No Credit, More Tax - That's the Way Forward, Britain!

Oh it would be too simple to collect the tax, or even just the interest, owed by such big firms as Goldman Sachs.

No, that would be too easy, wouldn't it? The interest lost alone is £millions. It's actually harder to get them to pay, particularly when it seems such companies have cosy relationships with the senior HMRC men. Nope, it's actually harder to go and audit the thousands of small firms who are working their hardest to make ends meet and contribute to British business, employing and managing the bulk of the workforce and already paying disproportionally higher taxes than larger companies.

These small firms don't have tiers of accountants, big auditors or lawyers to negotiate 'tax mitigation' or plain buy the HMRC off them. These companies are largely honest, pay their way and ask only that bureaucracy and red tape are reduced as much as possible to stimulate an already dead economy.

But nope, the HMRC doesn't see it that way. These small firms represent easy money as it is likely that many of them don't have the time or resources to keep their books entirely up to date with all the backing paperwork. And they pay, unlike the big boys who argue the toss or plead technicalities or hide IP assets in tax havens, or simply threaten to move their tax headquarters elsewhere.

Small firms are the backbone of this trading nation and rather than pick on them, the HMRC should be helping them relieve the burdens. A fair tax system with less red tape should the simple way forward and let these firms focus on what they should be doing - creating some wealth for the economy.

I dare say I will get it in the ear from the whinging HMRC people who claim they are over-worked, underpaid and under trained but I say we are in the same place in small business, life is no easier down here as a small business. And it's about to become harder.

It's great to see the Government bleat about it but isn't this their system? After a financial disaster of Depressional proportions, who gets the blunt end of the sword? Small businesses who get squeezed on credit and investment money, get higher taxes and red tape, tougher employment laws and now the merciless scrutiny from the taxman searching for pennies when they could be extracting gold from the big boys.

Welcome to Entrepreneurial Britain. This is the way to really get the economy back on its feet.

Tax Is Easy - Here's The Proof

If you have a complex service or useless product, one of the quickest ways to find out just how wrong you have got it is by the number of phone calls or queries you get.

Here is the staggering verdict on the wonderful 'Tax is easy' TV campaigns we have seen. Last year, HMRC received a staggering 103 million calls from taxpayers - the peak at the tax credit renewal time in July. But here is the best part, 44 million of the calls were missed. So not only is tax not easy but the service surrounding querying and paying it is awful.

So that we are clear on the magnitude of how complex tax is, the 31 call centres around the country have the equivalent of 10,500 full time staff to take these calls - yet still this was nowhere near enough.

The National Audit Office called the service 'unacceptable' but this is like blaming the doorman for having only one entrance to Wembley stadium. If the design is rubbish then you will take millions of calls because people do not understand.

The growth in complexity in tax has been proportional to how much we pay over the last few years. Many people do not claim credits or get rebates because it is simply too difficult to understand who gets what and how to claim it. Also, it is very clear that even if you do work it all out, you have barely a 50% chance of getting through on the phone lines to check if you can or how to get it.

It's symptomatic of an ever more complex tax system that has spawned an industry in itself where even the lowest paid people are having to get their claims done or checked by fee-based accountants - it's a farce. And while you are hounded immediately for tax owed, don't hold your breath for payments of rebates as they come several months down the line and don't try to call as you will probably not get through.

The lunacy is that this level of service has actually 'improved' from last year with the number of missed calls down. The HMRC has responded by saying it is committed to providing a better and cheaper service - this is techno-speak for your calls will be answered by offshore people who will have access to your private details and drive you nuts because their job is to simply answer calls quicker but to fob you off not solve your problems - credit card companies like Marks & Spencer have that down to a tee.

So next year when you query your tax, you will likely have your call answered in the Philippines by someone who will confirm all your details and the amount owed and then say, 'The computer says no.'

The penny may drop, that if you decrease the complexity of the tax system, you would not need to have so many people to answer the phones as less people would call. But pigs will fly before that happens.

Vote Winning Taxes

I heard a radio interview with Junior Minister for the HMRC, Stephen Timms, this morning who was carping on about the Government stopping the 'amnesty' for offshore accounts.

This is where wealthy people store their money offshore and avoid tax. In a similar previous amnesty about £450m was raised. Now, if these people admit they have offshore funds then the penalty for declaring will only be 10% of the tax bill - whereas if they do not admit it, the penalty could be as high as 100%. This is expected to raise a further few hundred million.

Along with the windfall tax on bankers which is expected to raise £550m this year, this offshore clampdown is seen as a real vote winner by the Government as it targets the rich. Fine - they should definitely all pay their way.

However, when Stephen Timms was pressured by Mickey Clarke of Five Live on how to tackle the Budget Deficit there was a drawn out defence on tackling 'inefficiencies' in the public sector but no mention of real cuts or job losses. Naturally, such talk is seen as non-vote winning yet the reality is that if we actually raise £1bn or more by taxing the rich, it does not even help much on just paying the interest on our National Debt. Interest payments alone will be £30bn+ this year, rising to £44bn next year. And that is not even helping bring the deficit down.

The longer the Government deny the problem on public sector spending and focus solely on vote-winning activities like taxing the bankers and the rich, then we are deferring a problem that is only ever going to get bigger. In the next year, unemployment is set to peak at 2.8m, but having created 1m extra jobs in the public sector in the last 12 years, this may be way off the mark when cuts are made. And I think the cuts will have to be far deeper and more disrupting the longer it is left and the Government view is to leave it all until after the election.

The only logic that can support this is that cutting would disrupt the potential for getting growth as we exit recession and so pull us back into the mire. That is flawed thinking - all businesses know that while investing in growth you look for efficiencies in parallel - not doing so only buys worse problems later and i reality you are not really 'investing' but supporting the status quo.

I think delaying cuts is a grave, grave error.

A Dark Cloud Gathers

The news that personal insolvencies are up 28% is not a good sign that we are emerging from recession. While the rate of unemployment slowed last month, it still actually rose.

Many people talk about upturns and green shoots of recovery, but at the business coalface, some businesses are only now trimming their cloth after trying to grin and bear the recession. BA have just increased the number of layoffs planned and many of the High Street banks are culling serious numbers in staff despite making very high paper profits.

But perhaps the worst news is that as we exit the recession, hopefully in the next quarter, some of the Government initiatives are due to expire. At the consumer end, VAT is set to return to 17.5%, and there are rumours even of a hike. Meanwhile, for those businesses who have taken up the HMRC's offer to defer their corporation tax payments, pretty soon the calls will come to get those tax bills paid.

Far worse for businesses, much more than not making profits even, is the starvation of cash. It is, indeed, king - the fuel of any business. No bank will lend just to pay tax bills - it's money straight down a drain in their eyes and it is an act of desperation to ask for it. Many small businesses, in particular, will be fearing a call from the HMRC in the early new year. HMRC are notoriously rigorous about their follow up and not very forgiving. Now that the temporary arrangements are over, they will apply all pressure to get payments in. In fact, the tax coffers are so strained at the moment, that the Government is experiencing sharp shortfalls in revenue and this is a contributory factor.

Some suggest that as we come out of recession, there will be a new wave of company insolvencies as the demand comes to settle their tax bills. It may mean a re-invigoration of the rate of growth in unemployment - possibly around election time.

It needs an initiative right now.

It's Just So Unfair

Life can be so unnecessarily hard sometimes. I mean it comes to something when you can't get a few grand of dry cleaning paid for by someone else or a bit of gardening or flat cleaning.

I should imagine there are a few angry people around tonight, feeling let down and cheated. It's not about the humiliation of having to pay money back, it's the principle of it. Heck, the Green Book of expenses codes could not be more clear - claim what you damn well like as it is down to your own idea of what is right. £116,000 is a snip when you think about the value for money we get from politicians. What is so wonderful is that the very people who make the stupid rules by which we have to live, don't like it when they are subjected to it. Try asking the Government to pay your dry cleaning bill or getting tax relief on your handyman. I got a call from HMRC today for being late with just one payment - they threatened legal action if it happened again. I am not kidding - all I did was select the BACS payment to go to the old sort code and account number at HMRC instead of the new one. I am sure Hazel Blears et al have not had similar calls despite their 'oversights'.

Anyway, one thing that has been unanimously applauded up and down the country is that pornography should be tax free. I should think many a lonely sales rep will want to present a few expense claims to HMRC and ask for 'relief'' on what their employer will not reimburse them for. As Jaqui's husband proved, they are essential for doing a good job and stimulating the grey cells.

You have to be some kind of person to be an MP or a Max Mosely. Life occurs to you in a very different slant to normal people. What is abhorrent to most sane, clean living, law abiding, tax paying people is perfectly natural to these people. Then take the Lehmans crew. A mere six European former executives are suing their former employer for £70m of unpaid salaries and bonuses.

The coffee machine is working over time but the aroma is not powerful enough. Hello, the bank is broke thanks to you guys - it was the largest corporate failure in history, thousands unemployed and taxpayers have stepped in to pick up the pieces. And you want money? That takes some front. One of them had only just started work there.

You have to laugh.

Meanwhile in the 'other' world where there are few gardens to charge for keeping, no dry cleaners and precious few meals let alone free ones, there are a few billion people sitting looking on bemused. How can sane people think the way we do? How can we justify going to war to defend this way of life? While millions starve and cry for help, we allow greedy people to take court action to extort money from people - £millions. The last 12 years of false profits and poor governing will be the biggest wasted opportunity in history. All those incredible £trillions could have solved the problems in Africa and the Third World in short order.

You have to cry.

This warped way of life is going too far. One minute banks are broken by their senseless activities, the next they pick up the very things that broke them before and trade them again for vast profits. Toxic debt one minute, perfumed profit the next. Profit from transactions that do nothing for anybody but the people who trade them. In Africa, it would be the same as creating grain from dry sand. They would be that rich if they could do it. They could eat.

One thing that has come out of the last two years is that for all our posturing as a civilised society, we are just a bunch of greedy, moral-less self interested and egotistical jerks - every last one of us. Africa can have what they want so long as we have our 42" inch TV, takeaway curry and a dream of a Porsche. They dream of survival.

For the bemused millions struggling to live, they must look upon us all as gorillas in a zoo. All muscle, hair, wind, chest beating and bullying - we are always right, we always get our own way and we get all the best things. And if we don't, we just fight.

One thing is for sure, we have the monopoly on bananas.

Shopping At Iceland

As the financial implosion occurred around us, Gordon Brown manfully rallied around saving worthless banks and helping savers. As he battled to put fingers in the dyke, so to speak, another calamity came from Iceland.

As Iceland melted under its own financial follies, it was found that not only had many UK savers, who had been lured by excellent online savings rates at Icelandic banks, but also many UK Local Authorities had several £billion between them in accounts which were rapidly tending to zero. Brown, warrior-like, thrust an accusatory finger at them demanded the money back or he would sue. Iceland waved a frozen two fingers at him and asked with what shall they pay?

The country was on its knees, virtually bankrupt.

In fact, ministers in Iceland reckoned they could name just 6 individuals who had caused the financial disaster via vaulting ambition, one of whom, a Director at Kaupthing, is under investigation for fraud. Icelandic companies owned many UK High Street shops including Iceland itself and so the knock on effect could be huge. If only we could have named our individuals beyond Gordon Brown himself. The savers in Icelandic banks would have to wait a long while to get any of their money back.

Iceland looked inwardly for salvation. At least it could feed itself if it came to it. Then some bright spark came up with an idea. We have seen before small islands trying to capture specific markets - in Mauritius, for example, there are many high fashion factories for companies like Ralph Lauren, while in the Channel Islands they tried to use VAT loopholes to attract music download business having already attracted CD and DVD distribution. Sooner or later such opportunities dissipate as the world moves on or the HMRC closes the loophole. But Iceland has an ace card.

Today, Iceland produces all its own energy. It is limitless and freely available, all they pay for is harnessing. While Britain scrabbles around laying vast cables between here and Norway to get cheaper electricity, Iceland has plenty for itself and much more. By tapping into the vast heat reserves below its surface, Iceland has access to vast amounts of the most renewable energy of all - the centre of the earth. And it has another unique, lots of cool water surrounding it. This unique combination has opened a credible business opportunity that has powerful selling points. It has already started to build specialist, state of the art premises to house vast server farms. As data grows exponentially, Iceland's unique combination of hot and cold means it can both power the servers cheaply with no impact on the CO2 levels and cool them again as it takes almost the same energy to cool them as power them under normal circumstances.

Banks and companies like Google, who alone is rumoured to have over a million servers worldwide, are already expressing interest and vast fibre cables are being laid to handle the incredible bandwidths required to transport the data to and from the island. Iceland's location means it may not ideal for the kinds of speeds required for certain companies, but for the plain old internet, it is more than acceptable.

As Britain fire-sells puny assets in an attempt to make ends meet that looks like people begging to the homeless, Iceland has a future which is exciting and potentially unique. Of course, there are issues about housing so much IT real estate in one place - it is the terrorist's dream - but if all these can be overcome, Iceland will have an amazing future that makes our pathetic efforts look as they are. We spent all our money to save a few rich people - Iceland is using all its resources to tap into something that can make it rich and powerful.

Icelandic bankers may not be getting fat bonuses this year, but they can at least go home thinking of a future that is worth investing in. Our boys will be rich again this year as they convert rubbish, toxic debt into £billions of profit right in front of our eyes and so just delaying the obvious and the inevitable.

Guess who stands the best chance of a sustainable future?

Where Will You Go To, My Lovelies?

Over the weekend some 100 public figures lobbied the Chancellor, Alistair Darling, to curb the 'excessive pay packages' of the few, elite high earners in the banking and financial system, describing them as 'Masters of the Universe'.

The Chancellor himself, in fairness, had already fired a few warning shots about curbing some of the bonuses and particularly guarantees, which is a perennial sore point, claiming he would give more teeth to the FSA to impose tighter rules. He has a problem here as the FSA is crammed full of ex-finance types who bear allegiance to their former colleagues - or worse still, they are the failed bankers who were not competent enough to dip their snouts into the trough effectively and so are not quick-witted enough to catch the banks out while harbouring petty grudges.

It boils down to what the rules are and how the FSA and Government allow banks to operate within them. We have already seen a spate of neat tax avoidance tricks announced by clever accountants on the web who will help anybody who earns above £150,000 next year to minimise their tax bills with some shabby tricks on paying into new companies, some of which are not imaginative enough to scare the HMRC. But it will be the banks who become the most devious as they are absolutely obsessed by the idea that if they limit the bonuses of their 'Top Talent' then they will have a mass exodus of the high-flying high earners to places where the pay is better.

And so where will these little darlings go?

Well first of all, do not underestimate the ability for banks to invent clever schemes to get round the issue or for us to forget the fact that the Government is currently paying around £11m a year in fees to investment banks for advice on the whole issue, let alone around £29m in legal fees. Certainly we may see more of their top traders become non-domiciled so at least more of their 'hard-earned' bonus is spirited away from the thieving hands of the Chancellor. More likely, we will get dummy companies set up and these will be paid lavish 'Consultancy Fees' - and these companies, like strange quantum particles, will exist but briefly to liquidate cash on a capital dispersal idea and avoid things like National Insurance. The fact is that there is nothing in the FSA or Government thinking about 'Consultancy Fees' and I dare say we shall see more of this flying around. In the short term there are stock options which are handy as the market gets back some of its old ground but that is likely to not appeal in the long term as traders like ready cash and they certainly don't want to be held accountable for any collapse in the bank's profits or share price - they have proved that conclusively already.

There will be plenty of 'Guns to Heads' at the moment as the profits clock up on the banks' bounces and traders will be dismissive of their employers' excuses. They will be playing the 'If you don't pay, I'll go to somewhere that will pay me what I'm worth' cards. Theoretically, they have a point as the problem will be that if Britain acts in isolation then they will lose these little mites to other banks who are out of reach of our 'punitive' bonus scheme allowances. This will mean that British banks will become uncompetitive in the 'New World Order' that Gordon Brown talked of.

As the Government wants to show the public it is curbing the excess and high risk strategies by banks, but they do not want Britain to lose out as so much of our economy depends on earnings from the City - there is a dilemma. One way would be to impose windfall taxes on every financial institution for the next 10 years in order to pay back what is generally owed. Of course, most banks would then put their HQs outside of the UK and thumb their noses at us which would be counter-productive but it may be a start that each of them pays exactly what tax they should do from now on and any scheme to avoid tax is fined double the tax owed. It still doesn't solve the problem.

Traders will depart for sunnier climates - to the US or Asia, wherever the banking system allows excessive bonuses to be still earned. This is where I see an advantage. Let them go.

Skimming Off The Highest Risks

You see, the whole system was brought to its knees by the actions of a comparatively small group of people employed in high finance. They say in Iceland you could identify just 6 people who actually nearly bankrupted the whole country and in the City you could draw up a similar but more extensive list. I would do so and I would say to those who think that they can get jobs in other countries, in banks who are willing to pay excessive sums - go. It may well produce a 'Premier League' of banks but frankly it will put all the risk into one area. UK banks can then recruit a new wave of traders who can be weaned on sensible, lower risk banking that never exposes Britain to the kinds of problems we have seen in the last two years.

By skimming off those with the highest risk-taking index and letting them go elsewhere, we make Britain a safer place. And we need it. Should we just lurch into another credit crunch and recession in the near future then we risk simply not having enough resources to bail ourselves out with. Already there are predictions from established sources that by 2014 that British Sovereign Debt could be almost 100% of GDP and we will be paying for every penny of that borrowing, roughly double what we pay were paying for last year.

So my solution would be to let the little blighters go to wherever they think will pay the money for them. Go exercise that egotistic point of view they have that they are 'Masters of the Universe' and far more more intelligent than the rest of us. At some point, I dare say that someone will realise that in order to keep the scam of their elaborate schemes going you need every bank in the world to be as bad at mathematics equally and hopefully one or two will find out how to use calculators and realise that all does not add. Perhaps it will be those banks who first realise that it may be better to trade things you know the value of who will break away from the schemes and focus on logic rather than hot air. Perhaps that is what will help heal the banking system and make it stronger for the future, and perhaps by having a few banks break away more will follow leaving only the very high risk banks in one place. And if they want to be the super-rich ones and pay incredible bonuses, then fine.

Let's just make sure it is the British banks that lead us out of the high risk zone and the first step will be to unequivocally stop high bonuses being paid on high risk business; the second will be to curb high risk business - full stop.

Let's All Do The 'Flip'?

It is great to see free advice for anyone who has a second home in Britain being given on the BBC website - this time by an accountant named Sharon Bedford.

She points out that the 'Time to sell' rule allows the perfect foil for flipping which has been the domain of MPs like Hazel Blears and Geoff Hoon. Hazel Blears famously announced whilst in leathers outside her main residence, or was it her second home, or third - well one of her homes - that she had behaved within the rules of the House Commons and the 'Rules of the Inland Revenue'. Within a week she was seen grinning like and over eager actress in a Daz advert holding up a stainless garment that was a cheque for the Capital Gains Tax (CGT) on the sale of her second home - which he had told the taxman was her main residence.

Now, if Sharon Bedford's advice in her article is right, then our little Hazel had a clear conscience and need not have paid back the tax. But if she is wrong, then the little devil was quick to bury the evidence - sadly she did it on TV and in front of millions. It was like a jewel thief replacing their stolen goods with their mask off on 'Richard and Judy'.

'Flip Again, Like You Did Last Week'

So goes the new song in the corridors of Westminster. According to Tax 'Mitigation' Expert, Ms. Bedford, if you have a second home anywhere, all that you have to do is to send a letter to the taxman, say, the week before you want to sell your dry rot ridden chalet in Southampton and declare it as your main residence, sell it the next week and so pocket the gain in value tax free, then a week later write to tell the taxman to change it back to the place where you actually live with your family.

It is that simple and the taxman is that stupid. You see, under a rule called 'Time to Sell', the moment you change your status of your second home to the main residence, the taxman assumes you have lived there for the past 3 years which is counted as time to sell. Even if you have been renting the place out. According to Ms. Bedford.

In the case of Ms. Blears, when she bought one of her residences in London, she has a two year period to declare whether that place will be her main residence. By deciding for the taxman that their main home is still their residence, i.e. the one in Salford where she can be seen grinning in her leathers like a 'Hell's Granny', she can sell the new bijou flat in London any time in the next 2 years and pocket the profit as long as the day before the sale she writes to the taxman and tells him it has suddenly become her second home - the 3 year count back applies to save any CGT.

Meanwhile, under parliamentary rules, little Hazel sniggers profusely and does precisely the opposite. The moment she buys the flat she can either declare it her second home and claim full second home allowance in whatever way she can and then 'flip' whenever she wishes to pay for things in Salford.

Jaqui Smith famously declared a bedroom in her sister's house as a main residence in London so that she could claim for everything, including her husband's porn, in the real main home but in Parliament's eyes her second home. Tony McNulty, who is now paying back £3,000, was even more cynical. He declared his parent's house in Greater London as his main residence and his flat in London as his second home. Incredibly, he thought that was legal and within the rules - how wrong he was.

In The Real World

In reality, second homes under real Tax Law is more complex. In reality you have to 'prove' that you have lived at an address which is designated at any time, your main home. So, if, as Sharon Bedford suggests, that you flip your residences at the last second and the 3 year count back assumes you have lived there but you only bought the flat two years earlier but have rented it out - there are two conflicting things going on. This is the only case I can think of when a person can 'legitimately' get away with this.

But there are issues for the rest of us. Firstly, you need to declare to the taxman any earnings from rent over and above the mortgage value in any second home. Secondly, for mortgage purposes, the property is assumed as 'buy to let' which signals to the taxman your intent. Thirdly, by flipping a buy to let property, I do not think the count back rule applies but it is worth checking. What it does mean, is that you have to have extensive knowledge of the system in order to avoid it - which is where people like Sharon Bedford come in.

For Hazel Blears, Geoff Hoon and all the gang who 'flipped' to make money, you have to have a clear view of the two sets of rules in play in order to profit. There is no accidental way you can make money. So when dear Hazel paid back the cheque, she publicly declared she had defrauded the taxman. The others hide behind the shroud of mystery that is the system they exploited for gain.

I still believe, despite what Sharon Bedford suggests, that the taxman is not stupid. One thing I do know, is that the taxman does like to made to look stupid in the real world. It is a travesty that all MP expenses have not been scrutinised but I suppose it's a question of where do you start.

Flipping is where I would start. In all cases, it is a deliberate and well advised method of avoiding paying large sums of tax. It is a flagrant misuse of public money for personal profit. It is a crime even if that is a moral crime. Saying it is either the system or the rules are to blame is no excuse, that just shows moral bankruptcy and such a person has no place in positions of power or trust.

Gordon Brown says Hazel Blears has done a good job. I think she is rotten to the core and I suggest she will get voted out at the next election. If Brown had half an ounce of intelligence, he would be reading the growing anger in the public as a clear indication that if he leaves people like Blears, Hoon, McNulty, and Smith in place at the next election, those will be seats he will lose.

Denial can be a powerful tool in politics - it can also be your downfall.

Barcelona Win - At Least MPs Are Out of the Headlines

I am sure many will be sorry to see Manchester United beaten tonight. In fairness, I think even the most rabid supporter would agree that Barcelona were by some distance the better of the two teams tonight, although it would be fair to suggest that United played nowhere near their best. Still, credit where it's due.

Sadly, the monotonous drip of revelations about MP expenses are here to detract our disappointment. Latest to exploit the system is 'Sir' John Butterfill, Tory big man. Like diminutive and scheming Hazel Blears, he used the fact that the Parliamentary system is independent of the the tax system to claim that his tiny flat in London was his main residence for purposes of creaming the tax payer for outrageous amounts for his valuable Bournemouth 'second' home and then cynically, knowingly and fraudulently claiming that the home he had designated his secondary one was his primary residence when he sold it, so netting himself a 'CGT' tax free £600,000.

Under current rulings, the systems are independent so theoretically what he did was allowable. In practice, it was not. This was a blatant, well researched scam to make a lot of money, tax free, at the expense of taxpayers. While it may not overtly breach law, it was unquestionably illegal gain.

Butterfill claims he put £500,000 into the home so his profit was only £100,000 - but he forgets that is only the same principle to which all of us have to adhere. The taxman cares not one jot on how much you put in, that was your risk. Again, it is an example of fat cats trying to make up their own rules to benefit themselves. If only we all had the same rules.

In this case, if the law does not take an interest, the taxpayer should. If we have been funding the mortgage and upkeep on what we thought was his second home but turned out to be his primary one, then we are owed at least all the mortgage payments back and in reality we should have the entire profit he made.

I am sure MPs will guffaw at such a suggestion but it really is time we took control of the situation. We have sat back and watched an elite group of people who we granted a mandate to milk us. If the law and the taxman have no jurisdiction, then we do. It's our money.

I am fed up of listening to preening big heads who claim they have done nothing wrong or that the claims office passed it - I am fed up of the police remaining on the sidelines - I am fed up of the taxman chasing the rest of us and not the fat cats. It really is time we all reacted. It is our money and we do not want people to profit from it where we can't like 'flipping' residences, we do not want to pay for the PM's cleaning, we don't want to pay for Cameron's wisteria thinning, Hogg's moat, Viggers's duck house, Steen's gardening, Blears' scams, Mandelson's profit when he wasn't an MP, Mackay's scheming or bags of dung.

How about this? We each threaten to withhold £10 per month of tax until the MPs who have abused the system in any way are sacked and not allowed to stand for public office again at minimum but are prosecuted where required. Our votes are too cheap to make a difference - as we have seen in the bank bail outs, only money talks and when they don't have it the whole matter becomes a different story.

The fact is that we have the power to stop this right now. We have the power to force every MP who has 'sinned' in our eyes out of office. Regardless of the taxman, the lawmakers and the MPs themselves, ultimately we are the most powerful people in the land because it is our money they waste and we have a say.

It's pointless Esther Rantzen, Simon Heffer, Martin Bell et al standing against these people - it isn't the point anyway. The system failed us completely and it is answerable to us. We don't want new candidates to dip their beaks, we want our money back and the profits people made with it.

It is time we realised that if the law and HMRC fail us then it is beholden upon us to ensure fairness ensues. £10 per month per taxpayer withheld is around £3.6bn a year of tax shortfall. That's a fair proportion of our interest payments on the debts we have 'agreed' to build up to pay for the bank bailouts. Sovereign debt is about to be downgraded, the last thing the Government needs is a further increase in debt to cover the shortfall from us.

Like Simon Heffer, I am being perfectly serious. It is time to vote with our wallets - it's the only language they have been proven to understand.

Is The Telegraph Going Too Far?

Dairy Entry: Day 18. Can't take much more. Running out of will to vote. If only someone had any contrition we might be able to make it a few more days to the MEP Elections. Teddy did a Captain Oates this morning - said he was going out to buy the paper and we haven't seen him since. Oh no, not Darling, Blears and their accounting fees.........

It's all getting a bit much and on Sunday I threw down the paper in disgust at some blatant lies. There was a whole article on St Albans and how the whole town of apparently well educated snooties were up in arms at their local MP in the trough, Anne Main. The horror of the lies was too much to bear for a town not known for its protest.

While I believe the description of the city of having the most pubs per head of capita is true, they somehow described it as being some bastion of the upper class. Having lived there for several years and played rugby at Old Verulamium RFC and witnessed grown men hurling themselves from beams into the arms of waiting drunks, I have also seen men with their ankles tied together and trousers down hopping across the pitch with flaming newspapers up their backsides. Therefore, I think several of us would disagree with the accusations of high intelligence and upper class backgrounds. The Telegraph goes too far.

Now I live within the domain of Watford, our own 'Blair Babe', Claire Ward had become the eyes and ears of the Queen in Parliament and the playmate of a Royal Marine officer in the showers while on a fact finding mission to Bosnia, it is alleged. It appears she got plenty of facts of life that day. She has had her head in the trough too - so you don't need to be in leafy suburbia to find a fiddling MP and a town fully disgusted. And Watford is a hardy place - you have to be with a football side that behaves like a yoyo and has to keep all its nice shops under cover.

Now Blame Accountants

Today's revelations about accounting is a bit silly. It's alleged that several ministers collectively paid around £11,000 for accounting fees to do their tax returns - the sin here is that they used our money for it. As so often the interpretation of UK Tax law by the very MPs who make them up and vote for them are radically different to those upon whom they impose them. Rather like paying for a gardener or a cleaner, paying an accountant to do your return is a personal, lifestyle decision, even if they are complex or simple. There is a hint in here that Alistair Darling, who paid around £1,400 over two years for his accounting fees, was using the accountant to get advice on how to 'minimise' tax. It sounds daft being as he is the Chancellor who actually is in charge of of the whole shebang but there you go. The fact is that £1,400 over two years would not buy you much advice but probably an office junior with a calculator just verifying the numbers you have written down. It will not get you a fully indemnified partner helping you squirrel your gardening costs or bags of manure under Parliamentary rules from personal expenditure.

Frankly most accountants are not that crooked and certainly not that cheap.

So I think that we do Darling, Blears, Hoon et al a great disservice. They were intelligent enough to know what they were doing and for the Telegraph to try to blame it on an accountant's advice for less than £1,000 a year is a) hard to believe and b) a gross insult to the fiddling abilities of most MPs.

'We Are All To Blame'

Darling is a pitiful sight at the best of times. As he announces bail out after bail out, his eyes widen in shock as if by broadcasting the numbers he suddenly realises what Gordon Brown and his banking 'advisers' have actually told him what to do and that the numbers are much bigger than the feeble maths books he was brought up on.

So on the Politics Show he did the usual political trick of trying to take some responsibility and blame by sharing it out with everyone else - it's the bank bail out principle all over again, 'We've cocked up, so everyone is to blame and pay for it.'

He asserted that MPs had plenty of chance to vote on expenses reform but 'turned their heads' each time when they had the opportunity. Vince 'Enforcer' Cable was incensed by the comments. Are we talking about the House of Commons where the Government has a whacking majority and votes through whatever it likes regardless of personal opinion? Darling seems to have lived in a dreamworld - Labour Party Whips control the voting, no law gets passed unless Brown says so. Of course, until such time that a final pang of conscience over the plight of Gurkhas slaps him in the face and tells him to get a gram of heart - he, the man who wrote a book on courageous deeds telling courageous warriors to get lost but having opened up our borders over the last 12 years to a few million migrants from all over the place?

If ever there was bunch who needed a reality check, then it is the occupants of the Cabinet.

An Election Needed?

Cameron could be accused of behaving like an over eager virgin wanting his 'first time'. It's all a bit premature.

I apologise in advance about the use of metaphors here, I have just made myself feel queasy seeing 'baby-faced' Cameron and 'School Sneak' Osbourne rutting like stags. But it is a little like that.

We are only at day 18, for heaven's sake, and there 650+ MPs and we are only really looking at second home allowances to date. We haven't got on to the make believe of travel and office expenses in any detail yet. OK, see we have a few more revelations about Derek Conway, but we knew he was an unsporting egg all along, but there are plenty more snippets to keep us going to the real election time and longer.

Here is the problem. We are in danger of exploiting public opinion when only a fraction of the misdemeanours and outright law breakers have been 'outed'. The problem will arise if Hustings start and more revelations hit or, worse still, an MP is voted in and has to resign weeks later. We want the truth up front.

We do need to have a clear out as there is a problem that goes all the way back to selection. You only have to see that Clare Moran's local Labour Party has endorsed her selection again for the next election to know that local parties do not get it either. How can local parties seriously consider people like Steen, MacKay, McBride, Conway etc etc? These people put them in power in the first place, they are hardly good judges of character. In many cases, it seems as long as they have a public school background, a large mansion and snooty accent then they are in. What this whole affair has taught us is that we need a fresh start on democracy because the direct outcome of the decisions we make as voters are the £billions we owe in tax, the credit rating of our sovereign debt, the dead and maimed bodies of our soldiers and the state of Douglas Hogg's moat.

Let's not get all premature. This has to get played out to see how rotten the whole system is. We need also to get to grips with expenses at all levels of Government and Civil Service. I heard Nadine Dorries on the radio bleating about the 'culture of fear' and 'suicidal thoughts' of MPs at Westminster and how they were underpaid which she seems to think should legitimise so many of their activities - it is that lack of capacity to reason that gets me. Any MP gets a minimum salary of £65k which puts them in the top 3% of earners in the UK - then they get a fully paid for 'office', a second home allowance and a virtually limitless travel budget. If that is underpaid then they ought to take their chances in the real world and get paid what they think they are really worth.

No, we need to weed out people like Dorries et al. If you think Politics is underpaid, then simply do not choose it as a career. And why we allow so many MPs to have external interests to supplement their earnings is beyond me.

Finally, I do not think the whole situation has been played out legally yet. The statute which allows MPs a cost up to around £25,000 for accommodation while performing their parliamentary duties is very clear about what can be claimed, no matter what the Green Book says. The blatant abuse of our tax system by the very people who design it has yet to be explored and I am at a loss to know why people have not been investigated. Having just got a tax bill this month, it was a stark reminder of the power of HMRC and if I claimed anything in expenses which was not allowable by HMRC, regardless of my company's policy, I would be at risk to pay it back at minimum and be prosecuted at their discretion alone. Why, there are even whole police forces chasing tax fraudsters.

There are so many flagrant and cynical abuses of the tax system that every one of those MPs should be investigated in full and prosecuted where appropriate, because the taxman will tell you that it doesn't matter if it was a mere bag of manure - fraud is fraud.

Is Paying Back Expenses Going To Be Enough?

The application for Hazel Blears' and Phil Hope's sainthoods are in video and with the Pope as we speak. St. Hazel of the Flipping Homes is expected to be a shoo-in.

However, Robert Peston has raised the concern that I have. If you hoodwink the taxman in real life, he doesn't usually take it like a jolly old sport. In fact he gets mighty tetchy about the whole thing. Peston brings attention to the Law this morning, the one in which MPs themselves voted to give themselves absolution from real people. It is a law which allows MPs to claim, tax free, the costs of overnight expenses.

Under section 292 of the Income Tax 2003 Act, MPs can claim up to around £23,000 in overnight expenses which of course is the equivalent of £38,000 of taxed money. Within this, they can claim any expense which is necessarily incurred in staying overnight.

I think you know where we are going on this. Gardening, cleaning, sink plugs, ice trays, horse manure, tennis court pipe leaks, moat dredging, swimming pool cleaning, housekeeping etc would be surely of interest to the taxman as they have little to do with overnight expenses. Of course, MPs would argue until blue in the face that housekeeping and cleaning are part of hotel expenses should you choose to blow your allowance that way but real people know the difference.

So, in fact, it does come down to the Law. Paying back wrongly claimed expenses should not be simply allowed as absolution of sin. HMRC should be all over these receipts like a cheap suit. To get back to points made by those MPs who think the Telegraph is the criminal for paying for the information we are reading, here is the good reason why they are actually doing the public service.

They are exposing criminals at work.

Shock, Horror - MPs With Common Decency

Martin Salter, Labour MP for Reading, doesn't claim any expenses and is happy to commute to London from his constituency when he needs to, saying he does not accept public funding as a personal choice. He must be barking mad.

Further away commuters like Alan Williams (Swansea) and Ed Milliband (Doncaster), claim less then a third of the allowance each.

The Conservatives have a complete buffoon in their midst. Phil Dunne, MP for Ludlow, has a flat in London but does not claim a penny and claims it is not 'the right thing to do.' Adam Afriyie, MP for Windsor, is so off his trolley that he not only did not claim his second home allowance but did not claim any travel expenses either. Maybe he is just daft and forgot.

Ann Widdecombe, and yes you expected it, claimed a mere £858 in second home allowances last year and reckons all expense abusers should stand down. It seems there may be a desperate shortage of MPs if all of them had to stand down - but in my book that is no bad thing.

At Lib Dem world, David Howarth, MP for Cambridge, for some reason prefers to commute each day so he can be with his family. Clearly, he is not a man fit to govern with those sort of daft values. He even says that changed sitting hours means it is easy to commute.

What no Queen's Flight waiting on the runway all day in Brussels, no away days to Strasbourg and Brussels with your 'Secretary' as the late Robin Cook enjoyed? No 'Blair Force One', either. Somehow that little presidential perk never got off the ground - not for the want of trying though.

In fairness, there are some decent ones left who seem to use common sense and morals in their judgement. I am sure it makes them better MPs because of it. Interestingly, very few of them are either a serving or Shadow Minister. Tells you all you need to know about the system, doesn't it?

Will The Taxman Treat Me So Nicely?

The taxman is not known for his leniency, particularly if you have deliberately gone out and deceived him. Just sending him a few quid after the event to keep him happy is not usually a good remedy. He likes to do the calculations and retributions himself.

As all the parties attempted to get 'closure' yesterday with grandstanding of superhuman proportions and an almost Presidential podium besieged by cameras for David Cameron, little Hazel Blears made her peace with the taxman.

After publicly cooing she had only ever owned one small property in London, she has missed the point of the scam unearthed. She had deliberately 'cheated' the taxman by declaring her Commons-designated second home for allowance purposes as her main residence to HMRC. The two systems are totally independent but had the taxman cottoned on she would surely have been chased for sizable tax evasion and, at minimum, have received the bill for the Capital Gains Tax (CGT) on selling her second home plus the interest since receiving the gain - which was conveniently missed off her cheque yesterday.

MPs make the rules after all.

For us mortals, we would have been in hot water. This was not a trifling sum of money. This also was no ordinary mistake. Most Independent Financial Advisers or accountants know the rules on main residences and second homes - most do not know about the MP allowance rules. The HMRC takes precedent in any case and any adviser would have told Hazel Blears that she could not pocket the full gain from the sale of a property that was clearly not her main residence. If they had told her that she could, then she has grounds to sue for poor advice.

But what gave the scam away, was that SHE knew the difference. By knowingly putting down her London flat as a second home for expenses purposes she was allowed to claim her full allowance prior to the sale to make sure it was tickety-boo and maximise her return, but for HMRC she can only have quite deliberately claimed it was her main residence and so avoided paying CGT on the gain.

There is absolutely no doubt it, you have to know about the different systems in order to have operated the scam, it cannot happen by accident - she had to know that by declaring the homes in this way to two different authorities that she had worked a scam as good as any benefits fraud or VAT scam. She was deliberately deceiving the taxman. Mere mortals and plebeians like us would have had the full weight of the law on us.

Hazel Blears looked like Mother Teresa as she held up her grubby cheque for the public to see what kind of saint she was. In performing her well manicured act, she publicly admitted she broke the law. So why is she still in a job and why is she not subject to a police enquiry?

Losing His Marbles

Michael Martin has been known for his rather strange methods in the past. His handling of the Damian Green affair was curious in the extreme. His behaviour regarding the MPs Expenses scandal shows that he has at least lost a grip on reality but at worst shows that he has lost his marbles now that the best scam in the world has been exposed.

Of course, the trail leads to him. The chap who writes the Green Book reports to him and his office is responsible for passing expense claims, so all these wonderful claims on 'flipping', swimming pool maintenance and wisteria clipping are actually scrutinised by his office. He knew everything about all this beforehand.

Rather than converting to the new religion as all party leaders have plus the spectacular conversion by Hazel Blears, he actually turned, publicly, on those who sought to criticise the system. With barely concealed contempt he spat at Kate Hoey, a Former Minister, not for her stance but her habit of giving 'pearls of wisdom on Sky News'. It was a personal insult of some proportion worthy of a classroom big bully, particularly as Ms. Hoey had merely said that it would a be waste of police time to get police to investigate how the leak came about. That particular horse had already bolted was her assertion - not so, thought Michael Martin. In fact he could not hide his utter disgust that whoever had leaked the information 'should be left in situ'.

In Mr. Martin's eyes, there would be no recanting for this individual for their sins, beheading would be too good for them for betraying the scam of the century.

He did not just pick on females. Norman Baker got a taste of his lash for being the kind of MP who was 'keen to say to the press whatever the press wants to hear'. You could level the same thing at Michael Martin as he is saying exactly what the press wants to hear, that he is one of those MPs who really could not give a stuff what common people think of the disgusting behaviour of elected officials and that they should be allowed, in confidence, to scam the British taxpayer for every penny they can. Michael Martin represents that epitome of an MP out of touch with the consensus in the country right now, independent of political leanings.

The problem here is that Micheal Martin is a key part of the apparatus of expenses. It is his office that will lead the reforms, and this is his opinion. Nothing could have been more clear in the current Green Book about the spirit of expenses and all MPs who chose to test it to its limits knew one thing, that Michael Martin's office would let them through.

Why Michael Martin has been allowed to haughtily stand on his dangerously immoral ground and defend the scam practices like a schoolyard bully is beyond most of us. But to Gordon Brown, Martin stands as a figure of how badly this Government has lost the plot and a grip on its authority. Michael Martin should be a high profile casualty along with likes of Blears for being at the very heart of the problem.

But I will wager, not one person will lose their job over all this. Not one. Reality and morality does not enter into a politician's life. In an age old Blairism, all parties will be keen to 'draw a line' under all this and get on with the business of making money some other way. Tony got it cracked, that's for sure as he smiles piously atop his millions - expenses are a thing of the future for him.

Is It A 'Flipping' Fraud?

One of the most frustrating aspects of the whole MP Expenses Scandal is knowing that no one will be brought to book for obvious abuses of taxpayers' money. Under the rules of the now infamous Green Book, the bible of rules which frankly are pretty explicit in their wordings yet still allow latitude for those with less morals less than the normally morally inept MPs, does not stipulate punishments for abuse.

It is such an alien concept for us - no company would allow such abuses of the system and, more importantly, the HMRC would not either. You would be in very hot water if you chose to take the HMRC on, as you would if you were a Benefits fraudster, so why are these goons above the law?

The Scams

We are rightly outraged by the petty-mindedness of claims for tampons, sink plugs and horse manure, but they are cheap. Some of the bigger things are arguably allowable too. Barbara Follett is an interesting case. Her £25,000 spent on private security outside her home was justified because she was scared after being mugged. However, as no one knows who she is beyond her being her rich novelist husband's wife, she was not mugged because she was an MP - and given they are so rich, surely this was her choice not to use the police?

Anyway, the real scams which, in my view, are beyond the the lines drawn by the law, are 'Flipping' and London second homes for those who live close by.

Flipping

The basic idea of the second allowance is that you have a home in London or near enough to commute, so that you can work each day while your main, family home is wherever you live, usually within your constituency. Tony Blair was a famous example of a 'nomad' MP who had a home in London but a constituency in Sedgefield, and he 'flipped' his second home to be Sedgefield. That seems fair, given he was PM, but not really as 10 Downing Street is clearly a 'grace and favour' home, so he should not have a second home at all. It's a moot point.

The real crime of flipping is when an MP deliberately exploits the expense system by temporarily changing the address of their designated second home. By doing so they can 'legitimately' fully kit it out, use up all their allowance and then flip it back. In theory, in any given year, they can flip as many times as they like. A serial 'flipper' is Hazel Blears, allegedly, who used 3 different addresses in a single year. Margaret Moran (who?) designated her second home to be a coastal cottage (there is no coast in London unless I missed something) and had it treated for dry rot.

Keith Vaz, that perennial abuser of power, has a perfectly good family home in Stanmore but another property in London, even though Stanmore is an easy commute, and a home in his Leicester constituency. He used 'flipping' to maximise his allowances.

It's a disgusting practice but it was widespread and because the rules are not scrutinised by HMRC then they are independent of the tax system allowing MPs to profit from lack of Capitals Gains Tax on selling a designated second home by calling it their main residence to the tax man.

Again, this all appears to be within the rules but I can assure you that it does not say anywhere that you can systematically drain the expense system for massive personal gain. This is as bad as 'Tax Avoidance' or VAT carousels. It is the abuse of taxpayers' money.

London Homes

Having second homes while having a main residence already in London is both absurd and abhorrent. It should also be illegal. The cost and ease of commuting is there for all to see - even if it is taxis in the early hours because of late sittings. This is sheer abuse of the system and surely not in the spirit of the Green Book. Tony McNulty is under investigation by the police now, and this is right. His second home in London was not even his own. Jaqui Smith claimed her Main Home was her sister's house in London so that she could kit out her Second Home in Birmingham and pay for porn films for her husband.

Walking Tall

The two above scams are amongst the worst and most costly to us and the ones I believe ought to be subject to a police enquiry in every case. They are beyond the rules and it disgusts us all.

But what kind of people do these things? They are certainly not people who represent our best interests, who decision make, law make and send us to war. You would not ask con men to do those things yet that's what we have done. The whole system of democracy has suffered a massive blow, public confidence is lost and still these people walk tall. They see the crime as being the Telegraph paying for leaked information - they see the crime as 'defamation' of their characters because just one of the claims may be wrongly communicated.

They are trying to portray themselves as the victims while others hide behind the rule book. Some even justify what they have done by saying they think the rules should be changed - those are the worst offenders as they 'knowingly' abused the system when they knew the system was morally wrong. Gordon Brown is included in that category - not just because of his own abuse but he allowed himself to be surrounded by people he knew were effectively fraudsters.

It makes Parliament look like some sort of pathetic version of the mafia. They do get people killed and not dirty their own hands but the they rob and cheat and then prey to the Green Book for forgiveness.

Every last cheating one should have the moral fortitude to resign at minimum, pay back what they stole and get a taste of the real world and the law. As for the Green Book - burn it and get someone with an ounce of decency to write it and have it administered by HMRC.

The need for Expenses Reform is obvious - now let's get members of the public to write the new Green Book rather than non-executive director stooges like Lord Turner or similar who have their snouts too far in too many troughs. Get real people to do it and I would gladly help.

What it has shown is that if MPs haven't get their heads deep in the troughs then they are too too far up their own backsides to ever know how to govern us properly or see what is really going on. It's time we had a true democracy in this country.

Small Bank plc

It is quarterly VAT time and once again my main customers have not paid on time and so I am left to pay the VAT on their invoices even though they have not paid it to me. As it did last quarter, it got me pondering why I should act as the Government's bank.

My company is in Business to Business Services and as such I do not sell direct to any consumer and therefore I am one of those VAT 'clearing houses' which helps the Government wash its taxes around the system. For every invoice I send out to UK customers, I charge VAT, then I pay the VAT on that invoice to HMRC even if it has not been paid to me. Meanwhile at the customer end they just sit tight until I scream blue murder and then pay the bill when I haven't got any scream left in me and I have gone blue in the face. HMRC is very happy as it got its VAT upon which it can earn some interest, most likely in some Icelandic Bank that pays a quarter of a quarter of naff all interest more than UK banks. Well maybe HMRC don't do that but Local Authorities did.

In a nice quirk of accounting, VAT is one of those taxes that I just pay out regardless of whether I have received the money, or for that matter, whether I can afford it. HMRC are not sentimental when it comes to VAT - they are No. 1 creditor in the line and they will get what's owed first.

This seemingly stupid state of affairs which penalises small companies which are beholden to larger companies to pay their bills on time means that I effectively become a clearing bank for HMRC and I get to pay all the interest if I cannot afford it. Such are the machinations of clever people in Government, that they think by reducing VAT to 15% it has helped businesses like mine. They could not be further from the truth - my issue is having to pay it before I am paid by my customers regardless of how much it is.

Well, we small businesses don't mind it really as HMRC are a forgiving lot and if the shoe was on the other foot, I am sure they would be very fair. If you believe that then you can believe that pigs can catch swine flu.

Scams

The interesting side effects of VAT and its methods of collection are that it is ideally suited to scams. It doesn't take a genius to work out how it can be easily set up. Company A buys a ton of goods, supposedly, from a dummy company in China or the EU. Then Company A sells the goods to Company B in the UK and charges VAT on them. Company B, sells the goods on to another offshore company and charges no VAT. Company A then simply does not pay VAT to the HMRC, while Company B claims the VAT it has been charged by Company A back from the HMRC. Because the HMRC couldn't give a monkey's whether Company B paid Company A, the scheme works nicely. Company B has some cash, while Company A simply shuts down and then forms a new Company A in order to repeat the process. The process is repeated time and again. This scam is called a VAT Carousel and it is easily the most popular scam of them all.

In many cases, no goods ever get moved, while in some, at least to avoid too many prying eyes, there may be a piece of stock such as electronic goods which nominally moves around to keep everyone happy.

Making Scams Work

The reason why such a scam works is simply the way in which VAT is collected. HMRC cannot give a flying whatever if a company does not pay my bills - it just wants the VAT I have invoiced in its coffers at the end of every quarter regardless of my business health. It is this simple notion that is exploited by scammers as if the VAT has to be collected before being paid to HMRC then it would make these scams unattractive. That would have a little more of a trail to it while offshore set-up companies and fictional employees are the usual go betweens which make this all very interesting.

A Fairer, More Secure System

It would be far more sensible to wait until money is received before forcing companies to pay the VAT on invoices. Not only would be it fairer on companies like mine but it would start to narrow the lucrative options for scammers. It's not that they would not find a way, as the criminal mind is a creative one, but at least it would stop something so obvious happening that a 3 year old could think it up and make it work.

How much is the HMRC losing on VAT scams? Between £1.1 billion and £1.9 billion or probably a good deal more than it would cost to allow all the retired Gurkhas to live in Britain if they wished.

A sense of perspective is always nice on a Bank Holiday Weekend.

Can or Should We Choose How Much Tax We Pay?

I got into an argumentative discussion on the IOD Linked In discussion group recently with a tax adviser/accountant who asserted that 'We have the right to choose how much tax we pay.'

Firstly, I was pretty miffed at the use of the royal 'We' as I certainly do not choose how much tax I pay. Secondly, there was not just an implication but a direct argument in the discussion that people have the right to not pay the correct amount of tax they owe. If they want to not pay it, they can. He claimed also that this is perfectly legal under the statutes governing tax.

The Royal 'We'

What the chap meant was that the 'We' he was referring too were those rich enough to afford the fees and special mechanisms in the murky world of 'Tax Mitigation' (heaven forbid we call it 'Avoidance'). As he was using the Linked In IOD Forum he was referring to the 'We' as those who are members of the IOD. This meant me.

He was wrong there on two counts - 1) I cannot afford such fees and suspect mechanisms and 2) I would not want to participate in any of them.

Of course, as much as the next person, I don't want to have to pay all the tax asked of me. I will use up as many allowances as I can like ISA, capital gains, some dividends from my company etc in but I am very opposed to going beyond the statutory allowances - I believe in paying my way fairly. If I don't like it, and I am opposed to the new taxes proposed, I will lobby and vote against it whenever I have the opportunity, but I will pay it if I have to.

A gaggle of directors I overheard this morning were discussing how they could take their earnings above £150k as 'fees' into limited companies thereby enabling them to not draw a salary and pay themselves in dividends which are taxed a great deal less and neither the company nor the 'contractor' pays National Insurance. They were worried about the VAT implications - I would be more worried about explaining to HMRC what their company does and why they only have one client. Of course, there would be an added benefit to the company, as they would not have troublesome Industrial Tribunals if they just terminated their contracts and wouldn't have to pay a bean in any compensation or redundancy money, nor any pension contributions or fringe benefits. Hey, why don't we all do it!?

The royal 'We' here, of course, would get found out by HMRC in an instant. From my perspective, and I have a limited company, I contract to several clients at once and not one occupies my time fully. The specific legislation on IR35, as it is known, is an area fraught with danger. It effectively says any contractor must form a legal limited company and take fees but they should show that over time they are not just working for one client - otherwise it is deemed to be a 'scam' to avoid paying the taxes associated with being an employee. Most contractors will show, even if they have a few long contracts, that over time they work with several different companies on different projects.

The royal 'We' might have a bit of difficulty on all that. What they hadn't considered would be what happened to their stock options and other goodies but as usual they were just focusing on their current pocket.

Dividends vs Salary

It was always a neat scam, even as a contractor, to pay yourself a small salary and then take whacking great dividends and save all the associated employee taxes. Naturally, HMRC became wise to that, as usually the dividends spookily equalled the amount of salary the person would have normally earned and, moreover, seemed to be paid monthly like clockwork, exactly when the client paid their invoice. In fairness, some contractors who get paid agency or commission fees based on the sales they generate can easily justify their small salary and high dividends - they cannot predict when they are going to earn their next cheque. Even so, HMRC is pretty dubious and sceptical on the whole thing and err on the side of stopping the practice even if it is justified.

You see, the ideas my director friends had were the obvious ones that the tax adviser would have paid only a single charge for telling them as there is no ongoing knowledge to impart. What the tax adviser would be doing for the royal, and very royal, 'We' would be to tell about how to pay no tax on very big amounts of money.

The Big Scams

The richer you are, the less tax you pay. That's the simple rule of thumb. It's convenient to marry someone who might be able to claim they are a non-domiciled person. But for good effect, it's best to own a 'primary' residence outside the UK and in a place where there are pretty low personal taxes. Places favoured by the rich are Monaco, the Channel Islands, Isle of Man or Switzerland. To boot, they are all nice places - no riff raff, generally speaking, and one has the advantage of having a decent football team. Having played cricket on Jersey, I can recommend it highly and we even bumped into 'Charlie Hungerford' from Bergerac fame once and gave him an exploding cigar. I digress.

The very rich basically siphon all their money into these domains. But this is for the F1 racing drivers, popstars and big swinging whatevers from business like Stelios or Philip Green. When you have such a set up, you can choose how much tax you can pay, alright. In the case of Philip Green he paid himself a single dividend of £1.2 billion and did not pay a penny of UK tax on any of it. The money wasn't really even earned by his company, it was a bank loan. By paying it to his wife, who was a qualified non-dom, he made doubly sure no-one could chase him. All he makes sure of is that he doesn't spend more than 90 days in the UK in any single tax year - although the days on which he travels either there or back or through, do not count. If you are rich enough, that is not an issue. Mind you, if you own your own budget airline, the last thing you want to do is go on it even if it flies to Nice. It's not exactly a company perk then, is it?

Some years ago, the fashion was to hold the shares in your company in an offshore Trust. These were lovely and expensive to set up and 'administer'. Famously, Lords Sainsbury and Levy operated these for at least a while, which meant that they took zero earnings in the UK but lived off the dividends generated by the shares in the offshore Trust which were miraculously tax free. I am, not sure if that particular avenue has been closed down now, but it was a belter.

Of course, the wise thing to do if you are mega-rich is to register your company offshore. Not the one that generates all the profit mind you - leave that on British soil, just make sure that the entity is owned by another and charges it a management charge exactly equal to the profits made or a few quid less to be on the safe side. Many of these rich fellows don't take much in the way of salary. Between expenses and dividends they are well cared for and most of these will be taken outside of the country and wrapped up as capital gains, carry forwards and other complex 'cheats' to make it look as though they earn nothing taxable but are actually taking millions or billions.

This is the royal 'We' that adviser was on about. Of course, there are some mini-scams for the not so filthy rich which helps make sure that very little of the tax Brown and Darling are aiming to get their hands on will actually be collected and thanks to giving everyone a year's heads up, there is plenty of time to pay the advisers for their advice and get round it. As always, it will be those just getting enough to qualify for the new tax but not enough to afford the advice and complicated instruments of 'avoidance' who will really get hit. Already, HMRC has indicated it will hammer down on 'salary sacrifice' which is the idea of giving up the portion of your salary above £150k and taking it as an employer's contribution to your pension. It means it can't be spent yet but at least you get your tax back. Not anymore - the proposal is a tapering tax which starts at 20% of the employer's contribution for a £150k earner and rises to 30% for those earning above £180k.

HMRC has already indicated it will be watching out for those earning around these thresholds who suddenly elect to 'sacrifice' part of their salary or bonus and take is as a employer pension contribution. But then again, they have a year to sort all this out.

Sympathy

It is those who earn around these threshold levels who I actually feel sorry for and it is where Darling is aiming. Just as the majority of law abiding citizens, who do not cause accidents or kill people on the roads, are the ones targeted by police with speed cameras as they are the ones who will pay however much they may not like it. The people who kill or have accidents are usually the ones who don't bother paying or can afford fancy lawyers to get them off on technicalities. The same is true of tax. Morally, it is corrupt.

The Government has blown a lot of money in the last year on this whole financial crisis and we are going to be paying for it for an awful long time - out until 2032 is the estimate on some £1.3 trillion of borrowing. The one thing you can be very sure of is that these will not be the only unpopular taxes introduced. You can also be sure that it will not just be the rich who get fleeced - ordinary, middle grounders and lower paid people will be disproportionately targeted through things like fuel tax or alcohol duty and will collectively pay more. Why? Because we will pay as we have no choice.

Tax 'Mitigation' or 'Avoidance' is one of the luxuries of being rich.