We're All In This Together .....

[Flosshilde]

There have been numerous comments about the 'complexity' of taxation in the UK, which I think is something of a red herring. The only 'complex' aspect is that there are lots of different taxes; each tax is basically quite simple. But there have always been different taxes - whenever a government wanted to fund a new war, build a new palace for the monarch, or build new churches, they imposed a tax on something (Wren's City churches were paid for by a tax on coal enetering the City of London). I'm not sure how it could be simplified. It seems entirely reasonable that those who drive should pay more towards the upkeep of the infrastructure they use through the vehicle tax & tax on fuel, for example.

It's not complexity that encourages people to avoid paying tax; it's their deviousness & a belief that they shouldn't pay their fair share.

[ahinton]

There have been numerous comments about the 'complexity' of taxation in the UK, which I think is something of a red herring. The only 'complex' aspect is that there are lots of different taxes; each tax is basically quite simple. But there have always been different taxes - whenever a government wanted to fund a new war, build a new palace for the monarch, or build new churches, they imposed a tax on something (Wren's City churches were paid for by a tax on coal enetering the City of London). I'm not sure how it could be simplified. It seems entirely reasonable that those who drive should pay more towards the upkeep of the infrastructure they use through the vehicle tax & tax on fuel, for example.

It's not complexity that encourages people to avoid paying tax; it's their deviousness & a belief that they shouldn't pay their fair share.

Whatever the perceived simplicity of each individual tax (and I'm not convinced that most if indeed any of them are that simple, especially since some of the complexities that attach to them are down to feeble attempts to close loopholes which will always happen), one of the most fundamental of unnecessary tax complexities is the separate entities of NIC and income tax; simply both and merge them and the savings in inspection and collection would be immense.

As to "those who drive" (i.e. almost everyone other than certain disabled and certain very poor people), there is a "congestion charge" in London from which those with electric cars are exempt even though the presence of their cars in the taxes area still causes as much congestion as do anyone else's cars. - but why should they pay extras? They don't pay any on fuel if they don't use government taxed fuel and they're given concessions on their road tax as well. Anything wrong with that, apart from the fact that these are justs more examples of "tax dodges"?

I do, however, agree with you that the complexities of the taxation system encourage very few people to avoid tax, but how can anyone possibly know what their - or indeed anyone else's - "fair share" of tax liabilty should be?

[Flosshilde]

I do, however, agree with you that the complexities of the taxation system encourage very few people to avoid tax,

I don't think this is quite what I said or meant

but how can anyone possibly know what their - or indeed anyone else's - "fair share" of tax liabilty should be?

By 'fair' I meant paying the amount of tax - income tax, that is - based on the rates set by the government, on your income. Not trying to reduce it by having your salary paid into a company by your employers, or having your income paid to an off-shore company, or any of the other dodges dreamt up. Quite simple, really.

I'm afraid that I find your views on taxation incomprehensible. You say that you are not in favour of tax dodges, but keep saying that taxation is so complex (it really isn't) that it's not surprising that people try & avoid paying it - which suggests a tacit approval. You haven't said what should or could be simplified (except incorporating National Insurance into income tax - but what would happen to the employer's contribution?); given that you believe it to be so complicated & that supposed complexity excuses people who avoid paying their due, you must have some idea of how to simplify it?

[teamsaint]

tax laws are very complicated, and more complicated than they need to be.

Our taxes on income and profits are a maze of reliefs and allowances, many of which are utterly unnecessary, and serve as a vehicle for evasion.
There are very good arguments, not just from the right, that many reliefs could be scrapped, in return for lower overall tax rates, which would have the dual benefits of being an efficient tax raising mechanism whilst allowing real choice in spending for the tax payer. At the moment, the system allows you to choose, as long as you want to spend your money on tax deductible items, EG pensions, or for the company director, that 4 X 4.
I don't know if VAT could be simplified.
Even basic taxes on income, as AH suggests are too complex at their most basic level. I would be happy to bet that most lower end earners don't even realise that NI all but stops at middle income levels.

The system we have allows, and by default at least, encourages legal evasion.

I am all for people paying their tax.......but keeping the current system and expecting people to pay is neither sensible, or likely to work.

Tax will never be 100% fair, and people (especially rich ones) will always find ways round....but we should aim for as good a system as possible, whilst raising as much tax as is reasonable from the best off.

tax essentially needs to be raise on income(and profits) spending, and wealth. In my opinion we raise too little on wealth, too much on income,and should adjust our taxes on spending to raise more in the right areas. Easy to say, not so easy to do.

[teamsaint]

oh , and as an afterthought........raising the personal allowance to £10k PA is a popular move among the lower paid, and something I approve of, as it is also a potential step in the direction of a simpler tax system.
However, it actually, in pounds saved, is better for those with higher incomes.

So something that actually feels like a great improvement to the less well off actually helps rich people more. But is that a good reason not to bring it in?
In my opinion it should be done, and extended to £12k or more. But it IS a matter of opinion.........

[Beef Oven]

Flat-rate 25% income tax, no tax paid on first 12k. Have a dose of supply-side moneterism - you know we're right!!

.

[ahinton]

I don't think this is quite what I said or meant

Well, whatever you may have meant, you actually wrote
"It's not complexity that encourages people to avoid paying tax"
which looks to me as though you meant just that.

By 'fair' I meant paying the amount of tax - income tax, that is - based on the rates set by the government, on your income. Not trying to reduce it by having your salary paid into a company by your employers, or having your income paid to an off-shore company, or any of the other dodges dreamt up. Quite simple, really.

What's "simple" about that? Governments and oppositions can never agree on what the correct rates should be at any given time, because there's no such thing as correct rates; all that governments can do is make stabs in the dark and hope for the best on this - why else would we have all witnessed such massive differences in rates over the past, say, 50 years? On top of that, we now have the likes of Mr Cable talking about a shift from taxing income to taxing wealth - and whatever one may think about that, it shows that governments keep changing their minds, which may be OK in principle as far as it goes, but it does reveal that there's no such thing as a "fair" amount of tax for anyone to pay or even any possible agreement on the "fairest" ways in which to charge it.

There are some perfectly legitimate cases (albeit not all of them by any means) where contractors contract companies rather than individuals. Furthermore, almost all self-employed sole traders have the option to incorporate if they so choose and the usual reason for doing so is to avoid some of the tax for which they would otherwise have been liable had they remained self-employed sole traders.

Then there's the pension contributions, ISAs and the rest which are government sopnsored tax avoidance instruments. I have nothing in principle against tax dodges, government sponsored or otherwise, provided that they do not break the law (although see below re two of the current government sponsored ones).

How you can possibly claim that the tax system is as simple as you do is beyond me (and others); if it were so straightforward, why would many innocent taxpayers make errors in their returns and HMRC make millions of mistakes in inspecting, assessing and collecting tax? Just have a close look at different types of tax return and their accompanying guidance notes and come back and tell me that you think it's all so simple! -and if that's not enough, try reading the tax text books that accountants use!

Were NIC to be absorbed into income tax, the employers' "contributions" would disappear altogether, which would be a good thing because they are a tax on jobs and a heinously unaffordable one for employers who from time to time find themselves having to borrow money to fund part of the salaries that they pay (just as the government now has to borrow to pay out state benefits including state retirement benefit) - but never mind that; can you think of one good reason why there are still two largely separate systems for taxing income and do you genuinely believe that this fact incurs no avoidable running costs?

OK, so how to simplfy the tax system? I don't pretend to be a taxation expert (which fact need not preclude me from having some views on the subject), but if we consider taxes on income, abolishing NIC is probably the most substantial. A higher income tax threshold than the present one (such as the £10K one that's been bandied about by LibDems for ages and in which the Tories now appear to be taking some interest) would take many people out of tax altogether, thereby cutting assessment, inspection and collection costs. A 10% starting rate (such as we used to have) up to, say, £25K and a 30% rate thereafter might seem a reasonable start. Simplify the structural esotericisms of taxes and allowances such as are dealt with in taxation literature including that published by government. Unemployment would be cut at a stroke because more employers would be able to afford to employ more people, which means more tax being paid and less benefits paid out. Simplify the benefits system and cut out all means testing where possible, as this is all too often unrealistically expensive. If necessary, abolish tax reliefs on pension contributions and savings plans such as ISAs (that'll be unpopular, but it will save a whole lot more in administration costs).

Again, you write of my supposed belief that taxation complexity excuses people who avoid paying their due, which is wrong on all counts. It excuses nothing of the kind; the problem with the complexities of our current tax system is that they encourage honest taxpayers to make mistakes through lack of due understanding of the workings of that system and HMRC to make mistakes on a massive scale for broadly the same reason but with far less obvious excuse. I accept that some of this complexity might give a few people more opportunities to get their tax advisers and lawyers to help them to avoid more tax than might be possible under a much simpler system, but I really don't believe the amounts of additional tax so saved to be anything like as much as the amounts that a simpler system would save in running costs.

We've only dealt with income tax so far. Wealth taxes? No, they just don't work, particularly as they are among the most avoidable of all and also the most immoral when they take into account a taxpayer's main residence over whose fluctuating value he/she has no control, which is why the proposed so-called "mansion tax" is a non-starter, as it is based upon the false assumption that everyone who owns and lives in a property of over a certain value (a) has no mortgages or loans of any kind on it and (b) has a massive income in proportion to the vast values of his/her home and can therefore afford to pay such a tax. The largest problem with wealth taxes, however, is the ongoing costs of wealth assessment. Share values can and do go up and down. Property values do the same and would start to plummet if those who couldn't afford to pay wealth tax on their own homes had to sell them (and, even if they were so forced, the government would get no CGT from such sales, as gains in value of one's own home are currently exempt from that tax and, in any case, if no gain, then no CGT liability). Those whose wealth is mainly in property, works of art, land and other non-readily realisable assets would have to have those assets revalued at least once in every fiscal year for tax purposes and there would be no end of valuation disputes, all of which would cost a fortune paid for by the less well-off taxpayer.

Inheritance taxes (which include taxes on certain lifetime gifts as well as on death) should be abolished. They don't yield a significant proportion of the tax take in any case and any measures that governments might take - together with any other influencing circumstances - which result in the reduction of the value of assets of any and all kinds mean that less such tax falls due (as with CGT below). The complexities of IHT are particularly gruelling and costly - and many people's estates have fallen into IHT liability just because house prices escalated in previous years (and, indeed, some of them then implemented IHT planning that they now no longer need because those prices have since fallen again, thereby taking their estates back our of liability again).

CGT should also bite the dust; this and IHT are more easily avoidable than income taxes and horrendously complex.

I question the legitimacy of VAT to the extent that it affects the less well off far worse than the better off and is one of the most unavoidable taxes of all, but I'm not sure what should be done about it.

Government should trim its own operating costs, particularly in its tax and benefits systems and its defence spending, given that the procurement record and the involvement in illegal wars that affect the latter have been and continue to result in such an unwarrantably massive drain on the budget.

So far, we've only dealt with national taxes; there are also local ones, of course - but I've already said more than enough for one post!

[aeolium]

Wealth taxes? No, they just don't work, particularly as they are among the most avoidable of all and also the most immoral when they take into account a taxpayer's main residence over whose fluctuating value he/she has no control, which is why the proposed so-called "mansion tax" is a non-starter, as it is based upon the false assumption that everyone who owns and lives in a property of over a certain value (a) has no mortgages or loans of any kind on it and (b) has a massive income in proportion to the vast values of his/her home and can therefore afford to pay such a tax. The largest problem with wealth taxes, however, is the ongoing costs of wealth assessment. Share values can and do go up and down. Property values do the same and would start to plummet if those who couldn't afford to pay wealth tax on their own homes had to sell them (and, even if they were so forced, the government would get no CGT from such sales, as gains in value of one's own home are currently exempt from that tax and, in any case, if no gain, then no CGT liability). Those whose wealth is mainly in property, works of art, land and other non-readily realisable assets would have to have those assets revalued at least once in every fiscal year for tax purposes and there would be no end of valuation disputes, all of which would cost a fortune paid for by the less well-off taxpayer.

Why are wealth taxes immoral? If a person buys a property of great value, then s/he ought to be able to afford to maintain it. If the property increases hugely in value then that person has made a large profit on it without doing anything. It's not true that there have to be endless revaluations for tax purposes - there have not been any revaluations in council tax since its introduction and while that has led to anomalies and inequities it certainly does not imply the need for annual revaluations. For the purposes of wealth tax, in any case, revaluations need only take place at the upper end. Here is a proposal for just such a wealth tax targetting property and employing extensions of the council tax bands, just as they have done in Wales. As Simon Jenkins comments "Property is the easiest of all assets to tax because it the most visible, most recordable and most unavoidable. The private housing lobby is already hollering about losers, crying that any new top bands will "unfairly target the income-poor and equity-rich". This is like worrying about people who own Rolls-Royces they cannot afford to drive."

Your attack on almost every kind of tax almost puts you in the camp of the Ayn Rand disciples in the current Tea Party in America, scything through great swathes of public infrastructure. Taxation is not one of the evils of society but one of its greatest civilising qualities, enabling high levels of services and infrastructure to be available to most if not all the population, and if properly redistributive could smooth out the worst of the disfiguring inequalities in our society.

[ahinton]

Why are wealth taxes immoral?

Because, like Inheritance Tax, they are almost invariably taxes on funds that have already been taxed once; there are a few exceptions to this, admittedly, but this is usually the case.

If a person buys a property of great value, then s/he ought to be able to afford to maintain it.

The same might be said of anyone who buys any property, regardless of its value at the time of purchase, but how can anyone and be certain that his/her net disposable income after tax will be sufficient to maintain it at all times, especially if those maintenance charges are suddenly componded by a new additional tax on the property's value? There are no such guarantees in life, I'm afraid.

If the property increases hugely in value then that person has made a large profit on it without doing anything.[/quorte]
That's not true in all cases; as with all other gains in asset values, no one makes any profit until they dispose of whatever it is that has gained in value.

It's not true that there have to be endless revaluations for tax purposes - there have not been any revaluations in council tax since its introduction and while that has led to anomalies and inequities it certainly does not imply the need for annual revaluations. For the purposes of wealth tax, in any case, revaluations need only take place at the upper end.

You are, of course, correct about there hqaving been no revalutaions of properties for council tax purposes in a long time, but concil tax was not a "new tax" as such when it was introduced, as it replaced an earlier form of property tax, whereas a wealth tax, if introduced, would be a new - i.e. wholly additional - tax. Given the vast vacillations is stock market performance, property prices and much else over time, valuations would need to be done far more often for wealth tax purposes than they'd ever need to be carried out for council tax purposes, otherwise some people would risk being charged too much wealth tax and others too little. You are not correct in saying that such revaluations "need only take place at the upper end", beause wealth tax would not only be charged on assets valued at sums above its threshold but on the sum of the values of all qualifying assets owned by everyone who might be liable to pay that tax - so it would take into account fifty quid's worth of BA shares as well as houses worth millions of pounds. Furthermore, that "upper end" would be a very big upper end - from whatever gets chosen as the first threshold (say £2m) with no upper limit.

Here is a proposal for just such a wealth tax targetting property and employing extensions of the council tax bands, just as they have done in Wales. As Simon Jenkins comments "Property is the easiest of all assets to tax because it the most visible, most recordable and most unavoidable. The private housing lobby is already hollering about losers, crying that any new top bands will "unfairly target the income-poor and equity-rich". This is like worrying about people who own Rolls-Royces they cannot afford to drive."

Jenkins often writes good sense and there's no shortage of it in parts of this article. A thoroughgoing revaluation of council tax bands is perhaps due now, although this exercise would be national and cost the taxpayer a vast amount of money - and one could argue that council tax even after such revaluaions remains a fairer property tax than a wealth tax would be, given that those on low incomes who live in high value properties can claim allowances against it if they cannot afford to pay it in full or at all. Property taxes such as a wealth tax are not as unavoidable as Jenkins suggests, however; he has himself drawn attention to how owners of very expensive properties get out of paying SDLT and these would also be able to avoid wealth tax as proposed unless there were some vast loopholes closed before its introduction.

The Rolls-Royce bit is just a cheap attention-grabbing line more woreth of Norman Lebrecht than Simon Jenkins; whilst the cost of driving and maintaining one is obviously greater than that of a £15,000 car, the application of wealth tax would be a quite different phenomenon and on an entirely different scale, unless its percentage rates were to be vanishingly small. In any event, someone who owns but cannot afford to drive a Rolls-Royce and who therefore sells it may have to pay CGT on the proceeds of that sale unless the car is sold at a net loss, whereas the owner/occupier of a house valued in excess of the wealth tax threshold who cannot afford to maintain it (including any welath tax levied on him/her as a consequence of that ownership) will not have to pay any tax on its disposal, provided that it has been his/her main residence for whatever the qualifying period for such CGT exemption is now.

Your attack on almost every kind of tax almost puts you in the camp of the Ayn Rand disciples in the current Tea Party in America, scything through great swathes of public infrastructure.

That is not true, not least because I do not "attack" "almost every kind of tax" in the first place. I do think that there should be taxes on income, I'm not sure what to say about VAT, I don't object in principle to some kind of localised council tax but I do harbour grave doubts about IHT and CGT because the complexities involved are disproportionate to the amonts that they raise and they are often easier to avoid - or at least mitigate - than taxes on income. I would have no objection in principle to the total abolition of pension tax relief and the payment of state retirement benefit (although the latter would have to be phased out gradually rather than abolished at a stroke); these would effectively represent taxes in reverse. I wouldn't go near Tea Partyists, thank you! Most of them strike me as nutcases.

As a matter of interest, France has recently reduced its wealth tax rates and simplified its wealth tax régime; details at http://www.cabinetgregory.com/FRwealthTax.htm include simple advice as to how to minimise liability for it. Spain suspended its welath tax in 2008 but has recently reintroduced it and it seems on the face of it to be vastly more punitive than that of France (see http://www.spanishpropertyinsight.co...ax-patrimonio/).

Taxation is not one of the evils of society but one of its greatest civilising qualities, enabling high levels of services and infrastructure to be available to most if not all the population, and if properly redistributive could smooth out the worst of the disfiguring inequalities in our society.

Tax is indeed not, in and of itself, one of society's evils - in fact, it could not be so by definition; that it does not possess the "greatest civilising qualities" that you seek to ascribe to it is, however, sadly also true, given the ways in which it keeps changing, its disproportionate effects on citizens and its woefully overbearing complexities and management costs. I still believe that a massive tax and benefits simplification exercise ought to be contemplated before any more tinkering around with the current tax scenario is undertaken; once that has been implemented and it settles down, it will be possible to ascertain just how much it will have saved.

Ultimately, the balance between tax penalising society and tax benefitting society has to be fundamentally and justly improved; the introduction of a new tax predicated largely upon envy is hardly the most effective and convincing way in which to set about achieving that end...

[teamsaint]

The idea that we should only tax money once clearly can't make sense unless we only have tax on one of spending , income, or wealth.

As regards IHT, it is, in my view, a perfectly reasonable tax in principle, badly operated.

Quite why it should be levied on the estate, and not the recipient is beyond me. The unfairness in this is obvious, and unnecessary.

Big inherited wealth is a disaster for society.

[ahinton]

The idea that we should only tax money once clearly can't make sense unless we only have tax on one of spending , income, or wealth.

Well, that is indeed a problem with VAT but not with wealth tax because we don't yet have one; this is one reason why I'm not sure whatg to do about VAT because the business of taxing the same funds more than once strikes me as at best unreasonable and at worst immoral.

As regards IHT, it is, in my view, a perfectly reasonable tax in principle, badly operated.

It's unreasonable in that it's more often than not a second tax on monies already taxed once, it can be avoided and/or mitigated by the use of many different instruments and it represents a small proportion of overall tax take and represent less and less if the value of assets falls.

Quite why it should be levied on the estate, and not the recipient is beyond me. The unfairness in this is obvious, and unnecessary.

The reason for that is to ensure that HMRC gets paid before the estate can be wound up and disgributged according to the deceased's will, except in cases when lifetime gifts are involved and then the recipient pays none if he/she holds them for at least seven yearfs so, in those cases, you couldn't tax the recipient because HMRC wouldn't know whether any tax would fall due until the seven years eitgher did or didn't elapse.

Big inherited wealth is a disaster for society.

On what grounds? What else could be done in its place with assets left in a will and at what threshold does it become "big" in any case? (assuming that, below such threshold, it isn't "big" and is therefore acceptable)...

[teamsaint]

well if you want people to pay their own way, contribute, and not just live off other peoples money, then "big " inherited wealth is an issue.. Big is arbitrary.....like lots of things !! more than £100 k per person?
Inherited wealth leads to things like this......

http://www.music-news.com/shownews.asp?H=Paris-Hilton-shows-off-%C3%ABBarbie-mansion%C3%AD&nItemID=49389

As regards IHT and who is liable......I admit I haven't looked closely at this.....just seems sensible to rax theindividual (if you are going to have the tax)

As regards taxing money twice.........its just unavoidable, I think.
If we take steps to avoid this, admittedly unpleasant aspect of taxation, we end up with thing like ISAs.

[Lateralthinking1]

I don't think ahinton and others have been sufficiently clear on why they want reductions in income tax. Is it principally (a) to enable the Government to collect more in tax (b) to prevent fraud or (c) another reason and if this what?

[teamsaint]

Lat, i would like to see tax rates reduced as part of an overall simplification of the system for the following reasons.

1. To cut out wholesale avoidance at the top end.
2. To raise perhaps the same amount of money but in a fairer way(given that most avoidance is by those at the top)
3. To encourage governments to spend wisely(IE not stupid foreign wars)
4. Because there is no inherent virtue in tax, and especially not income tax. It is our money that we entrust to the government, just as much for the rich as for the poor.
5. Tax needs to be spread over income, spending and wealth. There is a lazy assumption that because income tax looks progressive, (IE the highest earners pay the highest rate) that it is in fact a progressive tax. This assumption is undemined by the avoidance issue.
6. To deal with the desperate inefficiencies(that cost us all) in the system.
A start point for a discussion of rates of tax might be , " what is the overall level of tax take compared to GDP that we are comfortable with?"

[Lateralthinking1]

Lat, i would like to see tax rates reduced as part of an overall simplification of the system for the following reasons.

1. To cut out wholesale avoidance at the top end.
2. To raise perhaps the same amount of money but in a fairer way(given that most avoidance is by those at the top)
3. To encourage governments to spend wisely(IE not stupid foreign wars)
4. Because there is no inherent virtue in tax, and especially not income tax. It is our money that we entrust to the government, just as much for the rich as for the poor.
5. Tax needs to be spread over income, spending and wealth. There is a lazy assumption that because income tax looks progressive, (IE the highest earners pay the highest rate) that it is in fact a progressive tax. This assumption is undemined by the avoidance issue.
6. To deal with the desperate inefficiencies(that cost us all) in the system.
A start point for a discussion of rates of tax might be , " what is the overall level of tax take compared to GDP that we are comfortable with?"

Thank you. I need to think about this carefully before commenting on it all.

However, one thing I would like to mention is the perception among some business people of their own individual roles and relationships. Being who they are - "the boss" - most see the Government as interfering. It is a bit like an adult who has a clear view of how to raise his kids and finds it irksome that the in-laws keep getting involved.

But I feel that those who do think in this way misread the situation. Just as a civil servant is a servant to the public, so too is the business man. His sales are entirely geared towards what the public will buy. In that way, it is the public who are "the boss".

Similarly, the Government is not the in-laws. It is a servant to the public or at least it is in theory where there are democratic elections. In practice, the theory is as close to ideal as we will ever realistically get. So again there it is the public that is "the boss". Taxation is only ever at the rate that is acceptable to the public as a Government "product".

I don't think it is right to buck democracy any more than it is right to buck the markets.