Technical Appendices - These technical appendices provide more detail on the calculations and analysis behind The Missing Billions pamphlet. A more detailed glossary than that which appears in the pamphlet is also included:
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This report achieves what many have claimed impossible: it calculates the tax lost to the UK Government from tax avoidance and from tax planning by the very wealthy. Tax avoidance is the process of getting round taxation law without actually breaking it. Tax planning is the use of the opportunities Parliament has provided to citizens to reduce their tax rate.
The result of the calculations set out in this report reveal that the amount of tax lost to avoidance and planning is a number bigger than most might ever imagine. It is estimated here that £25 billion annually is lost from tax avoidance. This is made up of £13 billion p.a. from tax avoidance by individuals and £12 billion p.a. from the 700 largest corporations.
Estimating these figures involved an original detailed analysis of several sets of Government data and further analysis of 344 sets of accounts published by the UK's fifty largest companies covering a seven-year period.
It is estimated that an additional £8 billion p.a. is lost to public funds from tax planning by the wealthiest members of the UK community, i.e. those earning over £100,000 p.a.
The result of this is that the UK tax system is not nearly as progressive as Parliament intended and as social justice requires. In addition, public funds are more scarce than they may otherwise be and certainly more scarce than Parliament would have intended when agreeing tax rates. It is notable that the Government is currently seeking to rein in the annual growth in public spending by 30 billion pounds through an 'efficiency programme'. Given this figure is not far in excess of the current income lost to tax avoidance and is actually less than that lost to avoidance and planning combined, this report raises serious questions about the price now being paid by public services as a result of this activity.
In the case of individuals, tax avoidance usually takes the following forms:
Companies have more opportunity than individuals to avoid and plan for tax. This is, in particular, because they operate internationally, opening avenues for tax planning and avoidance between territories that no individual can exploit. This is why the rate of tax lost to corporate tax planning and avoidance is found to be greater as a proportion of tax actually paid than that for individuals. This report bases its findings on new and original research of the fifty largest companies in the UK and shows that:
These figures strongly suggest that the regular complaints from the business community about the burden of tax they endure in the UK should be treated with a high degree of scepticism.
The facts relating to tax avoidance and tax planning make it clear that this deliberate behaviour is imposing a substantial cost on UK society, and on those taxpayers who seek to comply with the spirit and letter of UK tax law. Knowing this is not enough though. This report offers a series of practical solutions to address the problems identified.
Fundamentally, the current Government approach of plugging loopholes in tax legislation is inadequate. The Government must assert its right to collect and expend taxation revenues in pursuit of its democratic mandate. This has been lacking and it is now time for the Government to change the terms of this debate if it is to secure the full tax revenue that Parliament expects it to secure when tax rates and arrangements are agreed by MPs and Lords.
To this end, the following actions are suggested as a spur to public debate on how the Government and Parliament should react:
These proposals could at least halve the cost of tax avoidance and tax planning to the ordinary people of the UK. And as the report shows, the potential benefits of that are significant: