Tax evasion – How the wealthy are doing it

Tax evasion is illegal; it is punishable by fines and/or a prison sentence. The term covers a wide variety of money related crimes, including not paying taxes at all; paying some tax, but not declaring everything; and money laundering activities. This list is not exhaustive.

There have been many famous cases where tax evaders have been successfully prosecuted. The most famous example is probably that of the Mob boss, Al Capone, who was imprisoned not because of his crimes of murder or bootlegging, but of not paying taxes on the money he had ‘earned’ by illegal means. It was the accountants that caught Capone, not the FBI, as it were.

In Britain there is the requirement that all accountants register themselves, and this was finally accomplished in 2008, although the law requiring them to do this became fully operational in December 2007. Now all registered accountants are required by law to disclose any thing they find suspicious about a client’s accounts. If they do not do so, they will be liable to prosecution. If they suspect a client of any illegality, they must fill in a Suspicious Activity Report (SAR) and must not inform the client that they have done so, as this would also result in legal action against the accountant. There can be no “Tipping Off” a client. It used to be that anything said to an accountant who was employed to deal with a person’s tax matters was confidential. This is no longer the case. Thousands of SARs have been submitted to Her Majesty’s Revenue and Customs department since this legislation came into force.

Tax evasion offences are committed by people from all walks of life, from billionaires to the person on a low income. For example, if a person is on social security benefits and also doing part-time work and does not declare both sets of income on the tax form, then he/she is guilty of tax evasion.

Billionaires in the UK pay ridiculously low taxes, if they pay any at all and figures have been reported in the British press, of 54 UK billionaires paying, between them, only 14.7 million pounds. Of this James Dyson, the inventor, paid 9 million pounds. The British government allows foreigners who claim that they are not domiciled in the UK (despite many of them having British passports and living in the UK for many years) to only pay tax on money that is brought in to the UK.

There are tax havens which are used by the wealthy to avoid paying taxes in the UK. These are based mainly, in the Channel Islands, the Caribbean and Switzerland. Successive British governments have failed to close the loopholes in the law which would effectively tax the wealthy. For example, in 2009 Barack Obama the US President, and former UK Prime Minister Gordon Brown, pledged to close down tax havens, but little appears to nave been done so far.

On the one hand tax evasion is illegal but it seems that tax havens and investing off-shore are legal, so tax evasion laws really only work against people who are not super-rich.