Taxation neeedn't be taxing. But it is.

I've decided to move the accountancy practice offshore.

Nicolson Accountancy EU Sarl will be based in Luxembourg, and the Stornoway office will become an 'order fulfilment centre'.

I will employ literally a brace of people in Luxembourg, one to answer the phone and one to spend all day taking money to the banks, and as there is no tax to pay in the UK, I can cut prices by over 20%, driving the competition into the wall.

I'll then fill this gap, by getting a Scottish Government grant to expand the premises and bring employment to an unemployment blackspot; that I have helped create.

Alternatively, I'll mortgage everything I have.  Lend it all to a British Virgin Islands company, who lends it back to the UK company at double the interest rate I pay.  I'll get a tax deduction on all this interest on money I borrowed but don't actually need, whilst the BVI company will earn it all tax-free and pay of my mortgages and give me a very nice lifestyle.

Any spare cash will be lent back unnecessarily to the UK company in a tax-deductible/tax-free circle that continues until UK Corporation Tax becomes zero.  At this point, I'll trumpet my multi-million pound investment in Scotland, and be invited for tea at Bute House (which will appear on the official record).

The former, is of course, the Amazon style; and I didn't appreciate the full extent of their tax manipulation until this week, thinking that my spend was recycling in the UK.  It's not.

According to the Guardian, there are 2,265 employed by Amazon in the UK, and 164 in Luxembourg covering the entire EU.  But the UK seems bizarrely unprofitable, generating a mere £3m in taxable profits compared to an expected £100m.

The second is the News International structure, with debt used to move profits around.  It is surprisingly easy to do this, and has recently been enshrined in law as completely permissible - for large companies multi-nationals only.

So the correct and fair question that needs ananswer is: What will be the tax position of these two examples in an Independent Scotland?

Are we to become a "tax haven" as Francis Maude was rightly pilloried for aspiring to, or will we follow the Scandanavian model and insist on profits earned being tax here?

The SNP cannot remain silent on this, or try and deflect to the current taxation policies in the UK, for the very simple reason that we are supposed to be looking forward to a bright new future, not building a future based on past mistakes.

Political parties have to issue manifestos that address the real issues, or they will find themselves flailing about, in the same way that MacNeil did with a Shetland opt-out from Independence.

This is the biggest decision in many generations, and no-one seems prepared to try to come up with answers to some of the key questions and that, I am afraid, is just not good enough.  If 50 years of waiting, and 5 years in power are not long enough to find coherent answers then there is something far wrong.

Are the politicians too emotionally in hock to the multi-nationals to ever consider the impact on the wider economy of a grant-shopping, grant-hopping, local-economy destroying giant?

Are we to become a nation of over-taxed individuals, flipping burgers and packing books to pay the taxes for the social services, whilst the multi-nationals take the profits tax-free to Luxembourg and the Caribbean?

Or is the country going to take it's share of taxable income from the multi-nationals and build schools, Universities, roads and a sense of a viable future?

The absence of any kind of answer is - sadly - very telling, and will result in an eroded Scottish tax base, as the moderately wealthy emigrate in search of a better balance between taxation and standard of life; and the wealthiest emulate the multi-nationals.

Taxing the disabled

With the proposed changes to the Blue Badge scheme, it is now going to cost you £20 to get and renew your new Blue Badge.

This is maximum charge possible, and given the magnificently overblown and complex plan to stop 'fraud', that cost is bound to increase dramatically in future years.

Of course, the real problem is actually cars with Blue Badges being driven and parked by able bodied relatives (just go to Tesco or the Co-op and see what I mean) rather than forged badges.

FFS, due to a missing Traffic Warden in Stornoway we can't even enforce parking violations or use of the car park without either paying or displaying.  In the islands, these badges are not going to be enforced, except in the rarest circumstances, which makes it nothing more than a tax on the disabled.

Based on 1,110 users in the islands and a pass through charge of £4.60 plus VAT, perhaps the Comhairle can find the estimated £6,100 required to keep this scheme free for the islands. 

Following on from an earlier post, will the emasculated 18* SNP hopefuls say anything to John Swinney to try and exempt disabled islanders from this ludicrous tax?


Ta to H for the tip-off.

* Yes, I know that might be unfair, but get used to it; you're going to get worse.

Fuel Duty rates

No-one can argue that fuel prices are very high at present - although some may argue that for environmental reasons they need to be higher - and the issue of fuel duty rates rears its ugly head again.

The argument from our MP runs like this...

The soaring prices we are seeing at the pumps now are just a glimpse of what is to come next year. In addition to rising inflation, 2010 will see increased VAT and the UK Government's absurd fuel duty escalator which will push prices through the roof [...]

We need the full fiscal powers of a normal, independent nation so we can set fair taxes that do not penalise rural motorists.

Fuel duty is about 70% of the price of every litre, and yields an additional £260m for every 1% higher. Scotland's share is therefore, in round terms, £25m for every 1% change in in fuel price.

Now the maths get more complex. And here I use round numbers for ease of arithmetic.

Price of fuel: £1.20/litre
Duty and VAT: 84p (70%)
The petrol: 36p (30%)

A reasonable price for fuel is exactly what Mr MacNeil? You have never answered this question or even given the slightest indication of the proximity of the balance position or the fuel duty regualtor, but you started issuing press vague but vituperative releases when petrol was over £1/litre, implying that 90p/litre might be somewhere in the right region.

Ok, lets redo the maths:

Price of fuel: 90p/litre
The petrol (unchanged): 36p (40%)
Duty and VAT: 54p (60%)

That 10% change in duty implies a fiscal cost of £250m each and every year.

Which could be funded by cutting student grants in half, or by removing all the support for ferry, rail, air and other transport directorate services.

I am sure that Mr MacNeil has thought this through and can tell us exactly where this money can be found, in a way that won't be painful for any sections of the community. Or not.

(I do know where it could be found, but I'd love to hear his explanation)

Fuel duty

It was interesting to read the debate on Fuel Duty and a possible derogation, held in the Scottish Parliament on Thursday.

Particularly read the section in Liam MacArthur's opening speech where he fillets the SNP policy of a Fuel Duty Regulator, and the negative impact such a policy would have had on the Western Isles. (Like me, you might have a good hard laugh at some of the less than polite comments)

Something I have been saying for some time.

Although he does slightly over-egg the pudding at some points, he sets out the fundamental flaws in such a policy with clarity.

As the motion was for a derogation in pricing - effectively price cuts in rural areas - it is not incompatible with the ludicrous policy of a duty regulator.

However, the LibDem motion agreed to finally, finally, forces the Scottish Government to take action, rather than just be a bland restatement of principles without action.

That the Parliament notes the UK Budget and the plans to increase fuel duty; recognises the high premium over the national average paid for fuel at filling stations in remote rural and particularly island areas and the financial and social impact that this has on individuals and businesses; believes that increased fuel duty will have a damaging effect on the economy and competitiveness in these areas, not least due to the limited public transport alternatives; notes that current EU law allows fuel duty to be cut by up to 2.4p per litre and that this power is already used in France, Portugal and Greece, and calls on the Scottish Government to work with the UK Government and the European Commission before the final passage of the Finance Bill to construct a derogation under the EU energy products directive, or otherwise, to permit variable rates of duty for specified remote rural areas to bring down the price of fuel at the pump to that available in other parts of the United Kingdom.

Perhaps now we may have some action. Although I expect Alasdair Darling to refuse to implement such a policy, despite public cries to the contrary. The real coup would be getting the Tories - the next Government - to support such a policy. The chances seem low, given that they abstained when it came to the vote yesterday.

Fuel tax regulator

It looks like I might have been wrong about oil going to $200 per barrel by Christmas, as the expected recession in the West is likely to dampen demand.

The graph of oil prices over the past six months is instructive (I don't know if this will update automatically or not) showing the peak at $140-150.

(Graphic removed, as it wasn't working and a link put in its place)

So how does this tie in with the calls for a fuel duty regulator?

As you know I have been very sceptical about the usefulness of the such a proposal, considering it to be daft, ill thought-out, and pushed by under-informed politicians.

In April this year (when oil reached $110) the cry was for a regulator to soften the impact of the expected continual increase in fuel prices. I asked the simple question - which remains unanswered - at what price should the duty rate be set?

"It's too high", is hardly and informed and intellectual response to that question, and betrays the lack of understanding of the speaker.

With prices now heading downwards, if a fuel duty regulator had been put in place when our MP and MSP made their siren calls then we would be facing petrol prices that were kept artificially HIGH to ensure that the yield from fuel duty remained the same.

I am sure that this outcome is not one that MacNeil or Allan realised they were actually campaigning for when they tried to grab the headlines.

Taxation and politics

Two very interesting taxation stories appeared just above the radar, sending complementary but confusing messages about Labour's stance on equality on taxation.

The "super rich" should pay 10% more tax on earnings over £150,000 or give the same amount to charity, senior Labour MP Frank Field has proposed.

Oblivious to the fact that as it stands donations to charity can reduce your tax bill in any event, this appears to be a way of proposing a 50% tax rate on the 'super-rich', which will not get shot down in flames by the Treasury.

To get the support of the Socialists, Frank Field quotes their heroine:

Mr Field said the idea came from a conversation he once had with Baroness Thatcher

But the idea was knocked down by the senior partner at Grant Thornton, Chartered Accountants:

Mr Warburton said many of his company's wealthy clients would welcome the chance to put something back into society - provided it was not through the tax system, which they saw as wasteful.

So presumably their less wealthy clients don't see the tax system as 'wasteful'?

Of course this is a non-runner, as the attitude of Labour towards equalising the tax burden and that old discredited concept of "From each according to their abilities, to each according to their needs" has moved from listening to the words of Karl Marx to those of his brother Harpo.

The Treasury has been accused of climbing down over its plans to tax wealthy foreigners living in the UK, after it moved to clarify its position.

No accusation, this IS a climb-down as a result of extensive pressure from the super-rich, who saw this as the first step towards them having to pay some tax, somewhere. The crawling continued,

Under the government's plans, wealthy non-doms will be eligible to pay a flat £30,000 in tax a year - once they have lived in the UK for seven years - or else sign up to the existing British tax structure. "We don't need to know the detail of people's worldwide income if they are going to be paying the £30,000," said Ms Cooper.

In other words, if you can persuade the Inland Revenue that you actually reside in Fiji, or Russia or the moon and are only temporarily in the UK for a decade or three, then you can pay £30k and no questions are asked. Questions like do you pay any tax anywhere in the world?

Meanwhile, the poorest face punitive 67% tax rates ....

Brown denies polls changed mind

Yeah! Right!

All the ducks were being lined-up - as I prophesied a long time back - to maximise the options, and then the Tories pulled the rug from under him with their promise on Inheritance Tax.

Incidentally, IHT is the easiest tax to avoid, with some planning and foresight, and about the most punitive if you do nothing.

George Osbourne appealed directly to the greed of middle-England (by which I mean those sitting on large increases in house prices, where ever they live) yet hit a brilliant re-distributionist button in taxing the non-domiciled, albeit a nominal amount.

Perhaps - hopefully - we'll get into a bidding war to tax the non-domiciled and Shock! Horror! they may end up paying a tax rate not dissimilar to that paid by everyone else in the UK.

Mary Salmond Trust

This is the Trust set-up by Alex Salmond in memory of his late mother, which has been approved by the Office of the Scottish Charity Regulator as a charity.

As I have previously noted, the pledge from Mr Salmond is very clear:
3. Mr Salmond has decided to pay his gross Scottish Parliamentary salary of £1,474.75 per month into the Trust and has backdated this to the May election

As a Higher Rate Tax payer, Mr Salmond will receive a further 18% tax relief (40%-22%) on his contributions, reducing his tax bill by £3,185 pa.

I'm sure that such an outcome wasn't on his mind, and he meant to obtain NO benefit whatsoever from his double salary.

The super-rich

Brendan Barber, speaking for the TUC makes a series of good points:

Speaking ahead of the TUC annual congress, which starts in Brighton on Monday, he said: "Today a significant group of super-rich float free from the rest of society, and think that tax is for the little people.

Yes, thanks to Gordon Brown refusing to close the loopholes.

"Today the rest of society pays a heavy price for the wealth gap - whether middle, low or no income." Mr Barber said this "distorted" the housing market, adding: "The gap harms social cohesion - and without joining the moral panic about crime rates in the UK, it's noticeable that many countries with a fairer distribution of income have lower crime rates."

Yes, let's close the wealth gap as it is the level of relative poverty that is related to crime rates not the Gini co-efficient.

Some 112,000 people currently benefit from "non-domiciliary tax breaks", he added. When asked about the size of City bonuses, Mr Barber said they had reached £14bn in total this year.

So is Gordon Brown going to close the tax breaks then?

Are you going to lobby so that people like people like Sir Philip Green pay tax in the UK on UK earnings?

Perhaps you might even suggest that UK based companies actually pay UK tax, rather than shuffling it off-shore?

But he added that the TUC was not calling for a change in the rate of income tax for the highest earners.

Obviously none of the above. They pulled their punches and don't want to say anything practical and controversial that might rock the boat (berthed in Monaco!) and upset Gordon Brown. I am sure that many union members would be more than happy to see a 50% tax rate on earnings over, say, £250,000 and let's say 60% above £1,000,000. That'll achieve much of what the TUC claim they want to see happen.

Tax planning

Tax avoidance is legal; tax evasion is illegal.

Anyone who is self-employed or has other sources of income knows just how much grief the small taxpayer can get from the Inland Revenue.

It will bring joy and glad to your heart to hear that according to the National Audit Office report almost 1/3 of the largest business in the UK pay no tax.

That's right. Nothing. Not a penny.

And more than that, the Inland Revenue seem content with the situation....
The taxman was quick to rubbish claims that large companies were not playing fair.

‘It is ridiculous to suggest that business does not pay its fair share of tax. Businesses are using the capital allowances and deductions that government has put in place. ‘These are not loopholes ­ but are properly policed business reliefs,’ an HMRC spokesman said.

How can this happen? I've previously explained how New International pay no tax in the UK, and it seems that Labour's fawning approach to large business has allowed the multi-nationals to write the legislation is such a way that they can exploit the loopholes they author and avoid a UK tax liability.

Clearly the balance has shifted too far, and it's about time that Labour remember their redistributionist and socialist heritage and stop pandering to the global financiers.

Council Tax to be frozen?

The report in today's Herald suggests that the impact of freezing the Council Tax at current levels will cost £420m. How many better ways are there to spend such an enormous sum?

Probably 420 million.

The Council Tax may well be discredited, but the National Local Income Tax promises to be worse; and although many have nay-sayed my views, no-one has actually challenged the figures I have produced, and how they will severely adversely affect the people of the Western Isles.

But the intention to freeze the figures is a spectacular misjudgement on many levels. There will be plenty of credit to the Executive in the short-term for their stance, but it betrays a lack of thought of the long-term political impact.

Councils get a lot of flak for every Council Tax increase, and I guess that they will for once get the credit for any stand still in the bills.

But the real damage will start to occur in the three years of stasis. Every Council budget cut, every saving that has to be made, and every hard choice, will be blamed on the Executive cutting the budgets, as they seek to make up the £420m shortfall. If you were the Councillor having to close a service, of course you are going to blame someone else - it's not quite the first skill you acquire, but close to it.

But that is going to be as nothing as to the next stage. The Executive introduce the NLIT, and there are two choices:
1. Find another £210m each and every year to keep bills low, or
2. Dramatically increase the NLIT bills to recoup the losses to date.

Well, I think we can rule out option 2; meaning that instead of expecting small sums from the public each and every year, the public sector will now face largish cuts each and every year for a quick and easy (and short-lived) political gain.

And then the losers in the new NLIT - such as the people of the Western Isles - start to scream, and we have some kind of balancing mechanism to prevent large increases or decreases in payments, meaning more bureaucracy, confusion and inevitably more cost to the taxpayer. Just before the next election. Good thinking!

Factor in the Comprehensive Spending Review (i.e. cuts) due to be approved by Gordon Brown shortly, which will result in large cuts for an SNP lead Executive (but, as I said before, without any political fingerprints on the whole decision making process), and suddenly the budgetary process looks complex and precarious. Just before the next election.

Oh, the political innocence of it all.

LibDem tax policy

Overall the new policy as unveiled by Ming the Hopeless is sensible and balanced, and addresses some of the anomalies created/fostered/encouraged by Gordon Brown.

Good ideas:
A local, local, income tax
Return business rates to local control
Simplify the tax legislation
Tax capital gains made by non-UK residents on UK property (including foreign companies?)

Bad ideas:
Dropping the plan to have a 50% tax rate for highest earners
Replace Airport Passenger Duty with taxes based on plane emissions. As we have the oldest, most polluting planes, it is simply relocating the problem from London to the 'fringes'

Need more thought:
Reduce basic rate of tax to 16% (this will actually be from 22% to 18%) but doesn't help these in most need
Raising the Inheritance Tax threshold

Overall, could do better. And does all this also apply in Scotland?

Taxation

Never an exciting political topic, but a very important one and one that will grow in importance over the next two years as Gordon Brown tightens the screw, I predict.

The fiasco over the 10% tax rate for private-equity firms bosses is a disaster of his own making, just like the 10% starting rate for corporation tax and the continuing failures in the Tax Credit system.

Put simply, the private equity firms turn their income into capital growth and then sell the shares. As long as the shares have been held for more than two years, the effective tax rate is 10%, and the rates that you or I pay of 22% or 40% PLUS National Insurance never come into play. It is perfectly legal and applies to everyone who sells an incorporated business and some other assets, but it was never intended that income could be wrapped up as capital and Income Tax avoided.

This just demonstrates the lack of commercial awareness of the Treasury team, and it is appalling that they have been forced to address this, rather than taken the lead. As I have mentioned before, Gordon Brown and his team seem to have an enormous blindspot for the super-rich foreigner allowing them to come to the UK and pay almost no tax. Anywhere.

The recent amnesty for people who "forgot" to declare interest earned in the Isle of Man, Jersey or Guernsey will undoubtedly hurt a lot of smallish taxpayers (and I have no sympathy, but have helped some calculate their correct tax liability) but the real big depositors will be the non-domiciled and the non-residents who are hiding ill-gotten gains for other tax authorities, and have absolutely nothing to fear from our Inland Revenue 'purge'. That being said, I really look forward to the first high-profile prosecution.

Local Income Tax

I'm all in favour of a local Income Tax as I think that it has many advantages and the disadvantages and loopholes can (fairly) easily be closed. What seems to be A Bad Idea is a National Local Income Tax. Let me explain, with some numbers based on how it will affect the Western Isles.

But first, some background. A local Income Tax is a simple addition to your Tax Code based upon your home post code. So, for example, if you are an employee your Tax Code will be changed to recover the appropriate additional tax, and the self-employed will have a change to their tax assessment at the end of the year. The mechanisms are all in place - the taxman has your post code and employees will see "/s" on their coding notice if they live in Scotland but their employer is in England.

The following are the Council Tax bands for the Western Isles for 2007/08.

Property value	Band	Council Tax 2007/08
Under £27,000	A	682.67
Up to £35,000	B	796.44
Up to £45,000	C	910.22
Up to £58,000	D	1,024.00
Up to £80,000	E	1,251.56
Up to £106,000	F	1,479.11
Up to £212,000	G	1,706.67
Over £212,000	H	2,048.00

The level of the Local Income Tax is perhaps 3%, perhaps up to 7.5% depending upon who you believe, so I did the calculations up to a level of 10%, and compared it to the Council Tax Band.

Household taxable income	3.0%	Band	5%	Band	7.5%	Band	10.0%	Band
£10,000	300	A	500	A	750	B	1,000	E
£15,000	450	A	750	B	1,125	E	1,500	G
£20,000	600	A	1,000	D	1,500	G	2,000	H
£25,000	750	B	1,250	E	1,875	H	2,500	H
£30,000	900	B	1,500	G	2,250	H	3,000	H
£40,000	1,200	E	2,000	H	3,000	H	4,000	H
£50,000	1,500	G	2,500	H	3,750	H	5,000	H
£60,000	1,800	G	3,000	H	4,500	H	6,000	H
£70,000	2,100	H	3,500	H	5,250	H	7,000	H

What this shows is that if your total household income is £20,000 and the Local Income Tax is 3%, then you are better off. With a LIT of 5%, then you are better off if your house is Band D or above. With a LIT of 7.5%, then you are worse off unless you live in a Band H house.

Why does this come about?

Simple, because the Council Tax in the Western Isles is so low, a nationally set LIT will result in us subsidising the areas with the highest income and highest Council Tax. This was not what was intended, and certainly not what I gave my support to, and promises to penalise the Western Isles, again.

That's all before I can tell you a very, very easy way for the rich to avoid the worst effects of LIT.

Amended 13/4/07 to change "household income" to "Household taxable income" in the interests of clarity.