Wednesday, January 08, 2014


BLOG 143



Credit where credit’s due.  That’s the Sunday Telegraph’s headline, not something that I thought up.  Their article starts, “Romanians and Bulgarians coming to work can avoid paying taxes in Britain because of a loophole”.  I hope that by now that you are as angry as the three (yes three) Sunday Telegraph journalist that it took to unearth this new tax avoidance scandal (that’s my word not the Telegraph’s).

 In case you have not seen the article, it goes on to explain that they still have to “pay taxes at home” and that the income scandal is that, “The rules allow European workers “posted” (sic) to Britain for less than two years to pay National Insurance and, in some cases, income tax in their own country.  Almost 100,000 EU immigrants already in Britain are taking advantage of the regulations”.

 I am not clear why the article should start by singling out Romanians and Bulgarians.  I have read the Sunday Telegraph since it began publication and don’t recollect it having previously complained about French and German tax avoiders.  Or, indeed about US ones, because the NI treaty that we have had for many years with the EU is similar to that which the UK has with the US, and Australia, and a number of other countries.  And it’s nothing new.  We have had such treaties for as long as I can remember.  It seems commonsense to me.  The main NI benefits are the State pension and jobseekers allowance.  Assuming an average working life of 47 years, the pension entitlement from contributions for a period of under 2 years is so small that it is probably not worth the government having to record it.  It surely makes far more sense for someone who is going to be here for under two years to remain in his home country’s social security system?  At least that makes sense to me, even if it does seem utterly ridiculous to Sunday Telegraph journalists.

 So what about income tax?  Actually it’s nothing to do with the EU, but most of our double tax agreements do indeed provide that a person sent to the UK by his foreign employer is not taxable on his earnings here if he is present here for less than 183 days in the tax year, is employed and paid by a non-UK employer and the remuneration is not borne by a fixed base which the employer has in the UK.  Again, do we really want to spend taxpayer money on collecting taxes from people who work here for a very short period, are unlikely to be tax resident here, and whose salary is a deduction in calculating the employer’s profits not here, but in another country?  It seems to me to make a lot of sense all round to leave it to the worker’s home country to tax him.

 Particularly because this works both ways.  If I send one of CBW’s staff to New York to do a job for a couple of weeks, the USA does not tax him.  The UK gets to tax him on his US work.  Is that wicked?  If not, why should it become wicked if a Bulgarian CBW equivalent sends one of its staff to London for a couple of weeks?

 And is a person who comes to the UK for a couple of weeks – or longer but for less than six months – actually a migrant, as the Telegraph would have us believe?  I would myself describe such a person as a visitor; surely a migrant is someone who comes to live here; not someone who is posted by his overseas employer to work here for a short period and return home.

The Telegraph’s real gripe seems to be that the rate of income tax in Bulgaria is only 10% and that in Romania is “just 16%”.  Actually the personal allowance in Romania is very low as compared with almost £10,000 here.  The effective UK tax rate on someone earning £30,000 p.a. is 13.7%, which is actually less than in Romania.  And the Sunday Telegraph did not mention that the lower headline income tax rate in Romania is balanced by the fact that VAT there is 24%, as compared to 20% in the UK.

 It is depressing that the Press still seems eager to put vast resources into trying to discern tax avoidance in places where it is clear none exists.  There are differences in tax rates between virtually all countries, as each raises the funds it needs to meet its differing economic objectives in different ways.  For someone to regard those differences as giving rise to tax avoidance is ridiculous.

 What is perhaps most depressing is that the Sunday Telegraph ends its article by pointing out that John Cridland, the Director-General of the CBI says that, “free movement needs to be about people coming here to do jobs and pay tax!”  I am unclear if this means that the CBI share the Sunday Telegraph’s apparent view that a person seconded to the UK for a short period by his foreign employer should pay UK tax.  Personally, I think that everyone should obey the law.  If this provides a tax liability here, it should be paid; if it does not, there is no earthly reason why anyone should volunteer to pay tax that parliament has not sought to impose.  I would have hoped that the CBI would share that view.




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