Workers organisation calls for clampdown on wealthy tax dodgers in UK

News - Tax

Written by Ray Clancy

Tuesday, 19 October 2010 10:40

Jet set tax dodgers who commute to London from havens like Monaco should face a crackdown, says the organisation that represents the majority of ordinary British workers.

A clampdown on the non payment of tax of the wealthy could raise £4 billion for the nation’s coffers at a time when most of the country is being asked to cut back and agree to the a severe austerity drive, says the Trades Union Congress (TUC).

New residency rules could raise £4 billion a year, including up to £1 billion from the so-called ‘Monaco boys’, city high-fliers who commute by jet to London on Mondays and leave on Thursdays in order to avoid paying UK tax.

In a briefing report TUC says that thousands of people exploit the complexity and uncertainty around the statutory definition of tax residence in the UK by commuting to and from the UK to work without paying any tax on profits and income earned in the UK. A new passport based residency test would not only simplify the tax system but raise up to £4 billion a year.

The briefing cites the exploitation of the ordinary residence rule, usually created when a person has been in the UK for 91 days, as an example of tax avoidance. By flying into the UK on Monday morning and returning to Monaco on Thursday afternoon, they claim that they never establish residency in the UK. This practice has recently been challenged by HM Revenue and Customs but the practice continues, says the briefing.

The rules on tax residency are further complicated by the domicile rule, which offers further opportunities for avoiding tax on UK-based income. Non-domicile status, which can be inherited or acquired if you are born outside the UK, can be used to avoid paying tax on UK income even if someone has long-term interests in the UK.

It also says that the current uncertainty around tax residency can be a huge administrative burden for taxpayers without access to expensive accountants. Clarifying the law could raise up to £1 billion a year, while reforming the domicile rule would raise a further £3 billion a year towards reducing the deficit.

The TUC briefing proposes a new passport based tax residency law, already enforced successfully in the US, to simplify the law and end the exploitation of residency rules by a super rich minority.

Under the TUC proposals, anyone with a UK passport would be assumed by default to be tax resident in the UK. However, in order to allow for the high levels of migration in and out of the UK, the TUC proposes an exception to passport based residency whereby UK subjects living in countries that enjoy full double tax arrangements with the UK can transfer their tax status abroad. This would mean for example that a UK resident living in an EU country would be able to pay tax in the country where they work, rather than having to pay tax in the UK.

‘This is a glaring loophole in tax law that allows thousands of very rich people to avoid paying their fair share of tax. A big proportion work in the banking and finance sectors that drove the crash, but can now escape paying a proper contribution to putting right the damage they caused, while the rest of us face cuts in vital services and a VAT hike,’ said TUC General Secretary Brendan Barber.

‘If the Government is serious about cracking down on tax avoidance, then it’s time to take away the boarding card from this jet-set tax dodge,’ he added.