time in avoiding tax – and it’s often the same people who influence politicians the most. And I don’t have much faith in the politicians who say that they want to change things.