Some people evade it. Some people avoid it. Some just find sensible ways to be “efficient”. But as long as tax exists, there will always be people trying to reduce their bills one way or another – especially celebrities.
The man in HMRC’s crosshairs this month has been Gary Lineker. The tax collector demanded £4.9m from the sports presenter, saying he should have been paid as an employee rather than a freelancer by the BBC and BT Sport between 2013 and 2018. But the former footballer said he’d done nothing wrong. He appealed – and now he has won.
HMRC has suggested it might launch its own appeal, but one tax expert has accused the agency of a “bungled investigation“.
Big-name and big-money disputes like this have provoked schadenfreude-fuelled headlines for years, often involving far more complicated disputes over alleged “dodges”. Often it’s HMRC that wins.
Remember when the DJ Chris Moyles claimed to be a used-car salesman? He was being paid £630,000 to host the BBC Radio 1 breakfast show, but in 2014 used a supposed second business to create a £1m loss, a sum he never had to cover, but which still meant he could save £300,000 in tax.
That same year, Gary Barlow seemed to be helping struggling musicians by paying into a fund – but the process created a tax loss which allowed the Take That singer to save £2.50 for every £1 he’d put in. The popstar, two of his bandmates and their manager reportedly invested £66m altogether.
Moyles admitted he’d made a “mistake”, but insisted he’d simply “acted on advice I was given” to use a scheme which he’d been “assured was legal”. Barlow similarly apologised and said he’d since appointed “a new team of accountants”.
Ah yes, those devious accountants. They usually manage to slip away without any of us learning their names, even if all the celebrities blame them.
When Jimmy Carr was revealed in 2012 to be using the K2 scheme – whereby his income was paid directly into a Jersey-based trust, which then loaned him money he never had to repay – he apologised but explained: “I met with a financial adviser and he said to me: ‘Do you want to pay less tax? It’s totally legal.’ I said: ‘Yes’.”
The Government wants to crack down on renegade advisers who enable tax avoidance. It’s no wonder why: the difference between the amount of money owed to HMRC and what it actually receives – known as the tax gap – was estimated to be £32bn a year in the most recent figures. That’s equivalent to the UK’s entire defence budget.
The Government gave tax officials new powers last year to name and shame avoidance schemes and the people arranging them, urging the public not to use them. And this month Jeremy Hunt, the Chancellor, said in his spring Budget that he aims to create “a new criminal offence for promoters of tax avoidance” and wants those involved to be disqualified as company directors faster.
So who are the accountants encouraging and enabling some of the richest people in society to avoid paying vast sums of tax which the country badly needs to pay for public services like the NHS and schools? What could we do to stop them? And fundamentally, is a lack of fairness in our tax system the biggest problem?
Perhaps one of the best people to ask about this calls himself the Rebel Accountant. A chartered tax adviser based in London, he has anonymously written a new book, Taxtopia, which explains precisely how the UK’s system is “rigged” in favour of the wealthiest and reveals the methods – sometimes simple, sometimes clever, often outrageous – they can use to take advantage.
He outlines how the Government may have lost £100m in tax on a single apartment block, London’s One Hyde Park, because foreign property investors are exempt from paying capital gains tax or inheritance tax on their assets. He points out an advantage for celebrities like the DJ Chris Evans who love collecting classic cars: they don’t have to pay any capital gains tax if they sell them on for a profit. And he takes us inside film-industry meetings where directors are convinced to add UK elements to movie storylines purely to pass a “cultural test” and qualify for tax breaks – the kind that have subsidised makers of the undeniably British James Bond films with around £120m since 2007.
Meeting i at his publisher’s offices in London, it’s safe to say that he would blend in easily at any tax advisers convention. There’s no mullet, ripped jeans or leather jacket; our bespectacled “rebel” is wearing a plain fleece over an ordinary shirt.
Though he insists that he has never “personally done anything illegal, or even perhaps unethical”, he knows of many others who have. He wanted to remain anonymous so he could freely reveal the “cheats and scandals, sex and violence, conflict and lies” involved in dodging tax, he writes in his book.
His day job, he tells me, “can be as simple as saying: don’t sell that thing this year, sell it next year, because you’ll pay less tax. Or it can involve convoluted international structures for large corporations.” But he is a rebel with a cause: he would like the UK to have a tax system so fair and simple that jobs like his didn’t exist, because there would be no loopholes to exploit.
“I reckon this country has about 32,000 pages of tax legislation,” he says. “Then there’s thousands of precedents in court cases, and other guidance and rules – and it’s changing constantly, so it’s very hard for one person to know all of it. That’s why there are around 30,000 tax advisers, and about 100,000 people working in tax altogether.
“How can that be? None of them are really adding value. Imagine if that was 100,000 extra nurses or teachers instead.”
Do you know the jargon for different kinds of tax dodging?
Simple tax planning is entirely legal; it’s fair to not pay more tax than you need to.
Aggressive tax avoidance, on the other hand, is when someone complies with the letter of the law but aims to “subvert its purpose”.
Outright tax evasion, when someone knowingly breaks the rules, is the most serious. It’s criminal – but court cases are relatively rare. Only 336 individuals were charged in the most recent annual figures.
Those 336 people “could be anyone from a taxi driver intentionally not declaring a £10 cash payment, to drug dealers hiding cash under mattresses, all the way up to some super-rich person who deliberately hides money offshore”, says the Rebel Accountant.
In practice, however, evasion is becoming “much more complex, more sophisticated, more international and more digitally enabled”, according to HMRC. It revealed last year that UK residents hold £570bn in tax havens, though the agency admitted it cannot even estimate how much of that wealth is undeclared and therefore evading tax.
When it comes to the accountants and lawyers who help evaders, the number of them facing justice is even lower – with just eight cases being prosecuted in the past two years, it was disclosed this month.
The rebel is unsurprised by this. “No accountant or lawyer is going to advise a client to do something illegal, at least no legitimate one,” he says.
But this comes to the crux of the problem he’s highlighting: they don’t need to. There are enough legal ways for wealthy people to avoid tax anyway without resorting to breaking the law, even if plenty of them skirt pretty close or are downright unethical.
All kinds of firms are involved in this duel with HMRC, he says. “You get specialist one- and two-man operations that spring up and go: ‘Here’s some clever way of avoiding stamp duty land tax.’ But on the industrial scale, you get large firms advising their clients in very lawful ways how to pay less tax.”
He uses the example of Formula One driver Lewis Hamilton, whose financial affairs were exposed by the Paradise Papers leak in 2017. “He bought a £16.5m jet and his advisers, Ernst and Young, one of the Big Four firms, created a method where £3.3m of VAT on that was lawfully avoided by setting up a series of interlinked holding companies in tax havens.
“Now, that’s people being done by at the top of the profession – tax partners earning a million a year advising another multimillionaire how to pay less tax. How is our tax system so screwy that they can do that?”
And if a scheme like this doesn’t work, the people who set them up often won’t care too much. “The accountant always wins in these situations. They’ll have said: ‘It might not work, and if it doesn’t that’s not our fault.’ They will still have got their fee.”
“On the industrial scale, you get large firms advising their clients in very lawful ways how to pay less tax”
He admires one piece of legislation – the General Anti-Abuse Rule, introduced in 2013 – which allows HMRC to tackle complicated avoidance schemes which technically fit within the law yet in reality are cynical abuses of it. Still, he underlines there are still plenty of simpler and wholly legal ways for the wealthy to get around it.
Another reason tax avoidance remains rampant, he argues, is that HMRC can’t compete with the firms it needs to investigate when it comes to hiring the best talent. “If you’re given a choice of earning a fortune at a Big Four firm, or taking less money to go to HMRC where there are budget cuts, what are you going to pick?
“The Government can pass as many laws as they want – but if agencies don’t enforce them, then it doesn’t matter,” he adds. A fall in the number of investigations HMRC carried out during the worst part of the pandemic, for example, cost the Treasury up to £9bn.
“Three million firms are registered at Companies House – and it’s never investigated whether their information is correct or not. The number of fake names and fake companies is absurd… You can beat the tax system just by lying a lot of the time because no one’s checking.”
Compare this with how benefits abuse is handled and the situation seems even more unjust. For every person prosecuted for tax fraud in the UK between 2009 and 2019, 23 were pursued over benefits fraud, according to the think tank TaxWatch – and yet tax offences cost the country nine times more.
You might say these statistics simply reflect a basic fact about the UK: there are far fewer wealthy people, yet they are dealing with far greater sums of money. But the Labour MP Emma Hardy, a member of the Treasury Committee, has pointed out another stat: the Department for Work and Pensions receives three times more funding than HMRC to deal with fraud – but while every £1 spent by DWP recovers £6, HMRC recovers £18.
“It’s almost like the Government is a bit more relaxed about tax dodging than they are about poor people over-claiming benefits,” the Rebel Accountant says wryly.
“You can beat the tax system just by lying a lot of the time because no one’s checking”
While reports of celebrities avoiding taxes can be galling, it’s more alarming when politicians are caught doing it.
Take Nadhim Zahawi, the former Conservative Party chairman whose family is said to be worth between £30m and £100m. He was exposed for failing to declare to HMRC his income of around £27m from shares in YouGov. Later it was revealed that he was forced to pay not only the outstanding £3.7m he owed in capital gains tax, but also a fine of another 30 per cent. While he was serving as chancellor.
Zahawi argued his tax avoidance had been “careless and not deliberate”, though HMRC suggested it was not an “innocent error” either. His seven breaches of the ministerial code eventually convinced the Prime Minister to sack him from the Cabinet in January.
For the Rebel Accountant, however, the most shocking thing about this scandal is neither Zahawi’s tax avoidance, nor his dishonesty about it. He’s more outraged at how little tax Zahawi was supposed to have paid in the first place.
“As a multi-millionaire, he had to pay capital gains tax at a rate of roughly 15 per cent on that £27m. That is comically low. Most employees paying the basic rate of income tax, who earn between about £12,000 and £50,000, are actually paying more than double that rate overall.”
This is because of national insurance, “the biggest stealth tax out there”, he explains – and that’s before any student-loan fees and council tax. “They’re paying twice as much as a super-rich politician who was head of our tax system. That’s crazy, that should make people angry.”
Rishi Sunak’s personal finances underline this disparity. In revealing last week that he paid HMRC £1.05m from earnings of £4.77m over the past three years, the Prime Minister was shown to be paying a tax rate of 22 per cent. This was wholly lawful, but as Labour’s Angela Rayner pointed out, it means he “pays a far lower tax rate than working people who face the highest tax burden in 70 years”.
For comparison, Labour leader Sir Keir Starmer paid £118,580 of tax on earnings of on earnings of £359,720 in the last two years – a rate of 33 per cent.
And we shouldn’t forget Sunak’s wife, of course. Akshata Murthy, the daughter of a tech billionaire, was revealed last April to be domiciled in India for tax purposes, despite living in the UK for nine years. This meant she may have avoided paying up to £20m in British taxes, stoking a political row which led Murthy to give up her “non-dom” status two days later.
“What she was doing was perfectly legal,” says the rebel. “The choice she had is: would she like to pay £4m in UK taxes on the £10m a year she earns in Mauritius and around the world, or would she rather pay a £30,000 fee to be a non-dom?
“Obviously she’s gone for the second option. Fair enough. That’s what a tax adviser would recommend. We’d all love to pay a 0.3 per cent tax rate, I would too, but it shows the non-dom law is dodgy – and it’s absurd there’s only one person in the country who could change that law, and she’s married to him.
“If you believe in social justice and fairness, we definitely don’t have a tax system set up for it,” he argues – but it goes beyond that. “If you believe in economic growth – or in helping the environment – we don’t have a tax system set up for those either.”
So what should we do?
The shadow Chancellor, Rachel Reeves, says Labour would abolish the “non-dom” tax status if it wins the next general election. Writing in i, she has argued why this “unjustifiable, unfair” loophole has to go.
The party says this could raise an extra £3.2bn a year. The tax advisory firm Blick Rothenberg argues it could cost the economy £7bn, but that is coming from a business which openly markets its own services in helping non-doms “avoid the numerous tax pitfalls”.
The Rebel Accountant, however, argues we should go much further. In fact, he is lobbying for the most radical changes to the British tax system ever seen. Prepare for some blue-sky thinking.
“If you believe in social justice and fairness, we definitely don’t have a tax system set up for it”
First, he would abolish all taxes on businesses – encouraging them to employ more workers, open more shops, build more factories and run more offices – and instead target purely the income that people take out of businesses and the wealth they generate from them, plus any money that firms transfer abroad.
“If you say ‘cut taxes on business’, instinctively people think you must be some weird neocon,” he says, “but if you’re simultaneously raising taxes on rich people, where does that leave you?”
Business taxes are often used as an excuse by entrepreneurs for their personal taxes to be lower. Getting rid of them would eliminate this excuse, he argues – and after all, it’s humans we should be taxing. “A company is an abstract legal entity – have you ever seen a company getting on a bus or having its tonsils taken out?”
Second, he would create a single “wealth-increase tax”, meaning that no matter whether you’re employed or freelance, relying on investments or receiving a big inheritance, all your incomings would be totted up and assessed in one go each year, with everyone playing by the same rules and facing the same rates. There wouldn’t be much wriggle room left for tax avoiders.
Perhaps this isn’t as radical as it sounds. Nigel Lawson, a Conservative chancellor under Margaret Thatcher, made taxes on capital gains and income equal in 1988, so that people paid a top rate of 40 per cent no matter how they had earned their money. It was a Labour chancellor, Gordon Brown, who made big cuts to capital gains rates 10 years later which have largely benefitted the wealthy.
Levelling the two again would raise £50bn in four years, according to the IPPR think tank, which backs the move and says the current system is “unfair”.
Third, the rebel would replace VAT with a “No Value Added Tax”, whereby products and services would be charged different rates depending on how ethical, useful to society and environmentally friendly they are.
Let’s be honest: this vastly simplified tax regime is almost certainly never, ever going to be introduced. But is that because it’s a bad set of ideas? Or because the rich and powerful would simply never stand for it – while the rest of us are too used to the way things are?
To not just combat tax dodging, but wipe out the tax unfairness that aids it, perhaps the Rebel Accountant is onto something.
‘Taxtopia: How I discovered the injustices, scams and secrets of the tax evasion game’ by The Rebel Accountant is released on Thursday (£20, Monoray)
This article was updated on 28 March following news of Gary Lineker’s appeal victory over HMRC
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