Election year gives hope for tax simplificationby
Philip Fisher suggests a number of radical changes to the tax system for whoever is the post-election Chancellor of the Exchequer. Could a change of government lead to a long-awaited review of tax simplification and equity?
Although it is theoretically possible for the government to hold off the next general election until January 2025, the general assumption confirmed by Rishi Sunak is that it will take place at some point this year.
When Jeremy Hunt announced that he will be delivering his Budget as early as 6 March, that set commentators into a frenzy about a spring election, although late autumn is still the hot favourite.
Whenever it comes, we will see a new government with a fresh mandate. This might be Tory or Labour with an overall majority or there could be a hung parliament, leading to an alliance, coalition or another general election.
Our profession will inevitably focus primarily on the tax policies that will begin to come into play soon after the election.
Everyone will have their own priorities but for this accountant, simplification and equity should be the two prime considerations. To that end, here are some ideas that Jeremy Hunt, Rachel Reeves or whoever is the next Chancellor of the Exchequer should think about adding to the mix.
The greatest simplification would be to index personal allowances and higher rate bands again. This would take many out of tax completely, while saving others from the privilege of paying higher rate taxes.
At the same time, if this humble accountant were to be Chancellor of the Exchequer, he might suggest restoring personal allowances to all, since the current law is unintuitive and unfair.
The obvious way of paying for these two measures is to increase tax rates in the higher bands.
National insurance contributions
This one is easy. Employee and self-employed contributions should be abolished forthwith and income tax rates adjusted proportionately.
There is also a strong argument for abolishing employer’s contributions, although this may be a longer-term project as an alternative means of raising the lost income would have to be debated and enacted.
While any incoming government is likely to see the benefit in encouraging private pension saving, the removal of a fixed cap on lifetime contributions qualifying for tax relief was controversial and could easily be reversed. Going a stage further, there has been talk in the past of restricting relief to basic rate tax or even an arbitrary percentage that could be lower.
VAT is massively complicated. Perhaps it is time to consider removing it from more items? At the same time, there is a fairly strong argument for implementing it fully on certain goods and services that are exempt or zero rated at present.
This historical throwback is quite frankly ludicrous. If you tried to explain it to the average American, they would look at you in disbelief.
Even if the net result of abolishing the status was a loss to the Exchequer, which is hardly likely, getting rid of it would be fair and save HMRC and the courts a great deal of effort and anguish, not to mention expense.
The current government keeps floating the idea of abolishing inheritance tax. Since it only applies to around 27,000 estates in a busy year, that could be a valid argument.
In this particular case, there is a simple alternative, which is to replace inheritance tax with capital gains tax on death. The best way of implementing this would be to allow for a generous exemption to keep as many as possible out of the charge.
If that is too radical, an alternative is to increase the threshold thereby taking many more estates out of the tax. As a quid pro quo, the rate would need to be increased to avoid loss of funds to the Exchequer.
There are too many situations in which companies and even partnerships make inflated profits as a result of factors outside their control.
Whether this be a pandemic, or war or anything else, there must be a strong logic to taxing some or all of the excess gains made.
The business rates system is antiquated and no longer fit for purpose. It needs an overall shakeup and, once again, abolition could be the way forward, though once again this will need to be paid for.
Far too many of the world’s largest companies make vast profits in the United Kingdom but pay negligible taxes. At the same time as re-working business rates, it might be appropriate to come up with an effective plan to levy far more tax from companies that can easily afford to pay it.
Tax legislation is ludicrously long and complex, meaning that there are innumerable loopholes used by those that can afford high quality advice. Closing as many as possible must undoubtedly bring in billions of pounds to the Exchequer, although it might not be good news for some firms of accountants, who make a significant proportion of their profits by advising on implementation of whizzy schemes and arrangements.
To achieve all of this, HMRC needs to be properly funded. Quite frankly, doubling the budget for investigations would pay for itself overnight and then some. Why is it that Chancellors of Exchequer cannot recognise the self-evident fact?