Taxman shoots himself in the foot
Ignoring the precise merits of the legal case surrounding Mr. Gaines-Cooper – the businessman who may be asked to pay £30m in back tax, which was covered in all the main newspapers yesterday – the UK tax authorities are likely to be shooting themselves in the foot by aggressively pursuing non-doms and non-residents.
Non-doms and non-residents come in for a lot of stick from the media – as well as from the tax authorities. However, the position of these people (including Lord Ashcroft) is entirely reasonable. Non-doms and non-residents pay tax on their UK activities but they do not have to pay tax on what they earn abroad. People who are not permanent residents in the UK should only pay tax on the money they earn here because they are not, in the main, the beneficiaries of most government services which tax revenues finance.
But the crux of the matter is that taxes in the Western world are just too high. If the government is spending, as it will next year, over 50% of national income, people will spend huge sums to avoid and evade the consequent taxes. The tax authorities will spend equally large sums chasing them. The only winners will be the lawyers.
Indeed, efforts to bring these people into the tax net will ultimately cost the government money. Tax rates of 50% are counterproductive even when levied on people settled in and committed to the UK. If you try to tax mobile people such as non-doms and non-residents, they will simply leave the country altogether.
Even if tax rates remain high, the rules surrounding the payment of taxes should be clear and transparent. Adam Smith’s canons of taxation are a good basis for policy. He will be turning in his grave at the news that somebody could be required to pay tax on income earned 17 years ago when, in good faith, he followed the guidance from the tax authorities.