I have read somewhere that the best things in life are tax free. Winston Churchill once said that there is no such thing as a good tax.
I also came across the unattributed quote that taxes are essentially an annual subscription to the country you live in and that childhood is a tax-free trial.
In the 70s and early 80s, the basic rate of income tax was 33% and then reduced to 30%. That’s 10p in the pound that the government no longer collects. It’s no wonder that funding for services is stretched. They voluntarily gave up a third of their income from Income Tax. But reducing taxes became a political football. Perhaps mixing tax and politics is not such a good idea.
The problem of raising the basic rate of tax is that everyone wants a pay rise to pay for it. They are earning the same gross pay, but there is less in their bank account. This results in higher inflation and so on.
An alternative way of looking at tax is that it is a tax on employment. It is effectively the employer who pays it. The employer determines the amount to be paid in money to each employee and pays over an appropriate amount of tax to the government for each one. These combined make up the gross pay. The higher the rate of tax, the greater is the effective top line or gross pay, but the employee’s take home pay does not change.
It is always a consideration, when considering paying anything extra, as to how much tax and NIC will be deducted. So, if you are considering paying any form of bonus, you need to take into account their tax; otherwise, the additional payment loses its significance because so much is going to the government.
The tax system has grown up in a haphazard way, with bits being bolted here and there and loopholes appearing and being closed, often resulting in others. The tax system should look like someone designed it on purpose. Our current system is far from that ideal.
What would it take for this or any other government to rewrite the tax regulations so that the treatment of assets and transactions was consistent across all taxes?
Since 2002, the treatment of double cab pickups has been the same for income tax, corporation and VAT. Broadly, you could reclaim VAT on the double cab pickup if it had a payload of 1000kg, one tonne. These vehicles then qualified for AIA (100%tax relief in the year of purchase). The rules have now diverged, and virtually all double cab pickups are treated as cars for income and corporation tax. So while you can still reclaim VAT, there are minimal capital allowances, and all sorts of “car” rules come into play. This is not a sign of joined up taxation. It just goes to show how fragmented the tax system has become.
It used to be that you could tell different lies to the Inland Revenue, HM Customs and Excise and the DHSS. Those days have largely disappeared, and you need to keep your story consistent. That, I suppose, is a welcome advance and a step in the right direction.
I think that one of the big problems is that most MPs do not understand the tax rules and vote in Parliament largely based upon what they are told in briefings from their own ministers. Surely this just accentuates the political nature of taxation.
We all need to pay tax, but if you were starting from scratch, would you design this tax system? Almost certainly not! It’s inconsistent, messy and poorly understood.
The Office of Tax Simplification was set up many years ago, but got bogged down in looking at small issues before being abolished.
What we need is a move to make tax logical, simple and fair. I don’t think we will see such a system anytime soon. Mind you, if it were simple and easily understood, I might be out of a job. What would I do?
Finally, a cynical quote from Jean-Baptiste Colbert: “The art of taxation consists of plucking the goose so as to obtain the most feathers with the least hissing.”
Don’t you love paying tax!
Alan E Long
The Long Partnership
