Friday, 5 August 2011

Do Criminals Pay Their Taxes, Unlike Vodafone?

Government agencies often remind us that serious criminals do not pay their taxes - so often that serious criminals probably also think that they do not pay their taxes. They can pride themselves on being up there with Vodafone. But are they sometimes mistaken?

Suppose you (no offence meant) are a moderately successful drug dealer. You have lots of cash. In fact, that's all you have (apart from drugs, of course). Some of it you spend in the designer boutiques, so-called because they are designed for people like you. Here you pay VAT, like everyone else, so the government gets to take a first slice from your income.

But when it comes to your car or your house, there's a problem. It's hard to find a car dealer who will take £30k from you in cash for a new Merc without recording the fact that you paid cash, thereby (I assume - I haven't done the experiment; mine's a Skoda) alerting the rozzers. And even if you can get round this problem, you are still vulnerable to being stopped and asked, How did you fund your purchase of this car, Sir? We understand you are employed as a night club bouncer. Does it pay that well?

This is why criminals have to roll up their sleeves and do Money Laundering. How do you do it? (I should charge for the next bit).

Well, you go to your bank, show them your meagre savings and ask them for a loan so you can buy the lease on a fish and chip shop. Thanks to Project Merlin, they are very obliging and you duly open your shop, with a manager and staff. It's all above board - you serve nice fish and chips, take HelfnSafety seriously and clean the toilets. The staff pay tax and National Insurance on their wages. What's the catch?

Every week, when you visit, you sample what's on offer and pay for it. Maybe £500. Maybe £1000. Yes, you put your hard earned cash in the till to boost the takings. After all, who can tell how many portions of chips can be made from a sack of potatoes?

When it comes to self-assessment time, your accountant records a healthy profit. The staff get a bonus. And you pay the tax bill.

Now, at last, all that black money has been laundered into white money. You can go out and write a cheque for your new Merc. Because like everyone else, you have paid your income taxes. And, now, once again on your new Merc you are paying VAT.

It's a strange way to run a fish and chip shop, but I guess it happens.

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