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Fantasy tax and what the future might hold for us

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We all love fantasy football, so spurred on by that and Euro 2024, Philip Fisher offers up the tax equivalent by imagining where Rachel Reeves will find the revenue needed if she does become Chancellor.

20th Jun 2024
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It may be going out on a limb but for the next few minutes I shall be grateful if readers could cast their minds into the future and imagine that Rachel Reeves is Chancellor of the Exchequer and come September preparing to deliver the first Budget speech by a member of the fairer sex.

Reeves has made her thoughts about the chaotic economy very clear and, while she appears to believe that growth is inevitable under Labour, the new Chancellor must surely have an eye on increasing tax revenues.

Having applied self-imposed handcuffs, eliminating increases for the main rates of corporation tax, income tax, national insurance contributions (NIC) and VAT, even accountants might wonder what is left.

Worming your way into someone else’s mind is never easy, particularly an Oxbridge and LSE-educated economist and former banker. However, here goes.

Tax simplification

Rachel Reeves has already taken the first step towards simplifying tax legislation by appointing a panel that will look into most aspects of our regime, should Labour be elected. Their agenda might also cover methods of increasing revenues through reviewing every relief and permitted expense with a view to abolishing those that serve little or no purpose beyond creating loopholes.

Poachers

On a similar tack, if the new Chancellor and HMRC were serious about cutting out the more egregious and abusive tax avoidance arrangements, an obvious route would be to buy in the services of some leading avoidance experts from across the professions. After all, this is exactly what accountancy practices have done in reverse for many years.

New tax rates

Applying techniques so familiar to those in the vanguard of the tax-avoidance market, Labour’s commitments are restricted to increasing the rates of most taxes but they have said nothing about adding in some more. Perhaps they could consider a 60% income tax rate for those bringing in £250,000 or more? Similar strategies might apply to other taxes.

Capital gains tax

There have already been suggestions about following Nigel Lawson’s precedent by unifying capital gains tax (CGT) rates with those of income tax, including a commitment in the Liberal Democrat manifesto. The arguments against generally seem weak.

It has also been suggested that, as a quid pro quo, we could see the return of the indexation allowance, effectively taking inflation out of the equation.

Please can someone explain the logic of reintroducing a remarkably complex allowance? If I receive a 5% pay rise, that is subject to income tax and NIC. Therefore, I am struggling to understand why capital gains that result from sitting on assets rather than hard work should be partially exempt.

National insurance contributions

The simplest solution is to scrap employee’s NICs and increase the rate of income tax to compensate but that isn’t politically palatable.

Removing the upper limit and charging the full rate on all earnings also makes sense, both as a simplification and a revenue generator.

Commentators have been inexplicably silent when it comes to employer’s NIC. The large multinationals boast about the fact that although they go to immense trouble to pay minimal amounts of corporation tax, they make contributions to the Exchequer via employment taxes.

Given the difficulty in getting any other taxes out of them, surely increasing the rate of employer’s NIC would be a good idea. Since there is a risk that this might stifle smaller companies, perhaps enhanced rates could be restricted to large companies, defined in any way that Reeves favours.

Council tax

A review of the council tax regime is long overdue. The bandings make little sense, especially at the higher end, where they tail off far too abruptly.

However, adapting the existing scheme would be little more than a sticking plaster. Instead, an overall review might consider replacing council tax with something more effective.

This could be little more than an updated rebrand of existing arrangements or might involve local sales and income taxes, which fit in nicely with the general move towards decentralisation.

Multinationals

Something must be done to circumvent the tax avoidance strategies used by the largest companies in the world, but who knows what? It seems that all efforts come to nothing, especially when so many countries are willing to act as tax havens in return for what could be regarded as blood money.

Avoidance

AccountingWEB subscribers regularly comment on the fact that there is nothing wrong in avoiding taxes provided that you comply with the letter of the law.

The obvious solution to this is to change the letter of the law, particularly when it comes to artificial tax avoidance arrangements.

Once again, I would love a subscriber to explain why salary sacrifice arrangements, which certainly have a commercial purpose – avoiding taxes – have not been consigned to the dustbin of history. The same applies to numerous other similarly artificial schemes.

Increasing penalties for tax evasion would also do no harm.

Consultancy services

Finally, since it is now nigh on impossible to obtain any support from HMRC, given that it takes 23 minutes for a telephone to be answered by somebody who probably can’t help you anyway, perhaps the department is missing a trick.

If accountants are able to charge several hundred pounds an hour for strategic advice, maybe HMRC should set up a technical support unit charging by the hour for valuable consultancy services.

Then again…

Of course, this might all be pie in the sky if Jeremy Hunt is still Chancellor of the Exchequer come 5 July or the next government’s growth plans hit the jackpot and the economy starts “going gangbusters” overnight.

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