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How can the tax burden be reduced?

Apparently the Treasury is exploring ways to reduce the tax burden on working people

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Buried in an FT article on the leveling up plans - delay thereof - I found this gem : "Sunak’s priority is focusing on how to cut taxes rather than ways to increase spending. He has tasked Treasury officials with devising tax reform to reduce the tax burden on working people."

So how would you suggest tax should be reformed to achieve this?

Note that Sunak only wants to reduce the tax burden on working people not small or large businesses (they don't vote).

And how is the "tax burden" defined? - Is it all the tax and NIC you pay, or is it the hassle of complying with the tax reporting regulations : RTi, MTD, self-assessment etc?

Replies (41)

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By Paul Crowley
09th Dec 2021 14:25

Odd
He just put it up very deliberately on all NI or dividend tax by inventing a brand new tax
Dead easy, get rid of the new tax
What a hypocrite

NI is resticted to working people
so his new tax is exactly opposite of reducing the burden on working people

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Replying to Paul Crowley:
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By AndyC555
10th Dec 2021 10:31

Worth remembering that the increase in NI is only temporary.

It will be replaced by the 1.25% Health & Social Care Levy in 2023-24 when NI rates will reduce by 1.25%

"So what?", you say.

Well, if you are working and above state pension age you don't pay NI. But you will pay the Levy.

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By Duggimon
09th Dec 2021 14:49

Most "working people" are low earners, so tax the rich more and the poor less. Of course he'll be out a job tomorrow if that's the plan he comes back with.

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Replying to Duggimon:
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By Paul Crowley
09th Dec 2021 15:07

And most MTD ITSA are basic rate tax payers
I have only one client with income exceeding £100,000 that would be mandated in

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Replying to Duggimon:
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By AndyC555
10th Dec 2021 10:33

"tax the rich more"

How much more? The top 1% earn about 11% of all income and pay around 30% of all income tax.

Around half the adults in the UK pay no income tax at all.

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Replying to AndyC555:
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By Tax Dragon
10th Dec 2021 10:57

I think Duggi meant "tax the rich more fairly".

Just so happens they'd end up paying more (overall... just talking about income tax skews the views) if you did that.

Are you not shocked by how many people don't make enough to pay tax? Sorry, I mean income tax. Obviously they pay tax. Do you have the stats of what percentage of a person's resources are used, on average, to pay tax, for the non-income tax payers, basic rate payers and top 1%?

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Replying to Tax Dragon:
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By AndyC555
10th Dec 2021 13:21

I don't have the stats to hand but I know there are stats out there that suggest (for example) that those at the lower end of the income spectrum pay more as a % of their income because (it is claimed) of the effects of things like VAT.

However, those stats (although often quoted) are mangled to say the least. They are affected by those who have no or very little 'income' but are living off savings - the retired, those temporarily unemployed and so on - and those whose income is not taxable (student loans, certain benefits and so on).

To give an extreme example, if I won the lottery, then my taxable income may well be zero but I am going to be incurring a lot of VAT as I splash out on cars, yachts and gifts for my girlfriend(s).

Most of the stats you see don't take into account these factors and give a distorted view. They result in those apparently with virtually no income spending several 100 percent of their income on VAT. Clearly not right.

Someone on £1,000,000 a year who spends not a single penny on VATable goods will be paying 45.89% in tax and NI

Someone on £12,500 a year who spends every single penny on VATable goods will be paying 16.67% of their income on VAT.

How the stats can then end up concluding that the lower paid pay a higher percentage of their income in total taxes is something which 5 minutes thought about should raise a quizzical eyebrow.

Sure there is council tax too, but the lower paid get support for that.

What you'll find in the stats (in addition to the distortion caused by the 'wealthy but no income' people) is that taxes paid are all taken into account but benefits received are usually ignored.

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Replying to AndyC555:
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By Tax Dragon
10th Dec 2021 15:44

Sure, but my point was that your 1%/11%/30% stat doesn't tell me much. (And I bet that's just as mangled anyway - eg is the 11% measuring only current personal income, or does it include income rolled up in companies, trusts etc?)

What I think matters is individuals, not totals (except - your point - total tax take… which - your point - evidence suggests doesn't go up just by raising the top tax rates).

I hoped I had phrased my question to draw that out; also, to avoid the mangle you mention by referring to "resources" (not "income", which I think you have narrowed yet further to mean "earnings") and "a person". This last was to try to get at an average closer to the mode than the mean. An "average Joe"; not your lottery winner.

It's possible no-one knows.

AndyC555 wrote:

What you'll find in the stats (in addition to the distortion caused by the 'wealthy but no income' people) is that taxes paid are all taken into account but benefits received are usually ignored.

Ah, the old number-on-the-side-of-a-bus trick.

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By SteveHa
09th Dec 2021 15:13

Well he could start by fixing our creaking tax code, and abandoning ill-conceived and badly implemented "improvements".

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Replying to SteveHa:
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By Anthony G Thorne
11th Dec 2021 08:56

Totally agree we need a tax code that can be understood by all especially as Dave Hartnett said it was impossible for any one person to understand the whole of the UK tax code.

In fact in light of the above it would suggest that to penalise taxpayers for failing to comply is immoral.

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By Wanderer
09th Dec 2021 15:21

I think he should first concentrate less on reducing the tax burden but more on reducing the tax compliance burden.

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By ireallyshouldknowthisbut
09th Dec 2021 15:21

ah this went poof, try again:

"working people"

as opposed to "people who's main income (his pocket money as an MP is side show) is from investments which he seems very keen to keep low?

the main thing would be to combine NI and income tax and ensure everyone pays the same rate of tax on all income sources (albeit with I would suggest 19% income tax relief on dividends). This would then allow the average rate of taxes on income to fall for working people, whilst ensuring those multi-millionaires, like, er, him, would pay the same rates of tax on money earned through luck and the good fortune to be born rich, rather than less.

Similarly capital gains would be taxed at the same rate (with inflation adjustments), and income tax made progressive so it went to (say) 50% at £150k, and then added 1% for every £50k upto a top rate of 75% at £1.4million or over.

Nondom status would of course be removed.

Sorted. The headline rate of the new "combined income tax" could then be well below the current headline rates, thus saving all working people lots of money with nothing over than a slight dent in the footballer's incomes.

This would be hugely popular with everyone apart from...........er some richer pensioners well into the higher rate, and er Rishi's mates and a large number of senior party donors. So clearly it wont happen.

Calling the Labour Party (if they still exist) Calling the Labour Party. Kier? Where are you? Kier? Stop hiding mate.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
09th Dec 2021 19:55

No disagreement with the rant.
But on a pedantic point, "whilst ensuring those multi-millionaires, like, er, him (Rishi), would pay the same rates of tax on money earned through luck and the good fortune to be born rich, rather than less" ... er he wasn't born rich, he did it the hard way (he married wealth)! :-)

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Replying to Hugo Fair:
By Duggimon
10th Dec 2021 09:15

To add further pedantry, while his wife is certainly the major silver spooner in the pairing, he didn't do it the hard way exactly, he did still go to Winchester College, it's hardly an inner city knife crime emporium.

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Replying to ireallyshouldknowthisbut:
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By AndyC555
10th Dec 2021 10:45

"and then added 1% for every £50k upto a top rate of 75% at £1.4million or over.

Nondom status would of course be removed."

Rather depends what you are trying to do. Are you trying to raise more tax?

The thing about the very wealthy is that they are mobile.

If they leave the UK, we get 75% of £0.

If someone earning (say) £2m a year leaves the UK, we lose around £930,000 in tax and NI. We'd need around 110 workers on £30k a year to make up the difference.

That's just reality.

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Replying to AndyC555:
By ireallyshouldknowthisbut
10th Dec 2021 11:13

@Andy, I was trying to raise more tax, yes. So the lower earners dont have to pay it.

Whilst there is a lot of mobility, generally most people live in the UK because they want to live in the UK. Once you have a certain level of cash, the tax on it becomes rather irrelevant as you cant really spend the rest. Others are in the UK as they are working in the UK (eg footballers) That is to say international mobility is overblown in my opinion and seems more like an excuse perpetuated by those looking to pay less tax than reality. I live in a highly internationally mobile family and tax is about bottom of the list of reasons why family has moved historically. Not dying was normally high up the list, and better future for the next generation next one. I should point out no-one is a billionaire, but we are millionaires now. Albeit only on paper and not much of a brag in the south east.

Moreover most 'nice' civilised jurisdictions tax higher earners highly (ie whole of Europe, Scandinavia, even places like Australia) , so its a 'so where are you going to go to then?'. Yes we lose some real tight billionaires who value their money over all else, but I don't think that is such a bad thing for society as a whole. We get left with the nice ones.

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Replying to ireallyshouldknowthisbut:
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By AndyC555
10th Dec 2021 13:45

"Others are in the UK as they are working in the UK (eg footballers) That is to say international mobility is overblown"

I agree that tax is only one factor but it does seem odd to choose footballers as an example to say that international mobility is overblown. Currently around 70% of players in the Premier League are foreigners. Given their (relatively) short careers, I suspect that jacking up their tax rates to 75% might have an impact on the attractiveness of coming to England.

In Scandinavia, generally EVERYONE pays higher taxes, not just the very rich. But the kickback from that is - for example - much higher pensions and pensions that are based on what you've contributed.

As always, it's a nuanced picture and the tendency is often to cherry pick bits of another country's policies that we like and forget that they are part of a bigger picture. 'Socialist' Sweden for example has no minimum wage and operates a 'voucher' system on education, given parents freedom to choose which school they send children too. And in Sweden home to work travel costs can be deducted from taxable income. Belgium has no CGT. Lots of swings and roundabouts.

"even places like Australia" which has a top rate of income tax of 45% on incomes above AUSD180k. They are also in the middle of a tax reduction plan. That 45% rate, for example, will be increasing to AUSD200k in 2024-25.

"Yes we lose some real tight billionaires who value their money over all else..." it's not the personality of the taxpayer that matters, it's how much tax they pay. If they leave, they pay nothing.

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By JRX
09th Dec 2021 15:47

Increase personal allowances or reduce basic rate! Nah that will never happen far to simple.

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Replying to JRX:
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By AndyC555
10th Dec 2021 10:52

"Increase personal allowances...Nah that will never happen far to simple."

Personal Allowance in 2009-10 - £6,475

Personal Allowance in 2021-22 - £12,570

Personal Allowance in 2021-22 if increases had been restricted to RPI - £8,710

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Jim Clark, Lotus 49
By jimclark1967
09th Dec 2021 15:49

He could swap the employee NIC rates around so you pay 2% then 12% as income increases rather than the other way round.

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Replying to jimclark1967:
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By Paul Crowley
09th Dec 2021 16:07

Always a shock to client just how little extra liabilty there is when higher rate tax applies
A tiny little extra 10%

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By gillybean04
09th Dec 2021 17:55

If this is genuine and not just another PR spin on political grandstanding (and my cyncism on this is considerable), all I can say is.....about bloody time.

But, seeing is believing.

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By philrob
09th Dec 2021 17:56

Tax freedom day (the date after which Mx 'Average' gets to keep the money they earn was 30th May - approx 5/12 of the year. So this is the target we need to hit - after deducting personal allowances.

Combine Income Tax and NI (including employer's NI) into a new income tax with a statutory increase in 'salary' equal to employers NI. - We tax beer and [***] to discourage consumption why tax jobs?

Increase personal allowance to (say) 20k (or higher) work out the % of new income tax needed to raise the same amount as now.

Replace Council Tax with local income tax.

Get rid of Child Benefit for children born in 2023 and after. Remove the unfair distortion that 2 people earning 40k don't have to repay Child Benefit but identical family income split 60k/20k loses the lot.

Lower the VAT registration rate to 30K but with (say) £300 VAT credit to pay for accounting software (like the existing employers allowance for NI) - knock on effect would be to reduce the underground economy.

Split Capital Gains Tax into two elements - there is a difference between investment in private businesses (not all are suitable for EIS) and stock market gains. Have a lower rate for the former than the latter, re-introduce indexation, tax Capital Gains as 'income over time' at an appropriate rate.

Get rid of Inheritance Tax - you will probably recover the majority of the tax as the beneficiaries spend it anyway. Coupled with removing IHT get rid of rebasing business asset values on death - you will then get the capital gains tax when the asset is sold.

Not going to happen (except perhaps nuking rebasing of Business Assets on Death) - Employees finding out just how much of their income the Government really takes would cause issues.

Accountants and Civil Servants might loose out on the removal of IHT (Work & jobs respectively)

Would the votes added as the personal allowance hit 20k offset the votes lost due to more tax paid by high-income pensioners?

Would the abolition of IHT win high-income pensioners' votes back? What would be the net loss/gain?

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Replying to philrob:
By ireallyshouldknowthisbut
09th Dec 2021 18:43

Problem with removal of IHT is it entrenches wealth down the generations albeit as it stands no is almost entirely an optional tax. Very few of my clients pay any, unless they die young. I would prefer to see a gift tax on the recipient as perhaps half their marginal rare of tax (or even lower), set at gifts over (say) £25k so as to allow poorer family to help each other out, but clobber richer ones given their family an 'unfair start' over those without any inherited wealth. Lets face it, if Daddy gives you £250k and you lose say 20% in tax, then so what.

Gift taxes are common through most of Europe.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
09th Dec 2021 19:29

We have a strange sysyem
Give as much as you like, but do not die with it

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Replying to philrob:
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By NotAnAccountant2
10th Dec 2021 08:35

philrob wrote:

Split Capital Gains Tax into two elements - there is a difference between investment in private businesses (not all are suitable for EIS) and stock market gains. Have a lower rate for the former than the latter, re-introduce indexation, tax Capital Gains as 'income over time' at an appropriate rate.

Get rid of Inheritance Tax - you will probably recover the majority of the tax as the beneficiaries spend it anyway. Coupled with removing IHT get rid of rebasing business asset values on death - you will then get the capital gains tax when the asset is sold.

I'd be much more radical. I'd give people a "capital allowance" each year - at a first guess I'd set it to the increase in the price of the average home (with a floor at zero if house prices fall). You would get this from age 18 and would be able to roll it forward indefinitely if unused.

ISA contributions, pension contributions, gains on sale of main home (as well as all other capital gains) would all eat into this allowance.

IHT would be abolished but CGT would be due on the uplift instead set against any remaining allowance for the deceased.

All gains over and above the limit would be taxed as income at income tax rates. I'd also allow people to voluntarily pay CGT (at IT rates) rather than use their allowance so, for example, people can preserve their allowance to use when they move home.

People would be able to defer CGT due on changing their main home via a "government mortgage" (this would also cover the case where the death of one owner could otherwise force a sale)

There probably needs to be a "trivial disposals" exemption - total disposals less than 10K, individual disposals <1K perhaps - where no reporting is needed - this could be used even where other disposals, say main home, are reported - this avoids needing to keep masses of paperwork for tiny things.

I have absolutely no idea how to transition from the current CGT regime...

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Replying to NotAnAccountant2:
By Duggimon
10th Dec 2021 09:18

Yes, sign me up, what we need is definitely more complexity, tax is just too easy these days.

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By johnt27
09th Dec 2021 23:46

What about the non-tax burden of being a "working person", for example, being priced out of being able to afford a house close to work so you have to pay more to travel to that job or lose the opportunity for a perhaps lower paid job elsewhere. You could implement capital gains on all property, index link it to earnings and poof overnight the rampant disconnect between property inflation and earnings growth would disappear.

Lots of other examples of non-tax burdens a working person has to endure around education and other societal problems that would only be fixed by increasing spending, which has to be funded somehow...

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Lone Wolf
By Lone_Wolf
10th Dec 2021 09:45

Scrap the HICBC, or radically alter how it is implemented.

We are now in a position where basic rate tax payers can start to have their child benefit clawed back.

Also, the fact that a family with one earner on say £55k will have half their child benefit removed, whereas a family with two earners bringing in £50k each is absurd.

Oh, and cancel wee nippy's taxing powers north of the border. Apparently we should pay a premium for living in a nationalist hellhole.

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By yorkshirepudding
10th Dec 2021 09:50

IHT is really a death tax. Make it an inheritance tax so tax is taken from the inheritance each person receives over a certain threshold. This would encourage people to spread the estate wider. It would also get rid of the silly rule where you have to pay tax on the estate before probate is granted and therefore before you can access any of the estate.

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By Steven Dring
10th Dec 2021 10:06

Off topic but a lot of the current problems could be solved with affordable childcare.
Currently, paying for full time child care for 2/3 kids to enable both parents to work full time, costs nearly as much as one of the parent would earn on miminum wage.
That is why so many families havee one parent not working, you're in effect working
just to pay for someone else to raise your children.
I don't have the answer, but creating affordable childcare will increase a familys net income, increase the tax contributions to the state, increase the number of people in work and decrease those on benefits.

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By Arcadia
10th Dec 2021 10:35

Remove the burden of student loan repayments, which is nothing other than a tax. The marginal rate of tax for payrises for young people is ludicrous.

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Replying to Arcadia:
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By Paul Crowley
10th Dec 2021 10:45

All bar 1%, it makes BR taxpayer pay the same as HR taxpayer for the employed and self-employed

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By Justin Bryant
10th Dec 2021 11:05

See here the Guardian's politically cloud cuckoo land (but arguably economically fair and sensible) proposal. https://www.theguardian.com/money/2021/dec/09/uk-urged-to-tax-pound-3tn-...

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By Paul D Utherone
10th Dec 2021 11:21

Not an answer, but I liked this Disc World explanation of socioeconomic unfairness:

"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.

– Terry Pratchett, Men at Arms"

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the sea otter
By memyself-eye
10th Dec 2021 11:25

Scrap HS2.

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By North East Accountant
10th Dec 2021 12:43

How can the tax burden be reduced?

Cut Government waste.........there is literally billions and billions wasted every year.

If you have a big hole in your bucket surely it makes more sense to fix it before trying to get more more water in.

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By steve 12321
13th Dec 2021 08:56

Scrap MTD for anything but VAT over the threshold. It’s a burden and one which will cause many problems for taxpayers and agents. Needs urgent action.

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By Yeadonian
13th Dec 2021 11:26

Duplicate

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By Yeadonian
13th Dec 2021 11:26

Work towards merging Income Tax and National Insurance - starting by raising the threshold for paying NI to the same level as the personal allowance.

Increase the personal allowance above inflation for a number of years, aiming to match median earnings eventually.

Once the above has been achieved, work towards replacing most benefits with a negative rate of income tax below median earnings, which in turn would guarantee a basic minimum income for all.

Reform council tax to make it less regressive.

Remove VAT on non-luxury items.

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paddle steamer
By DJKL
13th Dec 2021 11:59

Step one- appreciate the world is different and address the taxation issues we now face using new types of entities and different forms of taxes.

So for example for individuals who are "contractors" rather than employees create new forms of legal entities which recognise the new realities with their own specific tax etc rules rather than trying to squeeze these roles into ill fitting legal entities like limited companies. Germany has a particular tax status for a professional contractor, we ought to consider emulating.

For entities retailing address the issue and disparity between retailers online and retailers in high streets, this likely means a drastic change re property rates and maybe a turnover levy instead.

Effectively stop trying to pigeonhole everything into existing entities and taxes and instead think where business is going and how it might more fairly be taxed in the 21st century.

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