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Liz Truss

And now for something completely simple…


The Imprudent Accountant loves Liz Truss’s idea of cutting taxes. But why stop there, when simplification is the obvious next step?

4th Aug 2022
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I am hardly a Monty Python addict but can’t help feeling that our country is trying to re-run some of the team’s most popular sketches.

Surely no one could have missed the antics of the Upper Class Twit of the Year, while the current contenders for his job seem to have found themselves in a race to the bottom reminiscent of the Four Yorkshiremen sketch.

The fact that the top tip was briefly an accountant, and meets every required boring criterion except the bowler hat and pinstriped suit, is a bonus, while both contenders seem to be trying to flog us that great rarity, the Norwegian Blue Brexit, when all most of us can afford it is Spam.

Today though, the column is all about the hot favourite’s hot favourite topic.

Hit the ground

Liz Truss is determined to hit the ground running when she becomes prime minister and set out her stall early by proclaiming that she would cut taxes, regardless of cost. 

Even though the aspiring PM is an accountant and should therefore understand the subject intimately, her inaugural Chancellor of the Exchequer may not be that pleased at the consequences of implementing this policy. Taken to its logical conclusion, if cutting taxes a little will boost the economy a bit, then abolishing all taxes should make us all millionaires. Not only that but we could also cut the size of the civil service significantly, since most of the Treasury could disappear along with the whole of HM Revenue & Customs.

Come to think of it, many accountants might initially applaud such an outcome but, in the longer term, could realise that they no longer served a purpose.

Radical change

However, if Ms Truss really is adamant about a radical change to the way in which we pay taxes, then perhaps she might like to consider this modest proposal?

My starting point is exactly as posited above. Let us scrap all current taxes overnight. One consequence will be the elimination of thousands of pages of tedious legislation. Given the difficulty that the poor and elderly will find in trying to heat their homes this winter, all accountants and officials retaining hard copies of legislation could pass them on to fuel fireplaces and, in doing so, save countless lives.

Next, we come to the rebuilding side of the project. Simplicity has to be my primary objective, obviously accompanied by an attempt to bring in enough cash to keep the wheels of government operating smoothly.

Do we really need income tax and value-added tax? The answer is a resounding “yes”.

When it comes to corporation tax, capital gains tax, inheritance tax, national insurance contributions, revenue duties and pretty much everything else, we can quickly come to an equally resounding “no”.

Corporation tax is a relatively new kid on the block, since for centuries the United Kingdom operated perfectly well by charging income tax both to individuals and corporations.

Employees’ national insurance contributions are merely a form of income tax and along with capital gains tax they can easily be ditched. That just leaves inheritance tax, which is unloved and burdens the grieving, taking up time that could be better spent mourning.

Duties are a pain and could surely be swept up within a new VAT regime.

Personal allowance

While the government has taken additional people out of the tax system by raising the personal allowance and then unifying this with the national insurance threshold, I would love to take the idea much further, ideally having a starting point at around £20,000 or even £25,000.

In exchange, the rate of income tax will need to be realistic. Readers who are still awake might note that there will only be a single rate of income tax, to keep life simple.

At present, even though we pretend that the starting rate is 20%, by the time that national insurance contributions (NICs) are added in, we are already up above 30%.

Since this tax will apply to capital gains, profits and income of individuals and companies, the blended rate may not need to be quite as high as one would imagine. May I throw out an opening bid of 35% and see where that gets us?

American-style system

For the avoidance of doubt, we would chuck away all of those stupid rules relating to non-doms and introduce an American-style system where all UK residents and citizens are expected to pay tax in this country and can claim reliefs for taxes paid elsewhere – subject to an aggressive tiebreaker to determine who gets first dibs, ideally the UK in almost any situation.

This leaves an open question about some kind of employment tax to replace employer’s NIC. Any suggestions welcomed.

The balance of payments can then get balanced by a new, simpler VAT system. There will be no exemptions and the rate might need to be 25% or even more.

In case any reader has concerns about what might happen to those on the breadline, the quid pro quo for ditching most tax issues will be an obligation to provide proper income support to the poorest in society.

Clearly, this proposal will need a bit of tweaking but, if we were starting from scratch, isn’t this roughly where you would expect to end up?

Any suggested refinements will be gratefully received and, once we reach a final version, perhaps the Chartered Institute of Taxation might like to take up the reins and push this project through to fruition.

Replies (7)

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Head of woman
By Rebecca Cave
04th Aug 2022 17:19

I love this idea - scrap the whole tax system and start again. Can we also adjust the tax year to align with the calendar year at the same time?
As for all those old tax books, I suggest using them for building materials - perhaps insulation. About 20 years ago part of the M6 motorway was constructed using pulped fiction.

Thanks (4)
By NotAnAccountant2
04th Aug 2022 19:32

your [email protected]% isn't far off the current state pension.

So scrap the personal allowance too and give everybody the pension.

Now you only need benefits for those with special needs so can save on a huge chunk of administrative costs there too.

Thanks (0)
By raybackler
05th Aug 2022 11:00

Replace VAT with a Sales Tax, aimed at consumers and non-registered businesses and organisations. This would simplify accounting for huge numbers of businesses. Got a Sales Tax Registration number then no Sales Tax for you. No registration number, you pay Sales Tax. You could also exempt government departments, the NHS, charities and local councils from paying Sales Tax.

As for Employer's NI, employment taxes are generally unjust, so I would exempt all small businesses. However, many large overseas companies pay very little UK taxes, so they should contribute and an employment tax would stop dodgy international transfer pricing arrangements. Needed if Corporation Tax is abolished.

Thanks (0)
By EbenezerScrooge
05th Aug 2022 19:46

Whilst rebuilding the tax system why not sack all civil servants and start again by actually employing competent staff instead of time servers waiting for their inflated pensions.

Thanks (0)
Replying to EbenezerScrooge:
Ray McCann
By Ray McCann
08th Aug 2022 13:15

What tosh.

Thanks (0)
By Paul Crowley
07th Aug 2022 20:43

Why would CIOT support this?
Turkeys voting for early Christmas

I do agree with NI getting killed off and adding 10% to all rates of tax
Working people at the lowest level of income subsidise the wealthy. Just not right.

Thanks (0)
Ray McCann
By Ray McCann
08th Aug 2022 13:14

“Corporation tax is a relatively new kid on the block, since for centuries the United Kingdom operated perfectly well by charging income tax both to individuals and corporations.”

Income tax in a form that is recognisable today is just over 100 years older than CGT. 1842 v 1965.

Starting from scratch sounds great but we started from scratch before and here we are. I am not sure how you devise short form legislation that does not continually receive claims that “I’m not caught”?

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