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Editors Comment: 'Nailing tax evaders requires effort. So expect a hike in VAT instead'

Reading the acres of coverage about the HSBC Swiss bank tax “scandal” recently, I became confused about what the precise problem is.

There was a tendency for some commentators to flip between discussing tax “avoidance” and tax “evasion” as though they were the same thing. I’ve yet to meet anyone who pays more tax than they are legally required to do; avoiding tax by legal means seems sensible.

Evading tax, that is dodging required payments via illegal means, is just plain wrong, however, and presumably laws are in place to deal with alleged offenders. Yet we learnt that our friends at Her Majesty’s Revenue & Customs have only brought one successful prosecution of a large-scale evader recently, which is disappointing to say the least. I heard an HMRC official on the radio explaining that such cases were very complex (and so expensive given the crazy prices lawyers charge) and hard to prove. So seemingly nothing is done.

I found myself getting exasperated at all this. Often we heard that the alleged perpetrators of tax malfeasance were “exploiting loopholes in the law”. Well, if that is the case they are not actually doing anything wrong and surely the onus is on the authorities to close the loopholes. I am as frustrated as the next person when I read of major corporations like Amazon and Vodafone apparently avoiding paying corporation tax in this country by setting up holding companies in convenient locations like Luxembourg or Dublin. The arguments offered by the companies fly in the face of common sense and one would hope that a robust government might be able to devise legislation to deflate this practice. I wonder why none seems to have the stomach for that struggle.

That thought leads me nicely on to considering the upcoming election, a topic that we will look at in more depth in next week’s issue. Our industry is getting more attention than usual because of the relentless campaign for reform of the business rates system. Readers of Drapers should press their constituency hopefuls on how they stand on this one. We have to avoid the danger of this being an election topic that gets filed away after the vote.

Reform is long overdue. The current situation is unfair and unbalanced and a better solution needs to be found.

Apart from the rates question, the fashion retailing industry is not getting a lot of attention from the politicians, which is, I am afraid, business as usual. According to the Office for National Statistics, annual sales of clothing, footwear, textiles and leather are reckoned to be about £45bn, which compares with £151bn for food sales. Despite its immense size, and the fact that retailing is the most important component of the UK economy outside the public sector, the simple art of shopkeeping is rarely on the political radar, apart from negative stories about zero-hours contracts and taxavoidance/evasion. As we report on here, there is plenty of scepticism across the sector about promises and rhetoric bandied about during an election campaign. People remember (in)actions from the past, not words in the present.

One slightly worrying subject that keeps popping up is the threat of a rise in VAT from its level of 20%. Professor Google informs me that of the 26 EU member states, no fewer than 16 have rates higher than the UK’s 20%, with Hungary topping the list with 27%. It is clear that whoever is governing us after May will need to raise more money.

A near-universal sales tax like VAT is relatively easy to apply (because retailers have to manage it!) and gives instant results (well, within three months anyway). And it’s simpler than nailing tax evaders. You have been warned.

Readers' comments (1)

  • The concern about a possible increase in VAT after the general election is well made. But it is just one of a number of possibilities – none of which make great reading. They include in descending order of likelihood:

    • possible increase in national insurance (aka employment tax);
    • possible increase in income tax; and
    • possible reduction in pension tax relief.

    There again it might be open to the next Chancellor to perm 2 from 3!

    Overall the next Government needs to recognise the role played by the fashion industry as well as the wider private sector economy in generating the wealth that the UK needs.

    Stephen Sidkin
    Chair
    Fashion Law Group
    Fox Williams LLP

    Unsuitable or offensive? Report this comment

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