tax – Terence Eden’s Blog

The Chancellor of the Exchequer doesn't understand Tax Law

@edent — Fri, 14 Jun 2024 11:34:52 +0000

Freedom of Information law is brilliant! It allows ordinary people to ask questions of the powerful and get solid answers.

Sometimes these questions are sensible and journalistic. Sometimes they're vexatious. Sometimes they're a little silly.

The silly ones can be fun to answer. It's a good chance for a politician to show their human side. It's pretty hard to get wrong. I mean, unless the question is "What's the Minister's favourite pop song?" and they answer "I'm the Leader of the Gang by Garry Glitter".

Someone has send an FoI request asking:

Please, could you tell me the chancellor's preferred brand and type of biscuit?

Ah! That's a brilliant question. An absolute home-run for any politician. Unless, to mix your metaphors, you score an own goal.

The official response says:

We can confirm that the Rt Hon Jeremy Hunt MP, Chancellor of the Exchequer, has a preference for Jaffa Cakes

This is despicable!

The UK's tax revenue office, HMRC, fought McVities (manufacturer of Jaffa Cakes) at a VAT tribunal in 1991. The crux of the case was this: chocolate covered biscuits attract VAT, chocolate covered cakes do not. Are Jaffa Cakes biscuits?

The answer?

The leading case on the borderline is that concerning Jaffa cakes: United Biscuits (LON/91/0160). Customs and Excise had accepted since the start of VAT that Jaffa cakes were zero-rated as cakes, but always had misgivings about whether this was correct. Following a review, the department reversed its view of the liability. Jaffa cakes were then ruled to be biscuits partly covered in chocolate and standard-rated: United Biscuits (as McVities, one of the largest manufacturers of Jaffa cakes) appealed against this decision.

Taking all these factors into account, Jaffa cakes had characteristics of both cakes and biscuits, but the tribunal thought they had enough characteristics of cakes to be accepted as such, and they were therefore zero-rated.

VFOOD6260 - Excepted items: Confectionery: The bounds of confectionery, sweets, chocolates, chocolate biscuits, cakes and biscuits: The borderline between cakes and biscuits

Jaffa Cakes are not biscuits. The law says so!

Now, Hunt isn't the first politician to make this mistake - First Minister of Scotland Nicola Sturgeon also made the same dubious claim. But, unlike Hunt, she presumably wasn't steeped in the day-to-day minutiae of tax affairs.

There's a serious point to my ramblings. It's always easy to give an off-the-cuff answer to a trivial question. But there'll always be some know-it-all who treats a lack of precision as evidence of a deep moral or intellectual failing. This is the reason why public figures are (usually) so guarded about their answers and have everything triple checked by professionals. It's easy for a slip of the tongue or a colloquialism to be aggressively misinterpreted.

Just as I am doing here.

Why Can't I Pay Tax Only On My Profits?

@edent — Tue, 21 May 2013 10:55:17 +0000

King of Google Eric Schmidt has written in The Guardian about how unfair it is that people don't think Google pay a fair share of taxes.

He makes three pretty good points.

Companies only pay tax on their profits.
Politicians shouldn't make laws with loopholes.
International laws need harmonisation.

I agree with his second two points - although no-one is forcing Google to exploit the loopholes that it finds - but I am not sure I agree with the first.

Fairness, so it seems, is hardwired into our brains and our societies. People naturally get very angry when they encounter unfair situations. Even monkeys react badly when they see other monkeys being treated with favouritism.

I think that's what's happening here. As an individual, I don't get to only pay tax on my profits - I have to pay income tax and National Insurance on every penny I earn.

There are, as far as I can tell, only a few exceptions. If I donate money to charity through Payroll Giving or put money in my pension - I get a small measure of tax relief. If I receive rental income, I can offset any interest on a mortgage against it. That's pretty much it.

The tens of thousands of pounds of student loans that I owed did not count against the amount of tax I paid. It cost me £3,000 to get a train to work and that severely cuts into my "profit" but doesn't count against tax. I have to live somewhere - but mortgage relief was abolished by the Labour Government in 2000. Heating, electricity, education, food - these are all legitimate expenses which I cannot offset against the amount HMRC wants to take from me.

I'm sure you can think of dozens of other examples. Expenses which a business can use to reduce their tax liability but which ordinary people cannot. And we haven't even touched on the inability of the average citizen to stuff their loot in an off-shore tax haven!

HMRC produce a great Android app which tells you roughly how the Government spends its money. It also shows you where it gets its money. Business, so it seems, pays a rather modest share by way of corporation tax. I'm sure they pay lots of other taxes and invest in other ways but guess what so do I!

I'll leave it to the armies of lawyers to figure out of Google, Amazon, Vodafone, and the like are acting correctly. But it is undeniable that a large number of people have trouble with large scale tax avoidance not because of its legality but because it is unavailable to ordinary individuals.

Fairness is really hard to codify, it's true. But when a multi-billion pound corporation gets to pay tax only on its profits, and individuals get no such relief, that feels profoundly unfair. And, like the chattering monkeys that we are, it enrages us.

Who Funds The TaxPayer's Alliance?

@edent — Tue, 22 Jan 2013 12:00:10 +0000

One of the first rules of setting up a political lobby group is that you should have a name which defies opposition. Who in their right mind would be against "Citizens For Prosperity" or "The People's Democratic Society" or "Ministry of Peace" - why only a violent Communist! That's who!

It is this spirit that the "TaxPayers' Alliance" was named. We're all tax payers, aren't we? It's so wide a name as to be meaningless. Yet its name has connotations of inclusiveness which make it very hard to speak up against.

Much like the "Democratic People's Republic of Korea" is neither democratic nor popular - the TaxPayers' Alliance is not quite what it claims to be. It is a poorly disguised Conservative front which, it appears, exits to push a right-wing agenda.

So, who funds it? Despite being prolific users of Freedom of Information requests, the TPA is notoriously cagey about where their multi-million pound income comes from.

I decided to question Matthew Sinclair, the Chief Executive of the TaxPayers' Alliance, over Twitter.

Whereupon he started ignoring me. How rude!

We know that one of their directors was a tax exile living in France. Perhaps their fund also comes from offshore millionaires?

Despite what Matthew says elsewhere about having tens of thousands of ordinary supporters - there's no obvious way to give the TPA any money. Their sign up form won't take your credit card - nor will their Get Involved page.

Isn't that a bit odd? Every political campaign group I've ever seen is desperate for money from grass-roots activists. Yet the TPA is so flush with cash that they don't ask for any from ordinary people.

An investigation by the Guardian in 2009 showed that the TPA got most of their funding through Conservative business groups. And who funded those groups? Ah, little taxpayer - don't worry your head about such matters.

The USA has a particular problem with the corrupting influence of Super PACs - groups of wealthy and anonymous donors who try to influence elections by outspending their rivals. They are particularly corrosive because they are so anonymous - is Super PAC X campaigning for lower social security payouts because they're a group of thousands of disgruntled poor people aghast at receiving so much largesse - or are they one or two mad billionaires who want to see people suffer?

Even if the TPA are now only funded by people who pay tax in the UK, that's a damned broad church. It encompasses everyone from the billionaire to the job seeker - from the BNP to the hippy. Do all these people have the same agenda? Do they all want the same thing out of our government?

That's the question we need to ask the "TaxPayers' Alliance". Which taxpayers are they fighting for?