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Stealth taxes best option for Sunak and Hunt | AccountingWEB
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Taxing by stealth is Sunak and Hunt’s best option

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As Jeremy Hunt and Rishi Sunak scrabble around for clever ways to balance the Budget, Philip Fisher thinks the best solution is hiding tax increases in plain sight.

3rd Nov 2022
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By appointing Jeremy Hunt as his Chancellor of the Exchequer, Rishi Sunak has effectively painted himself into a corner.

While his predecessor believed that growth would solve all of our economic ills, this pairing is now committed to a combination of tax increases and spending cuts with pain for all guaranteed either way.

Thanks to the ill-fated efforts of Liz Truss and Kwasi Kwarteng, the amount that is required has been estimated to be in the region of £50bn.

Quite where many further cuts can be found without either breaching manifesto commitments or committing electoral suicide is unclear. Therefore, the duo of new and old Chancellors will have to secure tens of billions of pounds in tax cuts.

As Sunak quickly learned first time around, tax increases are unpopular and therefore hiding them in plain sight is a great plan if you can manage it.

Ironically, his efforts now have been somewhat scuppered by the efforts of a predecessor-Chancellor – a guy named Rishi Sunak.

NIC and stamp duty

The best two stealth taxes have long been national insurance contributions (NIC) and stamp duty. The problem here is that without risking accusations of entering into a fiscal hokey cokey – in-out, in-out, shake it all about – these two might be off-limits in their first Budget.

In the current political climate, it seems highly unlikely that the new team could get away with increasing employees’ NIC as previously proposed and the newspaper headlines that would ensue could hardly qualify that as a stealth tax.

Having said that, Rishi’s characteristic sleight-of-hand strategy might get another airing. This operates by making a big fuss about not increasing employers’ NIC by 1.25% but, instead, generously reducing that figure to 1%, without pointing out that it currently stands at zero.

The other big stealth opportunity results from an anachronism. The days when NIC was a direct levy to pay for the health service are long gone. Therefore, the logic of reducing the rate from 12% to 2% on higher earnings no longer applies. Taking the cap away completely or increasing the 2% rate substantially could be a good way to bring in much-needed revenues.

Tinkering with the generous stamp duty handouts that Jeremy Hunt felt unable to reverse could also be an option.

More widely, stamp duty is an area that is almost invisible and an increase in stamp duty land tax could be on the cards.

Pandering to addiction

A much better bet would be to upgrade all of the addiction taxes. This could include booze, fags and, a much better bet, gambling. Such a move would be relatively uncontroversial and could bring in substantial amounts of money.

If the prime minister and Chancellor really want to take this to the next level, then they could wind up their Foreign Secretary, who wants to make cannabis a Class A drug, by decriminalising it immediately and then working on a nice hefty tax charge as the price for doing so. This might have the added bonus of leaving beneficiaries so high that they do not notice all of the other tax increases.

Value-added tax (VAT)

In the eyes of the public, VAT is virtually invisible. The only time that they notice it is due to an even bigger hole in their pockets than would otherwise be the case.

In that light, the government could do worse than thinking about increasing the standard rate and possibly even tinkering with lower rates and exemptions as well.

There may be a slim possibility of a negative media response but they could sugar the pill by lowering rates on certain essential items or exempting/zero-rating them.

Excise duties

Many people do not realise that these exist and even the majority of accountants haven’t got a clue as to when and where they apply or how much is charged. Once again, they must be ripe for inclusion in our stealth tax battery.

Capital gains tax (CGT)

At the moment, CGT is charged at inappropriately low rates and there would be great logic at this moment of impending financial disaster in re-unifying rates with those of income tax.

Not only would this bring in additional funds to the Exchequer, but also simplify tax legislation, which should always be a goal of any forward-thinking government in this country. It might also help to reduce tax avoidance and even evasion in this area.

Once again, there could be a reasonable quid pro quo by increasing the annual exemption to sweeten what could be a rather sour burden for those involved.

On the other hand, there is an argument for going the whole hog and reducing or even eliminating the annual exemption.

Inheritance tax (IHT)

If we talking about stealth taxes, then while many see IHT as unfair, accepting that fact but increasing the headline rate by a percentage point or two could be an easy way to bring in a few extra shekels.

Inflationary freezes

Finally, it is worth noting that the new prime minister is an old hand when it comes to freezing exemptions and rate limits, thereby effectively increasing taxes by the rate of inflation, which is currently in double digits.

There is every chance that he and Mr Hunt will seek to find every avenue that could be treated in this manner when this long-awaited Budget speech is finally delivered.

 

Replies (22)

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By Paul Crowley
03rd Nov 2022 17:10

Freezing is effective and likely to continue
Then a shotgun of tax movements on the unrecognised taxes
Capital gains would be an easy target, but sweetened by no 8% uplift on residential properties

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By paulwakefield1
04th Nov 2022 08:03

How about the old chestnut of removing higher rate relief on pension contrbutions?

Thanks (5)
7om
By Tom 7000
04th Nov 2022 09:54

If it was me my top 5
1. Abolish R and D tax relief for companies... stops the fraud or it doesnt apply to close companies ...
2. Abolish all the flat rate allowances like £100 to clean a uniform etc ... tiny bit of money from a lot of people
3. Make CGT same rates as income tax, in fact maybe even make them more, surely working people need their income. CGT is gains people dont need... majority dont care
4. Introduce a corporate retained profits amnesty for one year. Pay all your profits out you have squirreled away and co pays a one off fee of 20% charge within 60 days. Tax free in hands of recipient. People will want that
5. Make pension funds taxable on their income and CGT, flat rate 10% to start with, no one will see that
6. only 50% interest allowed for companies owning residential property... level the playing field.

Wonder what that would raise?

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By evildrome
04th Nov 2022 10:02

Why are we trying to raise more tax in the face of an oncoming recession?

Without a public contribution to spending, private net spending will match the external sector deficit pound for pound.

Since there are limits to private borrowing, the economy will inevitably slow, contributing to a deflationary spiral.

I can’t understand why so many people seemingly want this.

Yes, the value of the pound is dropping but unless you want to declare war on the USA then there is little you can do about it.

When the WRC holder decides to tighten, everyone else must dance to their tune.

(Except the Japanese, apparently).

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Replying to evildrome:
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By johnjenkins
04th Nov 2022 10:33

I don't understand how a budget that's been reversed still has created a "gap" when nothing actually has changed.
Time for £1 = $1 = E1. Then the speculators can find other goodies to control.
Bring VAT down to 15% for a year or two to stimulate growth. Make all business vat registered with no money changing hands between registered business to help cashflow.

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Replying to johnjenkins:
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By evildrome
04th Nov 2022 11:25

I think we should scrap VAT.

Think about it... VAT is a tax on money you have ALREADY been taxed on.

It is a horribly regressive tax. If you look at the UK tax take as a percentage of GDP, it is almost invariant at about 33%.

So, if you look at how much VAT takes in now and figure that the tax take is invariant... where was all this money coming from before VAT?

Yes, you guessed it, the very, very wealthy.

The tax burden has been moved from the have yachts to have nots.

Thanks (4)
Replying to evildrome:
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By johnjenkins
04th Nov 2022 11:37

If I remember rightly there was such a thing as purchase tax which got abolished, I presume to make way for VAT (which I believe was an EU tax).

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Replying to johnjenkins:
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By jamiea4f
04th Nov 2022 12:43

Pretty sure that's been done before, dropped to 15% for a time then hiked up again. VAT is just a cash cow, quite how it was ever allowed to be increased from 8 to 20% is ludicrous.

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Replying to jamiea4f:
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By johnjenkins
04th Nov 2022 13:10

Vat was dropped from 17.5% to 15, then back up to 17.5% then up to 20%.

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Donald MacKenzie
By Donald MacKenzie
04th Nov 2022 10:18

It is nonsense that 40% higher rate taxpayers imply that they are paying twice as much as tax as 20% taxpayers when NI falls from 12% to 2% as the tax rate jumps. The real tax rates people pay are 32% then 42% - not nearly so impressive.
I would phase out the drop in NI over two or three years. 2% to 6% to 9% to 12%.

It makes no real sense that capital gains tax is much lower than income tax. We could leave in place incentives for actual entrepreneurs, in the shape of Business Property relief, but for other, no.

Pension relief is too generous for higher rate taxpayers and should be limited to basic rate.

Thanks (2)
Replying to Donald MacKenzie:
7om
By Tom 7000
04th Nov 2022 10:31

S0 I put £80 in a pension
HMRC add £20
I retire get £25 tax free and pay tax on 75@20%=15

So overall I can have £80 of my money now or £85 in 30 years time when I retire
.... now let me think about that for a minute...

why would any low rate tax payers bother, unless they were in a co scheme, a govt( nhs army etc) scheme or maybe autoenrollement...they didnt and tahts why emplyers contributions were introduced to make them save

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Replying to Tom 7000:
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By JordanJamieson
04th Nov 2022 13:48

Are we just going to completely ignore the growth over that 30 year period?

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By Charlie Carne
04th Nov 2022 11:04

Philip Fisher wrote:
increasing the headline rate by a percentage point or two could be an easy way to bring in a few extra shekels

Last time I looked, our currency was sterling, so how is the shekel relevant to an article on UK tax changes?
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Replying to charliecarne:
the sea otter
By memyself-eye
04th Nov 2022 11:21

I get paid in shekels via a Glencore private Jet.......

On the issue of CGT; 'Gains' as far as investors are concerned are the reward for the uninsurable risk of backing companies that don't pay dividends.
Mess with this seed capital at your peril.

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By jamiea4f
04th Nov 2022 12:40

I think the public has a right to know what all these extra taxes/tax hikes are actually paying for. Claiming empty pockets when the government has been raking in billions from fuel duties and extra VAT from astronomical pump prices for one thing. Getting back some of the fraudulent grants paid out during Convid would be another, as would refunds for faulty PPE etc. And actually doing something about Amazon's scandalously low tax fiddles would be a big one, but we know that is pretty unlikely....

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By Mr J Andrews
04th Nov 2022 14:49

The black economy is rife . Ask anyone undergoing work around the house about the options for cash or cheque . I would suggest a radical measure for getting in extra taxes - not to mention interest / penalties
For those that remember tax relief on loan interest for home improvements, particularly as Truss's tenure has rocketed the interest rates I would suggest a nominal allowance to its reintroduction - provided full details being supplied of work done , the method of payment and payee[s] .
His Majesty's Inspectors need a little nudge to focus their attention in the right direction.

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By codling
04th Nov 2022 15:41

Whilst I can see logic behind capital gains tax being hiked up to normal income tax rates, in most cases this is (at least in part) a tax on inflationary increases so there would need to be some sort of rebasing and indexation to ensure it reflects, as much as possible, a real time tax.
Gosh, where have I seen that before?

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By Ajtms
04th Nov 2022 16:03

Surely the greatest stealth tax is the one about to be introduced for 2023/2024 when over half a million of us self-employed people with non-tax year accounting periods get caught by having up to 2 tax years of income (actually 23 months) taxed in the one year (the 5 year spread helps a little though not very much. This is all in the name of Basis Period Reform. This is going to be unaffordable for all those with increased mortgages, fuel bills and food bills.

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By GR
06th Nov 2022 19:51

1. Class 4 National insurance on rental profits derived from personally held properties.
2. Removing higher rate tax relief on pension contributions.
3. Abolish R&D tax relief scheme for close companies.
4. Increase CGT rates.
5. Every business must register for VAT.
6. On small profit CT tax rate, i.e., 25% CT rate for everyone.
7. ATED tax levy for rental businesses. Abolish the rental business tax exemption.
8. Increase all addiction taxes.

Thanks (1)
Replying to GR:
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By johnjenkins
07th Nov 2022 08:48

Re instal betting tax

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Replying to johnjenkins:
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By mumpin
07th Nov 2022 11:35

Most of the bookies have moved to Gibraltar. You're just going to ensure that they all do.

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Replying to mumpin:
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By johnjenkins
07th Nov 2022 14:49

Take it from the stake or winnings bit like vat.

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