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  1. Wealth
July 31, 2013

Chasing overseas money isn't the solution to our economic woes

By Spear's

Let’s not forget that money can be held offshore for perfectly legitimate reasons

One of Nancy Mitford’s characters famously said, ‘Abroad is unutterably bloody, and foreigners are fiends’. This is a sentiment apparently shared by HM Revenue & Customs – and, it might be added, much of the popular press and probably most people in the street, so far as tax is concerned. Over the past few years, we have all seen the growth of a worrying assumption that somewhere, out there, guarded by foreigners, is a massive pool of untaxed goodies which ought to belong to the UK and which – if captured – will single-handedly fix our economic woes. 

In the not-too-distant past, the Revenue would notify those who it thought should be submitting a tax return, and tell them what it thought they owed. Since 1995, when self-assessment was introduced, there has been a notable shift towards placing the burden on taxpayers to state what they owe, instead of the Revenue guessing. In effect, the Revenue has trusted the taxpayer to disclose anything that might be taxable, and pay what is due. Tax has, to some extent, been operated like a roadside flower stall with an honesty box for payment.

The Revenue has long had help from (among others) UK employers, who collect their employees’ tax through PAYE (introduced in 1944), and UK banks, who deduct basic rate tax on bank interest. Since most people have quite straightforward affairs, this deals with the majority of tax owed by the majority of people.  

But the rest of it is up to the taxpayer to report and deal with.  Most comply to the letter, but some make a mistake, or cheat (or, to continue the analogy, some forget to pay for the flowers, and others grab a large bouquet and drive off as fast as they can).  The proliferation of complex tax legislation in the UK over the last 15 years has surely increased the number of mistakes. But what about those who know perfectly well that they are treading a fine line or pulling a fast one – and how do you distinguish confusion from crossed fingers?  

The Revenue’s recent focus on enforcing existing tax laws and improving collection rates has sensibly not made this distinction. This has been fascinating to watch – a fantastic array of sticks and carrots have been deployed, to no small success, by the Revenue, to encourage those wishing to own up to past mistakes, forgetfulness, or deliberate non-disclosure.  It isn’t clear whether the Revenue is hitting (or will ever hit) the targets set during the euphoria of the first rush of disclosures, but no-one imagines it will produce an abundance of settlements for an indefinite period, so the next challenge is to turn the geyser into a steady stream. 

And here’s the difficult bit. Times are tough, and the level of trust by the state (and the public) in the honesty of taxpayers has been diminishing, to the point where we apparently simply do not believe that a multi-national company is not fiddling the taxman, or that private money can be held outside the UK for a legitimate reason.  

What with FATCA and inter-governmental treaties, the principles in Government of India v Taylor – that the courts of one country could not be used to enforce the tax laws of another – feel increasingly like a history lesson. Tax evaders are hopefully getting the message by now. 

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But don’t we go too far if we think that, merely because someone (or a company) has assets or affairs overseas, that must be depriving the UK? 

Governments need to find a way to collect taxes that are due, but they must take care to do so without sounding like Nancy Mitford’s ‘Uncle Matthew’ – without hindering the global expansion of businesses or the freedom of individuals to move themselves (and their money) across borders. 

Arabella Murphy is a Partner at private wealth law firm Maurice Turnor Gardner  LLP

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