Fantasy Budget: Simply is bestby
Having harboured dreams of being a politician for years, Giles Mooney is ready to reveal his ideas to simplify the tax system while boosting the Treasury’s coffers.
I’ve always wanted to be a politician. I think I’d be quite good at the actually doing stuff bit, it’s all the other stuff that puts me off – other politicians and constituents. And, of course, the one job I’d want (OK one of two jobs) will come as no surprise to anyone who knows me. So when I was asked to write a fantasy Budget for AccountingWEB ahead of next week's Autumn Statement, well, let’s be honest, it’s as close as I’m ever getting to the real thing.
The first thing that shocks most people is that we are, fundamentally, undertaxed as a country so don’t expect any tax cuts in what follows. But I promise to spend your money wisely. Free school meals for all junior school pupils (including provisions for those in need through school holidays), extra money to feed children via breakfast clubs across the country leading to an improvement in educational standards, money to educate people on healthy living, care at home for the elderly that isn’t a cursory 15-minute visit, development of cycle paths and fitness equipment in parks, repairing roads but working to improve green transport links… you get the general idea.
But which taxes am I putting up to pay for my green and pleasant land?
Raising money for the Treasury
First things first, we need to get rid of national insurance contributions (NIC) of all kinds. Rather than a 12% (or 2%) addition, I’d add it on to income tax. 20% would become 33%, 40% would become 43% and 45% would become… 50%. And, yes, it would be on rental income and earnings for those over the state pension age. And dividends.
As well as raising money for the Treasury, this would be the simplest way to challenge owner-managed business (OMB) dividend vs salary questions and IR35 and would make the buy-to-let market less attractive, freeing up properties for owner occupiers to get on the ladder.
I would keep savings out of the increase and would keep the slightly reduced rate on dividends (compared to earnings) to encourage investment but other than that I think paying a third to the government to run everything and pay people properly, fund education and hospitals seems reasonable.
Looking ahead to pensions
Of course, people should also be investing in their retirement so we should look to pensions. The annual allowance structure makes no sense, and never has. Picking an arbitrary number and saying that’s what you can have irrespective of age is ludicrous. The old system was much better with a percentage of your income, raising as you get older. That should come back in and if you are rich and want to pay in lots, good for you. I’ll have my share of whatever you’ve left when you die.
Having said all of that, I’m conscious that my plans are going to increase tax take quite dramatically, probably too dramatically, so I’ll soften the blow. The living wage is, data suggests, £23,400 per annum. I think it’s reasonable that, until you get to that point, you shouldn’t pay back in. I would aim to increase the personal allowance to that level as soon as possible.
Investments and relief
Investment is obviously a tricky one, especially when it comes to capital. And capital gains tax (CGT) would be a big one for me. It’s far too low, even on residential property at 28%. I would return it to the marginal rates of income tax (yes, the ones I just increased). There should be reliefs for business assets (not just businesses) which I’d leave at 10% irrespective of business size (apart from cash balances and investments – see later), I’d leave private residence relief in place and I’d introduce a larger relief for those using some of their gain proceeds to invest in community projects and charities.
Inheritance tax deserves a mention and is one of the few areas I would cut the cost of to many people. £1m nil rate band. The end. No business property relief. No agricultural property relief. No spouse transfers (but a credit would be available to delay paying until the second death). Fairer than we have today but far from generous for those with the largest estates. I didn’t say I was cutting the costs for everyone!
Business not as usual
Corporation tax is difficult. You want to attract businesses to the UK but you need them to pay their way. And many large corporates reasonably point out how much they pay in employment taxes, employers NIC (which I’m getting rid of) and VAT so pushing the rate too high will hit profits and restrict investment. We also have the problem that, after the simplification of a decade ago, we’ve returned to marginal tax and three effective rates. I would bin that structure immediately and introduce a flat rate of 30% for all companies. I think there’s a strong argument for going higher like many other major economies have, but 30% seems about right for now.
There’s one more thing I’d do for companies though. Companies are formed for a range of reasons and, by increasing dividend rates and capital gains tax rates (especially for cash and investments held through companies) I take away two of them and leave more sensible, non-tax reasons for incorporation.
If you set yourself up as a company and pay yourself dividends or salary in my new tax regime you’re not benefitting from being a company so why should you be punished? To help with that logic, I’m going to introduce an exemption for all companies with profits up to £50,000. No tax at all for a company up to that level. But from then on you’re in for all taxes. Including VAT. A £50,000 threshold for all businesses on VAT wraps up my budget. Still higher than most countries but lower than we currently have. I’d also have £50,000 as my permanent threshold for Making Tax Digital for the self employed and companies with a requirement to file accounts, income and expenses and then (annually) tax figures electronically. But not below that threshold.
Curbing changes and complexity
It might seem strange that a man who makes his money talking about the complexity of tax and by selling software wants to make tax simpler and reduce the number of people forced into electronic administration, but it strikes me that forcing changes and complexity does nothing but encourage avoidance schemes and evasion, boosts the black (or at least grey) market and increases the resentment against HMRC. That has to stop – one thing I would definitely do is increase HMRC's funding to allow it to pursue those who don’t pay their increased but simplified tax. Funding to improve response times, to help train those on the coal face and a computer system fit for the times we live in.
Now, here’s the beauty of writing this article. I’ll never actually have to do this or get re-elected having done it so that takes the pressure off and I can say what I like. I just have to survive the hatred and loathing of the comments section below. And I can do that because I know (and I suspect some of you do too) that I don’t necessarily believe all of the things I’ve said. My goal was to start a conversation about a world where we change tax rules because it’s the right thing to do for the country and its population. Not because it’s politically expedient or of personal benefit. Until we change that mindset in our politicians, we’ll never be able to move forward. Here’s hoping it’s not too far away. And, by the way, the frustration of seeing that day in and day out is the third reason I’ll never become a politician.
I commend this article to the house.
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Giles is a Chartered Accountant and Chartered Tax Adviser and has been involved in UK tax training for many years, presenting across various media channels. He is also a partner of The Professional Training Partnership, Managing Director of PTP Ltd and a director of Absolute Software Ltd.
Giles started his career with a small firm of...