Tax can be taxing

It was revealed today that 1 in 20 self-assessment tax returns are assessed incorrectly by Her Majesty’s Revenue and Customs. This comes the day after the HMRC sought the end to judicial oversight to their seizures. Iain Dale also points out the UK now has the longest tax code in the world with almost 10000 pages with 1600 pages were added in the last year.

  • The Pict

    The US used to have the longest tax code and they discovered that it was becoming practically unenforceable due to complexity.
    There is a lesson to be learned.

  • Crataegus

    This wouldn’t surprise me at all. I have had quite a few run ins with them over the years. Generally amiable enough people, but the overall tax structure can be complex enough for many, especially if they work or purchase abroad.

    Also for small businesses someone should have a look at how the tax and benefit structures discourage and penalise many. I am convinced that the structures mean that many are paying more than their equivalent who are not self employed and especially those who have peaks and troughs in earnings.

    I also think there is inadequate incentives to invest in plant and machinery. The whole concept of assets and depreciation perhaps needs to be considered in a different light. An asset is only an asset when you sell it.

    A couple of blokes and a van are unlikely to keep every receipt and because of that are likely to be paying more than they should. If they have a small office they are also paying through the nose on rates and then if they are slightly larger there is issues around maternity leave, PAYE etc etc etc.

    I have alway thought that the genuinely self employed and small business owner should be encouraged. After all these are the people who will create tomorrows larger businesses that will dictate the future economic well being of the country. Perhaps many small businesses should have discounted levels of tax to recognise firstly the importance that sector plays in the overall economy and secondly pay them for their time in collecting taxes such as VAT.

  • jaffa

    Can’t agree that you encourge small business with further convolusions to the tax code Crat.

    The truth is the tax code could be written on one side of A4 if anyone had the balls to do so.

    My own preference;

    1) Set a flat income tax rate at the National Expenditure Rate – the level of GDP which the government intends to spend. Charge this on every penny earned. It has to be every penny earned to make the audit and collection as simple as possible. 39% or so this year. This would also make the tax take transparent.

    2) Treat interest as a distribution of profit, not an expense, making banks the same as other investors and encouraging people to bring others on board as investors.

    3) Tax cash flow and not accounting profit – asset purchases are expensed, asset sales are chargeable income.

    4) Treat benefits in kind as a distribution of profit also – as the firm is paying the same rate as the employee there’ll be no loss to the teasury and people won’t need to include BIKs in their returns.

    5) Abolish employer’s taxes and capital taxes on property (rates).

    6) Give everyone an equal tax credit / citizen’s dividend through an equal distribution of charges on anti-social activity or use of public goods (ie alcohol, tobacco, land use (based on area used to encourage better use of a finite commodity – not penalising people for developing their land by raising their rates), waste, roads, carbon, gambling, guns, chewing gum, plastic bags – anything else we don’t much like as a society which can be simply and cheaply taxed at point of manufacture, import or use). Set this credit at at least 39% (if that’s the expenditure rate) of an indepedently establish poverty level so that people below this effectively don’t pay tax.

    7) Abolish sales taxes (vat). This is my own preference. You could if you wish split the 39% between sales and earnings related vat – the flat tax I’ve proposed is effectively a value added tax paid at the point of earnings anyway and both would be caluculate using the same sales and purchase invoices. The question is how much do you want to encourage trade or savings.

    8) Abolish pension credits

    9) Abolish stamp duty

    10) Abolish capital gains tax (redundant anyway under these rules)

    11) Abolish rates

    12) Abolish various petrol duties etc and replace with a simple tax on the carbon content of all fuels refined or imported.

    13) Abolish tax on dividends (the firm’s already paid)

    14) Abolish tax on interest earned (no different to dividends)

    15) Set inheritance tax on the amount received, not the amount given to encourage wider sharing and in-life giving while simplifying the administration of in-life gifts. Eg first £50K received each year is tax free, thereafter taxed at standard rate.

    That’s it. Unless I’m missing something it really is that simple. We could decimate the revenue as tax comps for business tax and vat would simply be a matter of deducting purchase from sales invoices – the customs and excise could just about do the whole job).

    This approach ought to be more prudent from a national tax planning perspective as we’re taxing the whole value added in the economy and not double taxing at times of investment (eg taxing the sale of plant and machinery by one firm without allowing the corresponding expense by the buyer) and then finding tax revenue depleted as investment falls and assets depreciate.

    Also, what looks like a headline rise in business tax wouldn’t be for firms employing staff as abolision of rates and national insurance would compensate mightily for any additional income tax. Low corporation tax is just a timing difference anyway as you pay additional tax on the dividends withdrawn from your firm and allowing 100% write off of asset purchases would end the perversion of expanding firms borrowing to pay tax.

    Simplification of taxes would (at least in my own business’s case) encourage genuine incorporations and better corporate governance as there would be less tax advantage in using other corporate forms like partnerships.

    I’d go as far as to set down this kind of simplicity should be something almost constitutional. It would encourage a sense that we’re all paying the same. If politicians want to muck about with it they need to explain why.

    Personally I’d also head down the voucher route to show that we’re all getting the same also and to put some real spending power in people’s hands (choice of school with your £7K per child, choice of health insurer, choice of social security insurer).

    If Gordon Brown really wants to build trust and involvement in government he’s going to have to spend a lot of time undoing all the knots he’s tied us all up in in his first 10 years. He’s one big reason people are too exhausted and confused to bother with something he’s made much too technocratic and complicated.