king_pellinor | Tax ranting #3

It really annoys me that anything that anyone ever does which reduces their tax is described by journalists, campaigners and politicians as a "loophole".

To me, a loophole is an unintended gap that you're not meant to be able to get through. But things I've seen described as loopholes include:

- Paying a royalty to an overseas company
- Claiming capital allowances
- Paying for raw materials
- Doing business in another country

All these are perfectly normal things to do. The only one which isn't just part of doing business is capital allowances, and that's a deliberate policy from the Treasury (it simply fixes the rate at which you get tax relief for buying your equipment, instead of letting you chose how quickly to write it off).

The "loophole" which really annoys me is to do with small companies. In 2002 Gordon Brown, as Chancellor, announced that to encourage small businesses the first £10,000 of a company's profits would be taxed at 0%, though the relief would be gradually withdrawn so there'd be no benefit if the profits reached £50,000. Everyone immediately pointed out that loads of small businesses would incorporate to take advantage of this, but the Treasury said, yes, yes, we know, thats fine.

A couple of years later, the same Gordon Brown got rid of the 0% band completely on the grounds that he'd found that thousands of small businesses were incorporating deliberately in order to exploit this loophole. He called it a loophole in the Budget speech.

If he'd said that it was costing more than he'd expected so the relief was being withdrawn, that would have been fair enough. But he didn't even admit that he'd introduced the nil rate: the way it was spun was that he'd noticed this problem and decided to fix it.

I was very annoyed. Still am :-)