On the subject of removing limited liability:

We should be much more straightforward in saying that limited liability is a privilege to be used for the benefit of society, and with care, and that if obligations to society are not respect then it should simply be withdrawn with the shareholders and not society at large then having the duty to remedy the defect. When should that happen? Let me suggest the following occasions for a start:

1) When excess pay is allowed, as noted above.

2) When accounts are not filed on time, for any reason.

3) When corporation tax returns are not filed, for any reason. Of course these are not public documents now: they soon would be if this was the case.

4) Three months after any set of accounts is filed showing the company to be insolvent unless action to remedy the defect has been taken in the meantime.

Now, shareholders are generally considered to be absent owners. They've plonked down their money in a company and then they basically let managers get on with it. The system of corporate governance has evolved in order to ensure that managers don't simply run off with the money or spend it all on booze and fast women. 

The idea of limited liability is to encourage investment. When shareholders aren't worried that they may face future capital calls, they'll be prepared to invest more. 

So the idea that shareholders should lose their limited liability because they wanted to pay a superstar director (or other employee) what they think they're worth is totally ludicrous.

The next three are even more idiotic. Shareholders are, as we said, absent. They've delegated the responsibility of running the company to managers. So why should shareholders be penalised if managers screw up by not filing accounts or tax returns or by trading while insolvent? Ritchie's got this totally wrong. Directors are responsible for ensuring a company isn't trading insolvently, and they suffer if they fail in that responsibility. Not shareholders.

And by 'shareholders' we mean ordinary people like you and me, in our pension funds. It's you and me, Ritchie wants to clobber when directors screw up. Doesn't sound so good now, does it?

Filed under: Corporate governance with tags directors, idiots, limited liability, richard murphy, tax returns
58751 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F01%2Fritchie-on-limited-liability%2FRitchie+on+limited+liability2012-01-11+22%3A48%3A02Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5875

I propose that all income tax returns of anyone living in the UK should be in the public domain.  These should also include a nil return for those not paying any income tax at all.

The benefit would be to highlight those who are evading tax or pinpoint those who are earning large sums and paying little.  The present levels of tax evasion and tax avoidance are large and they penalise ordinary people who pay their money usually through PAYE and don’t cheat the system.

Says  Lord Dubs.

Well, I've said it before and I'll say it again. If Lord Dubs or any other person genuinely thinks it's a good idea, why not volunteer the information yourself? Show us how you've got nothing to hide and how there's really nothing to fear from having this information in the public domain. Demonstrate how we're all wrong when we say it's an appalling invasion of privacy and a bonanza for identity thieves.

Otherwise, you know, you can just fuck right off, matey.

Filed under: Politics, Taxation with tags idiots, lord dubs, tax returns
58475 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F01%2Fyet-another-proposal-to-make-tax-returns-public%2FYet+another+proposal+to+make+tax+returns+public2012-01-03+20%3A49%3A01Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5847

Prem Sikka would like to see the tax returns of people who earn above-average incomes:

First, the impulse of wealthy elites and large corporations to opt out of the tax-paying obligation needs to be checked by public scrutiny. As part of this, the tax returns of individuals with above-average annual income should be made publicly available. The tax returns of all UK registered corporations, together with details of tax avoidance schemes, should also be public.

Tax is the price that we pay for democracy, social rights and a civilised society. Our contribution towards that should be a matter of public record. The public availability of tax returns would enable citizens to alert, analyse and inform regulators of dubious practices and demand action.

A professor in accounting who also writes for a national newspaper must surely be earning an above-average income.

So, Prem, if this is such a great idea, why don't you start the ball rolling by publishing your own tax return? 

While you're at it, why not convince your fellow tax campaigner and high earner Richard Murphy to join you on your quest? And see if you can't convince Polly "We are the 1%" Toynbee to take part too?

There's no need to wait for regulation to force you to do it. Show the rest of us how easy it is, and how you have no qualms about making the personal information on your tax return public. Or stop making unreasonable demands of others that you're clearly unwilling to undertake yourself.

Filed under: Taxation with tags idiots, polly toynbee, prem sikka, richard murphy, tax avoidance, tax returns
55791 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F11%2Fprove-it-prem%2FProve+it%2C+Prem2011-11-10+22%3A51%3A02Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5579

The Times carries some useful tips today on how to check your tax code, the simply brilliant British invention that ensures that income from salaried employment is (usually) taxed at precisely the right amount. So I'm astonished to learn in the Telegraph via Guido that the Tories plan to axe the Pay-As-You-Earn system (PAYE) if they gain power.

Amazingly, PAYE dates from 1944, decades before computers. While it may be an imposition on employers, which probably explains why countries like the US don't have it, its huge benefit is that it liberates ordinary people with simple tax affairs from the need to file a tax return.

I don't see how a cashflow based taxation system will work.

Firstly, Britain is obsessed with having a progressive tax system; 'progressive' in this context means tax rates that go up as you earn more money. PAYE handles this by forcing the employer to do all the hard sums. If you get income from another source, they tell HMRC which then fixes it through either this year's or next year's tax code. How will the next pound you earn be taxed under the Conservative proposals?

Secondly, it's far from trivial to work out what a particular piece of income might be. Let's say I receive a Paypal payment from someone. Is it because I sold them something on eBay (possibly taxable at the marginal rate if it's a business, but not otherwise)? Is it a gift (not taxable)? While clever computing might help in some situations, it looks like another NHS supercomputer problem in the making. Times a million.

Thirdly, as Guido points out, there are serious privacy issues here. The State has the right to take you to court to force you to hand over money to it. That's not quite the same as allowing it instant access to your PIN so it can take your money when it likes.

Fourthly, this is simply bad politics. The Tories will be lifting a burden from companies, which cannot vote, and placing a heavy administrative burden on people, who more or less do. Lessons can be learned from the US. There, a quarter of a billion people have to navigate the fiendishly complex IRS rules and regulations to file their own personal tax return. Then they have to do exactly the same again in respect of their state taxes for every state they have worked in. It's insane.

Yes, there are faults in the system. But let's not underestimate how much PAYE has freed millions of ordinary people from tax filing drudgery. It doesn't deserve to be binned just yet.

Update: Clever Tim Worstall sees the upside - pressure for lower taxation.

Filed under: Current issues, Other blogs, Taxation with tags conservatives, guido fawkes, hmrc, nhs supercomputer, paye, privacy, tax returns, telegraph, tim worstall, times
4142 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F02%2Fgoodbye-paye%2FGoodbye%2C+PAYE%3F2010-02-20+10%3A35%3A10Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D414

I was looking for something at work today, and stumbled across a fairly recent article on the NY Times website on whether tax returns should be made public. Written by Anna Bernasek, it has some interesting nuggets from history. I actually didn't know that tax returns had ever been public information in the US. No doubt someone will surprise me by telling me that UK tax returns were public too at some point.

But I was fairly cross at Bernasek mixing up individual tax returns and corporate tax returns. While it was good to reference the key academic work on this subject (Lenter, Slemrod and Shackelford - Public Disclosure of Corporate Tax Return Information: Accounting, Economics, and Legal Perspectives, 56 Nat'l Tax J. 803 (December 2003)), it was just plain wrong to include it in an article that was otherwise about individuals. The privacy concerns that might lead you to conclude that it's inappropriate to disclose individual tax returns do not apply to the same extent to companies.

Not that I'm saying that company tax returns should necessarily be disclosed publicly. It's just that the issues aren't the same.

Filed under: Academic research, Other blogs, Taxation with tags anna bernasek, david lenter, douglas shackelford, history, joel slemrod, new york times, tax returns, theory of the firm
383No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2010%2F02%2Frepeat-after-me-companies-are-not-people%2FRepeat+after+me...+companies+are+not+people2010-02-18+23%3A03%3A30Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D383