How Tackling Tax Evasion Could Help Overcome Poverty in the UK | Tax Haven

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The equivalent of nearly £200 per household is being lost through illegal tax evasion, as 220,000 people in the UK are forced to go to charity foodbanks, according to this Oxfam media briefing. Whilst many people in the UK are submitting their tax returns today, new figures from Oxfam reveal that illegal tax evasion by some of the country’s wealthiest people is depriving the UK economy of £5.2 billion a year. Chris Johnes, Oxfam's Director of UK poverty said: It is sickening and immoral that tax evaders get off scot-free whilst thousands of the poorest families are being forced to go to charity foodbanks in order to provide a meal, or go without heating when it’s freezing outside.
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   1 OXFAM MEDIA BRIEFING 31 January 2013 Ref: 03/2012   How tackling tax evasion could help overcome poverty in the UK As millions face a brutal combination of rising prices, stagnant wages and the erosion of social security, some of the UK’s individuals are evading taxes to the tune of £5.2 billion a year  –  the equivalent of an extra £200 per year to every household in the UK 1 . Introduction Today is the deadline for millions of people to return their Self Assessment tax returns to HMRC. Most people, whether low earners with income just above the tax threshold or high earners paying the highest tax rate,   take pride in playing fair with the rest of society  –  they will stay up late declaring every penny earned and refrain from playing fast and loose with the tax rules. But some people don‟t play by the rules. They try to get out of paying their fair dues to society and shirk their responsibility. And they leave the rest of us to pick up the tab. This isn‟t just wrong in principle, it‟s deeply d amaging. Poverty is on the march in Britain and every pound dodged could be used to meet this challenge. Oxfam is calling for fair play in taxation in order to help millions escape poverty for good. Some people aren’t paying their fair share Tax evasion by individuals  At a time when the poorest are being pushed deeper into poverty, some individuals aren‟t paying their fair share. One tactic to illegally evade UK taxes is to move money offshore without disclosing this information to HMRC. Oxfam has estimated that UK residents could hold as much as £355 billion in financial 2  assets offshore 3 , of which an estimated £298 billion are undeclared to HMRC 4 . Considering an average annual return on investment of 6.2% 5 , and applying a Capital Gains Tax rate of 28% 6 , this would yield £5.2 billion in unpaid tax.   2 Politicians have not done enough David Cameron‟s statement to the World Economic Forum calling for tough action on tax evasion, and commitment to use this year‟s G8 to strengthen action on tax, is wel come. 7  The Government is known to be seeking better deals with some offshore tax havens, and recently agreed one bilaterally with Switzerland. However, this agreement has been heavily criticised. In terms of the nature of the actual agreement, it provides an out of court settlement for people who evaded billions of pounds  –  people who broke the law 8    –  and has many more loopholes. It has also been criticised in terms of the precedent it sets, undermining much more effective multilateral action. European Commissioner for Taxation Algirdas Šemeta notably asked member states to refrain from signing such treaties because they undermine efforts to increase foreign account transparency 9 . The German Upper House of Parliament rejected a similar treaty because it would undermine efforts to halt the rise of secretive accounts in the first place. 10  In addition, regarding tax evasion by individuals, the official targets  –  to the extent that any are published  –   suggest a low level of ambition. HMRC‟s newly strengthene d Affluent Unit, whilst a step in the right direction, has a target of pulling in a mere £600m by 2015 11 . Everyone must abide by the same rules. The biggest abusers often dodge their taxes in sophisticated ways and bringing them to book can be tough, but responsibility lies with the Government to ensure that every penny due is paid. If politicians fail to tighten and enforce the rules, they will bear responsibility along with the tax cheats. The Government is starting to acknowledge this, but bold rhetoric must be translated into tougher action. The perfect storm that’s sweeping through Britain   Meanwhile, a perfect storm of stagnant wages, decreasing job security and hours, spiralling prices and deep spending cuts are hitting the poorest hardest. For example, the bottom tenth of the income distribution have been hit seven times harder by tax, social security and public spending measures than the richest tenth 12 . In addition, people on low incomes tend to experience higher effective rates of inflation. 13   Oxfam‟s work across the UK suggests that these cuts are pushing more people into poverty. Oxfam and its partners have witnessed how people are rationing themselves, choosing between heating and eating. With    cost of childcare increasing significantly above the rate of inflation 14 , it‟s an all -too-common story that mothers are forced not to work, so they can look after their children. Jack: “   I    don’t know what people think a poor person looks like, but they don’t think they look like me.”    Jack is a self-employed single mum on Housing Benefit and child support, living on a food budget of £10 a week. Jack used to use the community benefit advice service, which has now shut due to lack of funding. She said a lot of people would be behind on rent in her community had it not been for the advice on entitlements and getting back into work.  As a single mum, Jack is worried that she is not doing enough for her son. On the changes and sacrifices Jack has made in order to make her money stretch further, she said: “I haven‟t had my heati ng on for about a year. I layer up, always have lots of jumpers on. Any excess light bulbs have been taken out hall ways, my bedroom, my son‟s room. It is easier, if they are not there then you can‟t‟ just flip a light on, you save money. No tumble drier or freezer, you cut back more and more and more and then you cut something else”.     3 Up and down the country people are struggling to meet the cost of living. Unable to keep up with the rising cost of food, energy, rent and transport. Food prices, for instance, have risen by 30.5 per cent in the past five years, whilst the National Minimum Wage has risen by just 12.1 per cent over the same period. 15  These are especially tough times for people on low incomes. Women, in particular, are facing a triple jeopardy: being hit hardest by cuts to public sector  jobs, wages and pensions; bearing the lion‟s share of cuts to services and social security; and left „filling the gaps‟ as state servic es are withdrawn. 16   Instead of a social security system that provides a solid base upon which to rebuild one‟s life, support has been eroded with cuts to Child Benefit, Housing Benefit and Working Tax Credits. Most recently   the Government has chosen to limit the rate at which many social security payments are increased, a measure that will further limit people‟s ability to make ends meet. Why tackling tax evasion matters Evading tax is wrong and illegal. It means people are n‟t playing fair and the tax revenue could be used to prevent some of the most harmful spending cuts and help mitigate the impact of rising prices. Below we outline some of the ways the £5.2 billion due to the public coffers could be used to secure public services and social security, which benefit millions of people in the UK. Prevent 9.4 million households from being £180 a year worse off by reversing the cap on social security proposed in the Welfare Benefits Up-rating Bill. 17  Provide an extra £21 a week to every household in the UK that is experiencing fuel poverty. 18  Double universal childcare entitlement to 25 hours per week, giving families more flexibility to work. 19  Lower the effective tax rate for four million low-income workers, so people get to keep 45p for every £1 they earn, instead of 35p. 20     Leigh is currently unable to work. He was in the Navy and was retired after a brain tumour and illness.   “I paid tax while in the Royal Navy but since leaving in 2004 the on ly work I have done is voluntary i.e. selling poppies as a member of the Royal British Legion and volunteering at the British Heart Foundation. I have been called a sponger before and as I said to them: I had a paper round while at school, when I left I did a little training and then went straight to work as a window fabricator, then I joined the Royal Navy until I was medically discharged due to a brain tumour and epilepsy, while always paying my taxes and NI and the system deemed me unfit to work. So I volunteered for the Royal British Legion to put a little back into the system. It makes me furious that I defended my Queen and country so that multi millionaires and even billionaires can simply set up a company based in a tax haven through loop holes our politicians seem hopeless to close, while at the same time cutting the 50 pence tax rate for those that do pay tax. While at the same time cutting funding to the armed forces. I don't think the FTSE 100 can stop an invading force or fight global terrorism. ”     4 Double the number of affordable homes created by building a further 170,000 homes 21 . Tax is the contribution people and companies make for living and doing business in the UK and for sharing in the benefits that this brings. It should not be voluntary. When some people do not pay their fair dues, the rest of us have to pick up their share of the bill to pay for the roads, schools, hospitals, social security and other services that we all rely on. And it means that spending cuts have a bigger effect on people who can least afford to pay. So Oxfam is calling on politicians to crack down on tax cheats and make sure they play to the same rules as the rest of us. The money raised will help tackle the massive and growing gap between the rich and the less well-off, and could be used to help protect the poorest people from the effects of the economic downturn. Tackling tax evasion by individuals 1. Utilise the G8 presidency to put pressure on all offshore tax havens to increase transparency, and strengthen existing multilateral processes in the EU and the G20 2. Ensure all offshore tax havens agree to the automatic exchange of all   information with the UK through bilateral agreements 3. Significantly increase resources at HMRC to meet the challenge of tackling global tax evasion
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