It has been a rallying cry for the the Uncut and Occupy movements. Last year Barclays Bank was in the news when a startlingly low tax bill of just 1% was revealed on 2009 profits (see Guardian 19/2/2011). Glasgow Rangers Football Club was fined for use of a tax avoidance vehicle known as an Employee Benefit Trust (see BBC website 15/09/11). Today Tony Blair has been accused by tax campaigner Richard Murphy of suspiciously obscure corporate arrangements (Telegraph 11/1/12). Government has begun to sit up and listen, perhaps mindful of the promise that we are ‘all in this together’. HMRC has come under attack for having too much of a ‘cosy’ relationship with large corporations (Daily Mail 16/3/11). David Cameron has promised action (BBC 5/1/12).
Traditionally business people are expected to welcome any news that reduces tax collection and fight any proposals that increase it. Remember that we are talking about tax avoidance which is legal, not tax evasion which is not (although finding the dividing line between the two can sometimes entail going to court). However I can think of three powerful reasons why Sole Traders and other small business owners should welcome this news.
1. The tax avoidance strategies employed by these organisations and individuals are in practice not available to small businesses. To employ them you need expensive legal counsel and accounting fees that small businesses cannot afford. The effect is that the business that can afford them have a massive advantage over your average small business owner. Let us say you are a grocers shop. You might be more efficient in running your business than one of the large supermarkets but you still might not be able to compete with their prices because they only pay 10% tax where you pay 20%. The large energy companies are starting to move into areas like domestic plumbing services, again if they have found a way to pay less tax, the average plumber starts with a handicap when putting in a quote for a job. You might be surprised to learn that some of these tax avoidance vehicles are also being offered by your average High St accountants to medium sized companies. In other words the competitive advantage that tax avoidance affords is getting closer and closer to a Sole Trader’s door step.
2. The more tax collection that is lost from large corporations and wealthy individuals, the more that must be found from employees and business that cannot afford these schemes. Most Sole Traders and small business owners are included in this category. More than that most of their clients are as well. It is rare for Sole Traders and small businesses to do work for medium to large scale organisations and very high wealth individuals. The more tax burden corporations and wealthy this sector bears, the less the rest of the economy will have to bear and the more money there will be in the rest of the economy to spend on the kind of services and products Sole Traders are selling.
3. The more time HMRC spends looking into the tax affairs of large business and wealthy individuals, the less it will spend coming after small businesses. The fact is that it is easier to come after a small business owners than a large corporation. The more political pressure that comes to bear on HMRC to divert resources into stopping tax avoidance by high wealth individuals and corporations the better for the rest of us.
This kind of issue is one reason that I am recommending membership of the Federation of Small Businesses. Apart from a host of benefits that to me seem incredibly good value, the FSB lobbies politicians on issues such as these.