General / Off-Topic David Cameron and the Panama Papers

[Surfinjo]

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.

Those anomalies exist because of the way sole traders tend to be taxed.

The carpenter is running a business and should be treated as such. Paying VAT on his profits and taking an income from his business.

The issue of self employed taxes is a long list of incompetence by the IR. The 714 system failed spectacularly because the vouchers were made a receipt instead of a bill. Such a simple adjustment yet was beyond the ability of the IR for over 20 years.

The following system, (whose title slips my mind for now), also failed because it was simply too expensive and cumber sum to administer.

Abolish NI. Apply a tax on personal income, without deductions. Apply VAT on businesses.

It really doesn't get much simpler.

 

[beelbeebub]

Those anomalies exist because of the way sole traders tend to be taxed.

The carpenter is running a business and should be treated as such. Paying VAT on his profits and taking an income from his business.

The issue of self employed taxes is a long list of incompetence by the IR. The 714 system failed spectacularly because the vouchers were made a receipt instead of a bill. Such a simple adjustment yet was beyond the ability of the IR for over 20 years.

The following system, (whose title slips my mind for now), also failed because it was simply too expensive and cumber sum to administer.

Abolish NI. Apply a tax on personal income, without deductions. Apply VAT on businesses.

It really doesn't get much simpler.

Fair enough, so we treat all business as business, effectively any income to a person has to be "a salary" from a business, even if that business is that person writing a novel or being a builder.

What about person to person payments? Say a friend books a ski holiday for a group and we pay them the £600 each. Does that get taxed?

what about me setting up a company for my carpentry business, but it also owns a house and some cars, which I rent off them for £1 a year, but only take a smaller taxable "salary" from the company?

as I said before, deductions before tax are necessary at some point in the system. They could be personal deductions or company deductions, but they are required. Once they are there, they become potential loopholes.

 

[Surfinjo]

Fair enough, so we treat all business as business, effectively any income to a person has to be "a salary" from a business, even if that business is that person writing a novel or being a builder.

What about person to person payments? Say a friend books a ski holiday for a group and we pay them the £600 each. Does that get taxed?

what about me setting up a company for my carpentry business, but it also owns a house and some cars, which I rent off them for £1 a year, but only take a smaller taxable "salary" from the company?

as I said before, deductions before tax are necessary at some point in the system. They could be personal deductions or company deductions, but they are required. Once they are there, they become potential loopholes.

If you think you could get away with any of those scams then you don't really understand the UK IR.

Believe me, I've seen more creative scam attempts than that.

But it really doesn't matter one jot. I made the suggestion as a point of discussion within this thread.

It is only that, nothing more. If you don't like it then fine. It makes no difference at all.

 

[beelbeebub]

If you think you could get away with any of those scams then you don't really understand the UK IR.

Believe me, I've seen more creative scam attempts than that.

But it really doesn't matter one jot. I made the suggestion as a point of discussion within this thread.

It is only that, nothing more. If you don't like it then fine. It makes no difference at all.

I was trying to illustrate how the concept of "money coming in that is not taxed because it's going straight out" aka deductions are needed (in the case of my friend booking the ski chalet and then everyone chipping in their share). Once you allow deductions then the also become a loophole that creative people can use to "avoid" tax.

I do genuinely like the idea of simplifying the tax system and I understand the appeal of a flat (as in single rate for all) tax (I used to be quite keen, less so now).

what annoys me is when the tax system causes "sub optimal" behaviour. For example, my parents have a property they wish to leave me. Because of the sky high property values it will incur IHT, which isn't great because to Ly it out of rent is difficult and we don't want to sell it. In an ideal world we would like to refurbish parts like the roof. But if we do, we will increase the value and hence the tax. In effect we would pay money to make life harder after death. So we wait, with a leaky roof. Annoying.

 

[Surfinjo]

I was trying to illustrate how the concept of "money coming in that is not taxed because it's going straight out" aka deductions are needed (in the case of my friend booking the ski chalet and then everyone chipping in their share). Once you allow deductions then the also become a loophole that creative people can use to "avoid" tax.

I do genuinely like the idea of simplifying the tax system and I understand the appeal of a flat (as in single rate for all) tax (I used to be quite keen, less so now).

what annoys me is when the tax system causes "sub optimal" behaviour. For example, my parents have a property they wish to leave me. Because of the sky high property values it will incur IHT, which isn't great because to Ly it out of rent is difficult and we don't want to sell it. In an ideal world we would like to refurbish parts like the roof. But if we do, we will increase the value and hence the tax. In effect we would pay money to make life harder after death. So we wait, with a leaky roof. Annoying.

But there won't be deductions.

 

[beelbeebub]

But there won't be deductions.

But that's my point, by not allowing any deductions you would penalize common behaviour.

I get that you could get around the carpenter buying materials issue by forcing every body to be a business rather than sole trader.

But you still have a world where people can pay people for things.

for example one person booking a holiday and then their friends transferring money to repay them. That money is income and as such should be taxed right?

or we say that all person to person transfers are tax free, but then we'd be back to the sole trader situation except with even more incentive to be a sole trader.

Or we allow people to point at income and say "that should be ignored for tax purposes because XYZ", which are deductions.

 

[Surfinjo]

Those things happen now. They are small fry and essentially irrelevant.

But this is getting no-where.

The matter is moot.

The thread seems to have run its course.

 

[beelbeebub]

Agreed...... until, we cross swords again....... on another thread.....