A transparent tax system

 Rebecca,

I wholeheartedly agree with your sentiments. We need simplification and a set of core rules that deal with the issue.

My proposal is simple - sort out the nomenclature so people know where they are.

You have 'tax' to pay for public goods. It is progressive and charged primarily on income after expenses. It pays for stuff society decides (via the ballot box)  should be funded publically.

You 'levy' and charge 'duty' on stuff you want to discourage, or for which there is an economic externality that needs correcting.

You give 'grants', 'benefits' and 'allowances' for stuff you want to encourage, or for which there is an economic externality.

And the expense regime should be universal regardless of the type of person being taxed.

Just a simple basic structure that works for all.

National Insurance as we know it, in my view. I still meet people who believe paying this somehow funds UK health care; and who can blame them, if nobody makes clear the connection to a state pension.

Why do we have a Government charge like this which treats a director differently to everyone else?
And on high earnings you pay 1%? And low earners pay zero %?
And once you have explained the lingo, e.g. Contracted-in, LEL, UAP, UEL etc. to the general public, then try justifying it.

Why not create instead a flat rate of 5% on all earnings as a top-up to PAYE? And re-establish a clear connection - what do we, the people, get for this 5%?

....but it's never going to happen as long as we continue to allow only a literal interpretation of the words as they appear in legislation.   I'd prefer purposive legislation that sets out the intention of the legislators and allows administrators, subject to oversight, to get on with the business of implementation.

For example, we have the current fiasco of the self-employed being able to choose which vehicle to use for their business based almost exclusively on which results in less tax payable.   I couldn't believe that the government wouldn't correct this situation in short order and so didn't advise clients to incorporate for almost 2 years after the opportunity first arose.     When nothing happened, I could only conclude that HMG weren't too bothered and therefore that the time had come where I could do no other than recommend incorporation to those of my clients I believed could cope with the extra administrative demands in exchange for the tax benefits.    That wasn't a tricksy or evil choice on my part; it was simply in many of my clients' interests.

I would suggest that, if purposive legislation had made clear what GB was seeking to achieve through a nil rate CT band and HMRC had been tasked with implementing that intention, we wouldn't now be in the position where HMG would like to change the situation but knows that it can't in the current economic climate due the implications for 000s of small businesses.

It seems to me that, for all its potential problems with regard to big brother issues, a law entitled something like "Taxing self-employed earnings - ensuring that the self-employed pay the same amount of tax regardless of business form" could set out clearly the intention that parliament wishes HMRC to implement.     Such an approach would our allow our politicians, who cannot possibly be experts in every area in which they have to legislate, to be clear about what they are trying to achieve and the public to better understand what the law means.

No, I'm not going to suggest what such a law might say.

I don't blame either the self-employed or the professions for this because, in trying to achieve one objective but then suffering from the law of unintended consequences that seems to accompany literal interpretation, the government presented choices that

If you want a more simple tax system then you need a General Anti Avoidance Rule. 

"arcane rules intended to catch every possible situation, merely because they are needed to catch every possible situation. And still they don’t; and still they come – anti avoidance rules marching ever onwards, creating even more loopholes, which need ever more legislation to close them."

Doesn't this scream out that we need a GAAR? I still don't understand why that debate seems to have died a death.

Two things occur to me:

1) If other countries tax systems are so much simpler (and do the job) then why can we not learn from this and maybe partially lift a system from somewhere else. India did this but unfortunately chose the UK system!

2) Is it ever likely that basic tax laws will at some time be aligned throughout the EU?

Before we can have fair tax [or any other] legislation which is purposive in interpretation, we must have a government that we can trust not to twist it and renege on it to suit its political purposes. I am not aware of any such government in the entire history of mankind.