YOU might think that accountancy is boring. I have heard a rumour that some people do. But, as someone who has been a chartered accountant for almost 40 years, I am going to have to disagree with you.
Let me also be clear that I think accounting is an issue for the independence movement. Making sure that we can hold business to account for what they do is vital if Scotland is to have a properly functioning economy when it takes control of its own affairs. And, as is so often going to be the case, copying what is happening in the UK as a whole now would not be wise.
The current UK system of company law is really not fit for purpose. Many think that is because so many large companies, from Carillion to BHS, to banks in 2008, have failed months after their auditors had given them a clean bill of health. That is an issue, I agree, but it’s for another day. The real problem with the current UK company law system is that it is almost totally unregulated, and there is a Wild West of bad corporate practice out there as a result.
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In effect, anyone can buy a UK company right now (they’re all the same: Scottish ones are only different because they have what is called a registered office in Scotland) for less than £15. No physical forms need to be signed. No proof of identity is demanded if you do this direct with Companies House, which is the government agency responsible for registration. And once you have your electronic certificate - which only takes a few hours - you are free to trade.
You can do that for a year or more before regulators worry you for any further information about what you are doing. Just three forms are required a year. One is a statement of who the directors and owners are. You can carry on declaring the unproven names from when you registered.
The second requirement is a set of accounts. If you want to be fraudulent, and I suggest quite a lot of people do, then completing an online form saying you have not traded is available to fulfil this requirement. The real accounts are simply never filed.
Third, if you say you have not traded your corporation tax return is easy and HM Revenue & Customs might well leave you alone and not request another form for several years, if you last that long.
You might, alternatively, decide not to fill in any of these forms. Then Companies House decides you must not be trading (it does not seek proof) and so wipes your company from its register, so removing any evidence that you ever existed.
Throughout all this the directors and shareholders of this company (who might be the same persons) enjoy what is called limited liability. That is, they are not personally responsible for the company’s debts unless one day a court orders otherwise, and that is incredibly rare.
You literally could not make up a better system to encourage fraud in an economy. For next to nothing you can buy an identity other than your own, set up a bank account, and trade, and then disappear from view paying no taxes, and maybe some of the people that you owe money to, never leaving evidence behind as to who you might have been.
This is madness. It is as if the system is designed to help criminals and con innocent people. In doing so this system also, and completely bizarrely, undermines all honest traders, who have to compete with the cheats. It's an anti-market policy as well as one designed to undermine the tax system in that case.
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So, Scotland cannot copy this when it is independent. It needs a proper system of accounting. Thankfully it would be easy to end this nightmare. First, all directors and significant shareholders of a company should be required to prove their identities annually in an independent Scotland. And banks should be required to disclose to the Scottish tax authority all the companies for whom they operate accounts and who they think runs them. They should also supply some banking data, like amounts banked each year. And, if the company then does not then pay its tax the directors should be made personally responsible for it by removing their limited liability. Problem solved, as some might say.
Scotland has to make clear its pro-business credentials by having such a policy now as independence is considered. The SNP might do well to demand the right to legislate on this now as well. Why any economy should suffer cheating of this sort is hard to comprehend. And why the Westminster government has turned a blind eye to it for so long is a question Scotland can reasonably ask. Scottish tax revenue is already lost as a result of this. Answers are, in that case, required.
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Callum Baird, Editor of The National
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