Can 'Creative Accounting' ever be stopped?
Discussion
In this video Tim Bennett explains Philip Hammond's new digital tax (Amazon):
https://www.youtube.com/watch?v=XMnhwuu21yE
No doubt, many guardian readers rejoiced in hearing the news - but I wonder if this will change anything at all?
The video highlighted Amazon's complex tax affairs, and importantly that it wasn't doing anything illegal.
So on that basis, whatever new rules come into play, won't Amazon call is tax advisers around the table to find a new loophole... and thus back to square one?
Makes me wonder if this a real clamp down or just a party PR stunt.
https://www.youtube.com/watch?v=XMnhwuu21yE
No doubt, many guardian readers rejoiced in hearing the news - but I wonder if this will change anything at all?
The video highlighted Amazon's complex tax affairs, and importantly that it wasn't doing anything illegal.
So on that basis, whatever new rules come into play, won't Amazon call is tax advisers around the table to find a new loophole... and thus back to square one?
Makes me wonder if this a real clamp down or just a party PR stunt.
Likely not with the way UK tax gets more and more complicated as time moves on. Multinational companies will always find ways to shift profit about to save tax.
Personally I think the only way to solve it is to cancel corporation tax entirely and then load the lost tax take onto employees income tax.
Result is more companies move to the UK, employ more people who earn more as ther's more jobs than population, this in turn means they pay more tax and the economy gets a boost as well.
Income tax should be a single flat rate on all earned & unearned income above a sensible minimum living wage, say 30% above £15K (which should also be the limit for non special needs benefits) and then when salaries hit an excessive wage go up to 45%. Any higher rate restricts desire to innovate and become successful.
Personally I think the only way to solve it is to cancel corporation tax entirely and then load the lost tax take onto employees income tax.
Result is more companies move to the UK, employ more people who earn more as ther's more jobs than population, this in turn means they pay more tax and the economy gets a boost as well.
Income tax should be a single flat rate on all earned & unearned income above a sensible minimum living wage, say 30% above £15K (which should also be the limit for non special needs benefits) and then when salaries hit an excessive wage go up to 45%. Any higher rate restricts desire to innovate and become successful.
JaredVannett said:
Makes me wonder if this a real clamp down or just a party PR stunt.
It's definitely not a real clamp down. The £400m it would raise is peanuts, for a start. Rather it's an attempt to bring the big players voluntarily to the table - a sort of 'come on, play ball and we'll not go ahead with this thin end of the legislative wedge' sort of thing.The tax system is from a time before internet shopping, and before the rise of huge multi-nationals with complex legal structures enabling them to pay very low rates of tax legally.
You have to feel very sorry for the shop on the high street paying big rent, rates and corporation tax in the UK when Amazon is operating from a warehouse in Slough or Milton Keynes, paying a comparatively cheap rent and paying a negligible tax rate on billions of pounds of sales.
Creative accounting will always happen - partly because an accountancy firm will pay big money to employ the people from HMRC to show them the loopholes! Its HMRC's job to make a more robust system which is relevant to the digital era.
You have to feel very sorry for the shop on the high street paying big rent, rates and corporation tax in the UK when Amazon is operating from a warehouse in Slough or Milton Keynes, paying a comparatively cheap rent and paying a negligible tax rate on billions of pounds of sales.
Creative accounting will always happen - partly because an accountancy firm will pay big money to employ the people from HMRC to show them the loopholes! Its HMRC's job to make a more robust system which is relevant to the digital era.
hornmeister said:
Personally I think the only way to solve it is to cancel corporation tax entirely and then load the lost tax take onto employees income tax.
Result is more companies move to the UK, employ more people who earn more as ther's more jobs than population, this in turn means they pay more tax and the economy gets a boost as well.
I doubt it would work quite as well as that. If you increased income taxes hugely then hiring people in the UK would be massively less efficient than hiring people overseas - it would drive people out of the UK rather than attracting companies in.Result is more companies move to the UK, employ more people who earn more as ther's more jobs than population, this in turn means they pay more tax and the economy gets a boost as well.
Remember that the incidence of income tax is shared between employees and employers as to some degree wages move to compensate.
Far better to tax profits rather than jobs.
The key to getting Amazon, Google, etc to pay more tax is international co-operation, by which I mean you have to stop Luxembourg, Ireland, BVI, Cayman et al. having such low tax rates causing profit shifting to those jurisdictions. Sadly I don't hold any hope of the EU achieving this for as long as Juncker (i.e. the architect of Lux tax avoidance) is in charge.
Countdown said:
Mr Pointy said:
It's simple: remove all allowances & levy tax on all income..
So if you’re a wholesaler with £billions in turnover but only thousands in net profit (or maybe even net losses) you’d be well and truly bu66ered.If you are turning over biliions & only making thousands that's because of creative accounting.
Mr Pointy said:
never defined what the rate of tax would be & clearly it wouldn't be 20% - it can actually be a very low number.
If you are turning over biliions & only making thousands that's because of creative accounting.
No. It may be because you have very low margins.If you are turning over biliions & only making thousands that's because of creative accounting.
A tax based on turnover has just as many “issues” as one based solely on profit. For example it would take no account of interest on capital expenditure or interest.
Mr Pointy said:
never defined what the rate of tax would be & clearly it wouldn't be 20% - it can actually be a very low number.
If you are turning over biliions & only making thousands that's because of creative accounting.
You have misunderstood the point about wholesale.If you are turning over biliions & only making thousands that's because of creative accounting.
Imagine a travel agent sells a £5,000 holiday with 1% commission. The commission is £50. Assume the net profit is 10% of that, leaving a profit of £5.
If you now tax that company on its turnover then anything over 0.1% will wipe out all the profits.
Creative accounting is only partially about exploiting tax loopholes. Accounting rules trend to be framed in such a way so that businesses are allowed a certain amount of interpretation and choice in deciding what techniques to apply in what circumstances. Indeed, it would be wrong for accounting rules to be too tight.
Note that I am talking about accounting rules and not tax regulations.
Note that I am talking about accounting rules and not tax regulations.
Billy.RS said:
Can 'Creative Accounting' ever be stopped?
Personally I think no. With every new rule that's made, there's more opportunities for loopholes. Maybe when human accounting phases out and everything is computer automated? Maybe. But very unlikely.
Automation won't stop creative accounting. CA is the interpretation of accounting rules for the benefit of management/shareholders. All Computer accounting does is automate the interpretation.Personally I think no. With every new rule that's made, there's more opportunities for loopholes. Maybe when human accounting phases out and everything is computer automated? Maybe. But very unlikely.
For example I want to reduce EBITDA - I ensure that contracts are signed after 1st April and/or sales invoices raised in the following accounting period. Or I want ensure that we increase accruals and provisions. These are matters of professional judgement and it's rare for an audit partner to challenge an FD too closely on any judgements that could be argued either way.
Yes of course! It's very easy to do.
Flat Tax - simple percentage on all income, CG, Inheritance, Corporate profits, VAT - and all profits cannot be washed away with management fees. They must be linked to sales in the selling location.
All taxes deducted from bank accounts, strictly controlled by HMRC.
In principle, if you remove the incentive to 'avoid' tax, then people, and companies, wouldn't.
However, enormous issues with flat taxes, tying sales, profits and taxes to one location and all that. Which is why we currently have an onworkable tax system staffed by advisors and tax staff who don't know the rules, and everything is open to interpretation.
Flat Tax - simple percentage on all income, CG, Inheritance, Corporate profits, VAT - and all profits cannot be washed away with management fees. They must be linked to sales in the selling location.
All taxes deducted from bank accounts, strictly controlled by HMRC.
In principle, if you remove the incentive to 'avoid' tax, then people, and companies, wouldn't.
However, enormous issues with flat taxes, tying sales, profits and taxes to one location and all that. Which is why we currently have an onworkable tax system staffed by advisors and tax staff who don't know the rules, and everything is open to interpretation.
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