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Magazine Issues » November 2022

Tax doesn’t need to be taxing

Liz Pfeuti, taxEvery year, I file my tax return a little later than the one before. This year, my accountant has given up sending chaser emails – it’s a waste of his time and mine, writes Liz Pfeuti

He knows there’ll be a flurry of paperwork one weekend in late autumn and all my receipts, invoices, bank statements and credit card bills will arrive at his door, loosely connected to a spreadsheet through which he can work his magic and let our friends at HMRC know how much I owe them. 

I actually don’t mind paying these taxes. My (working class) grandfather’s adage of “if you earn it, you should pay it” rings true for me. While my income as a freelance journalist and media SME director won’t solve the national debt, I can feel reassured that I am making my contribution to keeping the past, present and current citizens of this country in relatively – and I stress the word ‘relatively’ – comfortable living conditions. 

Happily, I’m not alone. During the brief chaos of the UK’s mini-budget, I was cheered to read comment sections in the FT, Times and other media outlets favoured by the broadly better-off exclaiming that the removal of the top rate of income tax was not what was needed. In fact, some would rather pay more. 

Public services – and private ones – do not operate in a vacuum. We already live in a multi-tiered society, in which some already pay for their education, healthcare and other elements of life. But we still need the public sector to empty our bins, repair the roads and educate the vast majority of children who will grow up to become our working population. We can’t opt out of society – but it seems many corporations want to. 

Over lunch with a friend this summer, I discovered that major corporations have departments dedicated to reducing their tax bills. Many request meetings with HMRC to explain why they should not be liable for this or that tax, and would the Treasury mind awfully if they didn’t pay this year, pending an internal and HMRC review? My accountant assures me this would not fly for any of his clients. Indeed, I am aware of SMEs that have been forced to overpay taxes due to HMRC errors, and have been told to wait up to six months for a refund of their working capital smack-bang in a double-digit inflationary environment. 

What does this have to do with fund management?

You remember all those claims about ESG? How these three key elements of sustainability are “part of our DNA”? How about the S part? How about contributing to the coffers of the country in which the company draws its revenue? How about making sure that the society from which profits for shareholders have grown large benefits – or at least does not lose out – from a rising share price and portfolio gains? Global tax campaigners have shouted about this for years, but the real power lies with shareholders. The pension funds, insurance companies and their beneficiaries that are losing out as the companies to whom they are providing working capital and executive paycheques would rather bank and pay minimal taxes elsewhere. 

Companies can only make money while there is an underlying society with the money to buy their products and services. A fully funded defined benefit scheme whose members can’t afford to put the heating on will have fundamentally failed in its fiduciary duty. To live in a truly sustainable economy, this practice cannot continue. And if the beneficiaries of the funds this industry manages knew how short-changed they were being, it wouldn’t last long either. 

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