Are HMRC missing a trick?

Sign for brothel
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Recently my American friend Sam (she of chicken-sitting fame) told me that years ago she had read about the US tax authorities taking over and running a brothel. I was sceptical as usual but she turned out to be right. According to an article in The New York Times (in September 1990):

The Mustang Ranch, a Nevada brothel, has been seized by the Internal Revenue Service. After years of negotiations over millions in unpaid taxes owed by the property’s owner, Joe Conforte, the IRS obtained an order from the Bankruptcy Court in Reno to begin liquidating the 105-room brothel.

Jerri Coppa, the bankruptcy trustee, said on Tuesday that she planned to supervise the business until it could be sold. But when she arrived at the ranch outside Reno, it was closed. Prostitution is legal by county option in Nevada.’

As is the case in the US, UK tax applies to more than just lawful businesses. No matter what you get up to, more or less, once your activities amount to a trade in HMRC’s eyes then your profits are taxable.

In the Miss Whiplash case (IRC v Aken [1990] STC 497), the UK Court of Appeal decided that HMRC were right to tax a prostitute. Prostitution is not illegal under English law, although some related activities, (managing a brothel, for example), are. Relying on this distinction, Miss Whiplash raised an ingenious defence: she argued that, as it was illegal to live on immoral earnings, HMRC by taxing her would be committing an offence. Unsurprisingly the Court of Appeal was not convinced.

HMRC can be quite proactive when it suits them. Ever vigilant, even in their downtime, they apparently found out about Miss Whiplash’s business activities from a TV documentary. And in January they launched a campaign against tax-evading dentists (presumably influenced by a trip to see Little Shop of Horrors). I still wonder though, at a time when the tax take is shrinking, are they thinking creatively enough?

It seems that when the financial crisis hit Italy in late 2008, one of the Berlusconi government’s first measures was to introduce a 25 per cent additional tax charge on porn. An article in Variety reported that Conto TV, a growing digital terrestrial on-demand channel whose core business was porn, aired a cheeky spot urging Italians to sign up with them and ‘contribute to saving the Italian economy’.

Another potential revenue stream overlooked by the UK Treasury is a tax on cow flatulence as proposed in Ireland (€13 per cow) and Denmark (€80 per cow). At a safe distance from the rich pastures of Jutland, one can only speculate as to why Danish cows should be deemed six times more culpable than their Irish counterparts.

These figures have been proposed in response to a recommendation by the UN Food and Agriculture Organization that the livestock industry be taxed as a means of reducing its ‘by products’ (which according to a study published in 2009, account for a staggering 18 per cent of the world’s greenhouse gases). The Danish Tax Commission estimated that a cow ‘emits’ four tons of methane a year while an average car produces only 2.7 tons.

On 9 July the Treasury asked the public to post their ideas on how to cut the deficit on the Spending Challenge website (sadly the website was pulled after only a couple of weeks). One of the suggestions was for a windfall tax (nothing to do with flatulence this time) on people called Steve. Anyone called Stephen would pay an additional £1,500 a year in tax, those called Steven would pay £2,000 a year and the Steves £2,500 a year. If a Stephen (or one of its derivatives) was married to a Stephanie (or one of its derivatives) a maximum tax of £6,000 would be imposed on the couple. The contributor added that further revenue could be generated by targeting surnames such as Stephenson.

Simples!

 

*** UPDATE – November 2012 ***

Hungary introduced a tax on foods with a high fat, sugar or salt content in September 2011.

Denmark introduced a saturated fat tax in October 2011 only to repeal it just over a year later. Apparently if didn’t affect eating habits. “The fat tax is one of the most criticized we had in a long time,” Mette Gjerskov, Minister of Food, Agriculture and Fisheries, said during a news conference in Copenhagen the day the repeal was announced, “Now we have to try to improve public health by other means.”

In  October 2011 the French parliament backed the introduction of a tax on drinks containing added sugar or artificial sweeteners. The new tax was expected to raise €280 million in the next year.

Needless to say, Coca Cola were not happy!

Tax lawyer specialising in business tax, SDLT and VAT

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