General / Off-Topic David Cameron and the Panama Papers

[Jacksy]

Media reports of Carr's financial arrangements suggest "straightforward tax avoidance", said the prime minister, and it was unfair on the people who pay to watch him perform that he is not paying his taxes in the same way that they do."People work hard, they pay their taxes, they save up to go to one of his shows. They buy the tickets. He is taking the money from those tickets and he, as far as I can see, is putting all of that into some very dodgy tax avoiding schemes.

"That is wrong. There is nothing wrong with people planning their tax affairs to invest in their pension and plan for their retirement – that sort of tax management is fine. But some of these schemes we have seen are quite frankly morally wrong.

"The government is acting by looking at a general anti-avoidance law but we do need to make progress on this. It is not fair on hardworking people who do the right thing and pay their taxes to see these sorts of scams taking place."

Cameron 2012

 

[Frank]

Isn't that just another way of saying 'as PM he should follow different tax rules from the rest of us?' He alone does not set the tax regime, so you must by definition include every MP in this. If any one of them has an ISA they need to be put in jail or something, after all, it's avoiding tax via a loophole. If any of them has an offset mortgage, then prosecute them. It's avoiding tax via a loophole. My dad bought me lunch last week - should I pay 40% of the cost of it if he dies in the next 7 seven years? Or do I get a bye because I'm not PM?

In all honesty every MP should be subject to an enquiry, not just the ones the Indy/Grauniad have a pop at. While they are at it the trade unions and most charities need a good going over too - they avoid tax by a loophole too don't forget. (http://www.hmrc.gov.uk/MANUALS/ctmanual/ctm41260.htm) and UNITE is quite famous for avoiding corporation tax via various loopholes.

My dad has never bought me lunch and so I don't understand the ins and outs of the complexity of the tax laws regarding lunch being bought for people. I have to make do with a Pot Noodle.

As for an enquiry for all the politicians who are involved with the Panama Papers, that would be a resounding yes from me. Definitely not just the politicians who do seem to be often caught doing naughty stuff by the more independent media.

 

[Soliluna]

Isn't that just another way of saying 'as PM he should follow different tax rules from the rest of us?' He alone does not set the tax regime, so you must by definition include every MP in this. If any one of them has an ISA they need to be put in jail or something, after all, it's avoiding tax via a loophole. If any of them has an offset mortgage, then prosecute them. It's avoiding tax via a loophole. My dad bought me lunch last week - should I pay 40% of the cost of it if he dies in the next 7 seven years? Or do I get a bye because I'm not PM?

In all honesty every MP should be subject to an enquiry, not just the ones the Indy/Grauniad have a pop at. While they are at it the trade unions and most charities need a good going over too - they avoid tax by a loophole too don't forget. (http://www.hmrc.gov.uk/MANUALS/ctmanual/ctm41260.htm) and UNITE is quite famous for avoiding corporation tax via various loopholes.

You're correct. Our PM, our Corporations, particularly Charities, trade unions etc - all need to be looked at. With a fine tooth comb. Charities especially.

It's definitely not a non story, that we have a government(/s) that claim to want to stamp down on tax evasion and avoidance, speaking about the loopholes that exist to avoid it - and then using those loopholes themselves.

Conflating legality and morality is silly, law is stupid. Laws are contrived, mostly by the rich, to benefit themselves, to give the illusion of security of state, possession, health, equality - whatever. Just to remind you of the stupidity of law, up until about 30-40 years ago it was illegal to be gay (to have the sexual relations involved with your orientation), in the late 80's we were still publishing bills meaning that homosexuality could not be encouraged. It was Thatcher who famously said "Children who need to be taught to respect traditional moral values are being taught that they have an inalienable right to be gay". If we simply dismiss this whole fiasco because of law, well - we would be doing ourselves and our descendants absolutely no favours and setting a worrying precedent.

 

[beelbeebub]

Maybe we should all have our tax returns and benefits published in a public register. Would help catch both tax and benefit cheats. If you can look at your neighbour and see they are receiving child benefit despite not having kids or they are declaring a tiny income despite them running a successful business. You could report them.
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I'd vote for that, a public register, you type in name and address and see earnings, deductions, benefits and tax paid for everyone. ,

 

[Surfinjo]

A rather simpler solution would be to introduce flat rate taxes with no deductions.

We each pay the tax due on our incomes.

It could work equally well with more than one rate, but each rate would be fixed, according to income and no deductions.

My personal preference would be for a single rate.

 

[Yaffle]

I did think about that idea of one tax rate. You'd need to be careful, because as things stand the top 1% of taxpayers pay 30% of the tax take. It would be bad to change that balance. That's a shock of a revelation to most, so here's the source (out of date now, but as it's been like this for a long time it won't have shifted much) - http://www.thisismoney.co.uk/money/...2012-Top-1-earners-contribute-income-tax.html I think the top 10% pay about 90% of the total take.

A simple single rate may well shunt that balance in a bad way, which the tiered rates tends to force.

I think I'd lose NI, and add 14% to the bands. This would be the same for low earners, but those above the cap would get stung. You'd also have 'NI' on dividends. NI is income tax, we just don't call it that for political reasons.

Then I'd raise the personal allowance to living wage x 35(hours) x 52(weeks) and drop all those at the bottom out of tax completely. Yes, it would be a break to those higher up the food chain too but they have been hit with the NI replacement. Those earning below the PA would still get the NI years credit in full.

Next move capital gains into income, rather than a capital tax.

This should keep the higher earners pay the lion's share balance there, I think.

Simpler is better in many ways.

 

[beelbeebub]

A rather simpler solution would be to introduce flat rate taxes with no deductions.

We each pay the tax due on our incomes.

It could work equally well with more than one rate, but each rate would be fixed, according to income and no deductions.

My personal preference would be for a single rate.

I quite like the idea of a flats rate, but what do you mean "more than one rate" isn't that not a flats rate anymore?

The problem with flats rates is they tend to be regressive, 25% tax is no biggie if yoyo earn a 6 figure salary, but if you're on the breading it's a killer.

Of course that can be got around by a threshold before the tax kicks in i.e. tax of 25% on earnings over £20k but then you start getting away from the principle advantage of flats tax, simplicity.
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The problem of no deductions is that will hit some people really hard. my friend runs the local corner shop, nothing fancy, just a typical corner shop. His turnover each month is £15-20k, (just shy of £250k a year) but most c that money goes straight out the door to pay rent, suppliers, staff etc. After all that he has £1-2k a month profit. That's £25k a year, so he pays a few grand in tax and takes home about £20k a year. If he wasn't allowed deductions he'd be taxed (say) 25% on £250k or about £60k meaning held be losing about £40k a year.

I'm in the same position. On raw income I'm doing really well but nearly half my income goes straight out the door.

So unfortunately deductions are a fact of tax life an that is where the loop holes creep in.

 

[beelbeebub]

I did think about that idea of one tax rate. You'd need to be careful, because as things stand the top 1% of taxpayers pay 30% of the tax take. It would be bad to change that balance. That's a shock of a revelation to most, so here's the source (out of date now, but as it's been like this for a long time it won't have shifted much) - http://www.thisismoney.co.uk/money/...2012-Top-1-earners-contribute-income-tax.html I think the top 10% pay about 90% of the total take.

A simple single rate may well shunt that balance in a bad way, which the tiered rates tends to force.

I think I'd lose NI, and add 14% to the bands. This would be the same for low earners, but those above the cap would get stung. You'd also have 'NI' on dividends. NI is income tax, we just don't call it that for political reasons.

Then I'd raise the personal allowance to living wage x 35(hours) x 52(weeks) and drop all those at the bottom out of tax completely. Yes, it would be a break to those higher up the food chain too but they have been hit with the NI replacement. Those earning below the PA would still get the NI years credit in full.

Next move capital gains into income, rather than a capital tax.

This should keep the higher earners pay the lion's share balance there, I think.

Simpler is better in many ways.

Good post, I'm not sure the tax imbalance is as severe as that but it is striking. The other figure that's striking is how much you have to earn before you lay more tax than you have spent on you, it's the mid £30's I think.

def like the idea of rolling NI into income tax, and the same for the employer's contribution. As you say, it's all tax. Income tax should be defined as the difference between what leaves you employer's pocket and what lands in yours.

also like the idea of setting the tax threshold higher, min wage x 35 hours x 52weeks comes out around £17k.

capital gains should be treated as income but you do need to have a factor for inflation and time held.

IHT should be move o be similar to income, with some allowance to spread it over a few years.

what do we do about gifts?

 

[Yaffle]

The issue with inheritance tax is that you don't pay it until you die. We don't have a tax system where every year we each declare our net wealth and pay a proportion of it. That may be a good system, I don't know.

A significant proportion of parents wish to bequeath something to their children, for some it's a very small absolute sum, for others massive. I think this is natural and normal.

You could make inheritance tax fair by either removing it entirely, so nobody pays, or remove all allowances and force everyone to pay. That would be fair, but we hit the problem of it becoming very expensive to administer (HMRC would be involved in every probate application to a large degree) and it not raising all that much more. It would also irritate a lot of parents trying to do what they see as the 'right thing' by their children.

Gifts are difficult, which was sort of my meal point above. Wherever you set a limit for 'gift' people will gift just at it. The only people really hit by this are those with significant estates, so they are the ones most likely to take tax advice. At what point is a gift an inheritance? A parent buys a car for a child - suddenly they have 40% inheritance tax. A parent gives a child pocket money - suddenly 40% inheritance tax. Christmas present? Another 40% please. It's another administrative nightmare. There was some statistic I saw about the amount a parent spends on a child over its lifetime - that's a huge number - is it an inheritance? Maybe we should just tax children and be done with it?

It sort of works (I don't agree with it as a tax personally, I think it's a tax of envy) as it generates tax revenue. The process at the moment is die -> executor appointed -> gets rough value of estate -> pays tax to HMRC -> gets probate (the ability to deal in the estate) -> pay out, and any balance owed to/due from HMRC. Keeping tabs on people who die is fairly easy, the system relies upon the honesty of the executor.
Flip that around so it becomes die -> executor appointed -> probate given -> pay away according to will -> get beneficiaries to put on their tax return and tax there removes a bit of control from HMRC, and multiplies the number of parties paying tax. Or you'd just have your estate paid away to a Panamanian Trust and avoid the whole darn lot. It may work, just sounds a bit difficult administratively. It's further complicated by charitable gifts, which essentially don't count towards the estate when working out the tax.

On the gifts thing as well, as long as you live 7 years after the gift it is deemed separate from your estate. So give it away early, and give it away as far down the family tree as you can so there are not steps of sudden tax slices taken out, as happened to the Devonshires when they gave Hardwick Hall to the nation, which then gifted it to the National Trust.

In short - it's an interesting idea to have an inheritance as income split over (say) 7 years and tax it that way, but I think the extra complexities and lack of control would not be palatable.

Interestingly, to me, the US still taxes its citizens living and working overseas. That may be another avenue worth exploring.

On capital gains, there was indexation allowances up until 10(?) years ago. I am unsure why they were abolished, or what the quid pro quo was.

 

[Surfinjo]

I did think about that idea of one tax rate. You'd need to be careful, because as things stand the top 1% of taxpayers pay 30% of the tax take. It would be bad to change that balance. .

I quite like the idea of a flats rate, but what do you mean "more than one rate" isn't that not a flats rate anymore?

The problem with flats rates is they tend to be regressive, 25% tax is no biggie if yoyo earn a 6 figure salary, but if you're on the breading it's a killer.

Of course that can be got around by a threshold before the tax kicks in i.e. tax of 25% on earnings over £20k but then you start getting away from the principle advantage of flats tax, simplicity.
:
The problem of no deductions is that will hit some people really hard. my friend runs the local corner shop, nothing fancy, just a typical corner shop. His turnover each month is £15-20k, (just shy of £250k a year) but most c that money goes straight out the door to pay rent, suppliers, staff etc. After all that he has £1-2k a month profit. That's £25k a year, so he pays a few grand in tax and takes home about £20k a year. If he wasn't allowed deductions he'd be taxed (say) 25% on £250k or about £60k meaning held be losing about £40k a year.

I'm in the same position. On raw income I'm doing really well but nearly half my income goes straight out the door.

So unfortunately deductions are a fact of tax life an that is where the loop holes creep in.

Respectfully, your responses reflect how addicted we have all become to playing with tax.

25% of £100,000 is £25,000, whereas, 25% of £20,000 is £5000. A pretty hefty difference.

Currently most in this country, and surprisingly in the USA, pay around 30%. Taking into account NI, and Income Tax.

The notion of having more than one flat rate would be that those on say, more than £50,000 would pay a higher flat rate. What would not change would be the absence of deductions.

Your reference to your friend's business is irrelevant since business don't pay income tax. You are mistake about deductions there as well. Business can only deduct legitimate business expenses. It's been many years since I ran a business myself, but I do know that deducting for lunches for example, is not permitted.

However, I would suggest that corporation tax should be abolished and all business income be charged VAT alone. VAT is well established, it works and it almost impossible to avoid. That would also deal with overseas companies, such as KFC, not paying their share of tax. Plus it would mean business' would pay tax on their profits only, plus business rates, which are a completely different matter. That can only be to the advantage of any business. It will encourage investment and create more jobs.

The point of flat rates is to eliminate the continual suspicions that some are getting away with not paying their share of the tax income.

If the tax system is transparent then we know are in this together. The social divisions that are causing most of the stupid cat calling such as we heard from Dennis Skinner in Parliament today and claims attributed to some press for example, immigrants, come here with 6 wives, 25 kids, get house in Kensington and £500 a week spending money.

Most of these claims are untrue, but tax avoidance is a reality.

 

[Yaffle]

Respectfully, your responses reflect how addicted we have all become to playing with tax.

25% of £100,000 is £25,000, whereas, 25% of £20,000 is £5000. A pretty hefty difference.

I see the point, but why not make the person on 25k pay nothing and the person on 100k pay 40k? Or if you wish to keep the total at 30k tax take, nil to the former and 30k to the latter at the 30% the US uses?

Currently most in this country, and surprisingly in the USA, pay around 30%. Taking into account NI, and Income Tax.

The notion of having more than one flat rate would be that those on say, more than £50,000 would pay a higher flat rate. What would not change would be the absence of deductions.

I think you've just made lower income people pay far more tax - 30% of £20,000 pa = £6,000 currently it's (£20,000-£10,600)*0.20=£1,880 plus NI, if you have rolled NI into the 30%, which would be about a further £2,400, so a total of £4,280. Ouch. You've just removed £1,720 of their take home pay. The £50k person is currently £9,403 in tax and about £5,300 giving £14,700 in tax. At 30% you'd get £15,000, so a tax hike there SMALLER than the tax hike on the lower paid person. It may be a good idea, but would be a hard sell.

ETA - actual figures. £20,000 currently gets £16,767 after tax. At 30% that would drop to £14,000
£50,000 gets £36,466 after tax, that would drop to £35,000
£100,000 gets £65,466 after tax. At 30% that would RISE to £70,000
£150,000 gets £90,066 after tax, rising to £105,000 at 30%

Your reference to your friend's business is irrelevant since business don't pay income tax.

Sole traders and partnerships are taxed as individuals on the profits of the business, as distinct from companies which are subject to corporation tax. It's a bit semantics, but an important point.

You are mistake about deductions there as well. Business can only deduct legitimate business expenses. It's been many years since I ran a business myself, but I do know that deducting for lunches for example, is not permitted.

Correct, I'm not too sure offhand on the status of lunches though!

However, I would suggest that corporation tax should be abolished and all business income be charged VAT alone. VAT is well established, it works and it almost impossible to avoid.

Nope, just cross the border. Ever seen how many petrol stations there are in Ireland on the border with Northern Ireland? How about trips to Calais for wine to avoid the duty (VAT is a duty). Set the UK VAT rate at 30%, we'd do as much shopping as possible overseas.

That would also deal with overseas companies, such as KFC, not paying their share of tax.

VAT is a tax on the consumer, not the company. It's invisible to the company. Yes, there is a technical argument that we pay the corporation tax too as the company will recover it from the consumer. What happens with zero rated/VAT exempt supplies? Do they become tax free businesses? (food, children's clothes, medicines etc)

Plus it would mean business' would pay tax on their profits only, plus business rates, which are a completely different matter. That can only be to the advantage of any business. It will encourage investment and create more jobs.

A couple of things here - business pay CT on their taxable profits already, and that's the root cause of the transfer pricing problem. There is a thing called a Laffer Curve which looks at tax takes versus tax rates. The investment is, rather oddly, a good point. But giving tax breaks can be seen as state subsidy, which leads to a a different problem.

The point of flat rates is to eliminate the continual suspicions that some are getting away with not paying their share of the tax income.

See my point above - you'd be punishing the wrong people.

If the tax system is transparent then we know are in this together. The social divisions that are causing most of the stupid cat calling such as we heard from Dennis Skinner in Parliament today and claims attributed to some press for example, immigrants, come here with 6 wives, 25 kids, get house in Kensington and £500 a week spending money.

I look at our political class and weep every time I hear PMQs.

Most of these claims are untrue, but tax avoidance is a reality.[/quote]

 

[Arry]

Respectfully, your responses reflect how addicted we have all become to playing with tax.

25% of £100,000 is £25,000, whereas, 25% of £20,000 is £5000. A pretty hefty difference.

Currently most in this country, and surprisingly in the USA, pay around 30%. Taking into account NI, and Income Tax.

The notion of having more than one flat rate would be that those on say, more than £50,000 would pay a higher flat rate. What would not change would be the absence of deductions.

Your reference to your friend's business is irrelevant since business don't pay income tax. You are mistake about deductions there as well. Business can only deduct legitimate business expenses. It's been many years since I ran a business myself, but I do know that deducting for lunches for example, is not permitted.

However, I would suggest that corporation tax should be abolished and all business income be charged VAT alone. VAT is well established, it works and it almost impossible to avoid. That would also deal with overseas companies, such as KFC, not paying their share of tax. Plus it would mean business' would pay tax on their profits only, plus business rates, which are a completely different matter. That can only be to the advantage of any business. It will encourage investment and create more jobs.

The point of flat rates is to eliminate the continual suspicions that some are getting away with not paying their share of the tax income.

If the tax system is transparent then we know are in this together. The social divisions that are causing most of the stupid cat calling such as we heard from Dennis Skinner in Parliament today and claims attributed to some press for example, immigrants, come here with 6 wives, 25 kids, get house in Kensington and £500 a week spending money.

Most of these claims are untrue, but tax avoidance is a reality.

I can't rep you, fair points made here.

Income tax was introduced by Pitt the younger in 1798 and it was set at 2 old pence in the pound. I think it was Ked Dodd who 1st said, he thought is was still the same rate today.

Thinking about it: The whole thing is a joke; because in-spite of all the debate, all the moralising and promises of change and fairness for all. In 20 years, the same things will be happening and the debate over this, will continue, on and on and on.

 

[Surfinjo]

Yaffle.

You have sought to dispute the figures, but those I cited are hypothetical.

Undoubtedly many will buy outside the UK. I live on the S Coast in a port city where we can travel to France in a couple of hours, saving loads on many things. Strangely, very few do so.

It isn't about punishing people. It's about making things transparent. Ensuring that everyone makes a proportionally equal contribution. More importantly, by removing deductions, being seen to be fair.

VAT isn't a tax on consumers, its a tax on profits. So business' which make very small profits won't have to pay tax.

 

[Yaffle]

Yaffle.

You have sought to dispute the figures, but those I cited are hypothetical.

Undoubtedly many will buy outside the UK. I live on the S Coast in a port city where we can travel to France in a couple of hours, saving loads on many things. Strangely, very few do so.

It isn't about punishing people. It's about making things transparent. Ensuring that everyone makes a proportionally equal contribution. More importantly, by removing deductions, being seen to be fair.

VAT isn't a tax on consumers, its a tax on profits. So business' which make very small profits won't have to pay tax.

Well, the problem is the flat rate will force lower earners to pay more than they do at present, higher earners to pay less. For me, that's a big issue. I'd rather take lower earners out of tax and recoup it from higher earners. The shift is marginal to the higher earner, massive to the lower (see my table above). There's no transparency gained, much as there is none from publishing a tax return. A cheat or a liar at any income level just won't declare the income.

I take the point on VAT about travelling to avoid it, but the few who do are the same as those who set up Panamanian Companies - it's a loophole they are using.

VAT is a tax on consumers. It's how it works.

I can't find a nice HMRC reference for you, but I'll keep looking (you can check out Wikipedia, it's correct on how VAT works but is a very poor choice of reference).

Here's how it works. I register my business for VAT. This means that when I sell something I must charge VAT on it. So, I sell my product for £1 and add VAT at 20% on to it charging £1.20 to you, my customer.

Meanwhile I had to buy that thing to sell to you. Imagine it cost me 50p. I would have paid VAT to my supplier of 10p.

I now have to give to HMRC 10p - which is the difference between the 20p I took off you and the 10p I paid to my supplier. I pay no VAT, I am merely an unpaid tax collector. I made a profit of 50p.

I now set up a building company. I buy bricks at £1.20 each (as they have VAT on them). Build a house I sell for £5.00. Houses are not subject to VAT, so I sell it for £5.00. I am registered for VAT so I ask HMRC for 20p back. They give me 20p as I brought in nil, but paid out 20p. I made a profit of £4.00.

I'm not too sure that explains it fully - but you as the end consumer can't reclaim the VAT from anywhere, so you bear the full cost of each step in the chain. It's a tax on consumption, not on the business. The business just collects it and hands it over, or reclaims if it's in that position.

 

[beelbeebub]

Yeah, VAT is a consumption tax on the end consumer (essentially the person who doesn't sell on). I think its a good tax but it's principle problem is its regressive (hits poorer people more) although you can help that by lowering VAT on food, heating, medical etc.
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Lunches can be a claimable expense in some circumstances. Say I buy an evening meal for my work force so they can stay a late shift to complete filming or whatever. That would be claimable.
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Entertaining clients for a sales pitch is claimable.
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Thus illustrates the difficulty of loopholes you have things than can obviously be a legitimate business expense in one case, but can be a tax fiddle in the other case.
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Ever wondered why you can buy vans with high performance engines, fancy wheels and plush interiors? Next time you see a builder in one, it's because he can claim it as a business expense. Tax fiddle that many a working class man engages in.

 

[Surfinjo]

I'm well aware of how VAT works, I was trained as a book-keeper, (among a number of other professions I've dabbled with, D)).

You can call VAT whatever you wish. Semantics, nothing less. (My point above: 'So business' which make very small profits won't have to pay tax. was an error. It was initially intended as part of a different point which I edited to nothing before posting and left that line in. )

It is an efficient tax, used by countries all over the world. It is simple enough to collect and difficult to defraud.

Having VAT as the only tax on business will ensure that the image of large corporations paying almost nothing is avoided.

Transparency is achieved.

That is the objective. To eliminate the endless claims that some are getting more than the rest of us.

As for the various anomalies, some of which you highlighted in #55, they would go of course. There really is no justification for some businesses to be given what amounts to state aid. Whenever I've been self employed I had to work very hard to get jobs. That's the way it is.

There really is no reason why the lower paid cannot be taken out of taxation, my pension for example, is below the thresh-hold for tax so I pay none. But it would be done using the Tax Free allowance, which is open and across the board.

 

[Surfinjo]

Leading financial institutions have welcomed a new crackdown on international tax dodging agreed by Europe's biggest five economies.
Tax and law enforcement agencies in the UK, Germany, France, Italy and Spain have agreed to share data.
The International Monetary Fund's chief Christine Lagarde said it added to the momentum building against those who sought to hide income and assets.
But critics said it would only work if the US and other nations signed up.
The move comes in the aftermath of the Panama Papers leak, which revealed how the rich and powerful hide assets, sparking widespread condemnation that the authorities had failed to act.
Under the new deal, the five nations will exchange information regarding beneficial ownership registers, which show who really owns assets.

http://www.bbc.co.uk/news/business-36052142

 

[beelbeebub]

I'm well aware of how VAT works, I was trained as a book-keeper, (among a number of other professions I've dabbled with, D)).

You can call VAT whatever you wish. Semantics, nothing less. (My point above: 'So business' which make very small profits won't have to pay tax. was an error. It was initially intended as part of a different point which I edited to nothing before posting and left that line in. )

It is an efficient tax, used by countries all over the world. It is simple enough to collect and difficult to defraud.

Having VAT as the only tax on business will ensure that the image of large corporations paying almost nothing is avoided.

Transparency is achieved.

That is the objective. To eliminate the endless claims that some are getting more than the rest of us.

As for the various anomalies, some of which you highlighted in #55, they would go of course. There really is no justification for some businesses to be given what amounts to state aid. Whenever I've been self employed I had to work very hard to get jobs. That's the way it is.

There really is no reason why the lower paid cannot be taken out of taxation, my pension for example, is below the thresh-hold for tax so I pay none. But it would be done using the Tax Free allowance, which is open and across the board.

It does seem daft, taxing someone low paid and then having to give support in the form of benefits.

that's why I did have some sympathy with the concept of cutting tax credits (although it needed to be implemented in a much better way with an equal focus on wage boosting)

Raising the free allowance would also be a start, as would rolling employees and employers NI into income tax (so the tax free allowance would truly be tax free).

 

[Surfinjo]

It does seem daft, taxing someone low paid and then having to give support in the form of benefits.

that's why I did have some sympathy with the concept of cutting tax credits (although it needed to be implemented in a much better way with an equal focus on wage boosting)

Raising the free allowance would also be a start, as would rolling employees and employers NI into income tax (so the tax free allowance would truly be tax free).

The issue is rather more serious than that.

Tax credits aren't the issue. They were introduced based upon the notion of the helpless housewife struggling to feed her family while her callous husband went out every Friday night and spent all his wages. In reality they mean someone has to be paid to collect them then someone else has to be paid to distribute them. All very silly.

Raising tax free allowance would ahve no effect upon the tax credit issue. But may have advantages in other areas.

The issue is those who are able to deduct expenses from their taxes. It may amount to small beans, though in reality it amounts to a considerable amount, but it destroys the appearance of everyone paying their fair share of the national budget.

That's the purpose of abolishing deductions against tax.

And the issue is abolishing deductions to make tax transparent and eliminate these endless scares of mega rich paying no taxes.

Flat rate taxes are just that.

The same as we have right now, essentially, but no deductions.

 

[beelbeebub]

I thought it was child benefit that was paid to the mothers to avoid the less father spending it on beer and pork scratchings?

But on the subject of flat tax, I thought the defining feature of flat tax was that the rate was the same for all (i.e. a flat rate regardless). in it's simplest form it's a flat rate on all earnings, no allowance and no deductions, which makes it very simple to collect, particularly from big companies as it is a simple % of their payroll, no need to calculate for each individual.

However it would be very regressive and the lack of deductions is a killer for self employed trades men like carpenters, mechanics etc.

If a carpenter is paid £1000 to make and fit a fitted wardrobe he would be charged £200 with no deductions, but if he paid £400 for the materials, £50 fuel driving about, £25 for wear and tear on tools and consumables and £25 for overheads (failed quotes, office paper, accountant fees, membership to trade body fees etc) he actually only made £500 on the job so ought to pay £100 tax.

What you would find is that people would get around this by the carpenter charging for his time only (£500) and getting the client to buy the materials and tools directly. But isn't that a tax dodge?.....After all the treasury is now out by £100.

Any tax system needs a method for deductions, and deductions lead to loopholes.

Maybe the best way to avoid excessive loop hole use is to publish everyone's tax summary. If I see that a radio DJ is claiming to be a used car dealer or a film producer it becomes obvious they are "stretching" the tax loopholes.

Having no deductions would have the effect of making each transfer of money between parties taxable. If I gave £1000 to a friend, and he gave it straight back to me, he would be taxed on £1000 income and I would be taxed on £1000 income, making £400 for HMRC . So people would structure payment systems to minimise the "payment" of stuff.