Monday 27th January
The tax system is unfair. Got that. It is unfair for one very simple reason. The vast majority of us taxpayers pay our tax at source; through PAYE or if it is bank interest it is deducted before we receive any paltry interest. Those at the top end of the scale, by and large are either self-employed, or can decide how and more crucially when to pay themselves. They also almost all self-declare their tax.
We have no choice, and therefore no chance to fiddle our tax. And thank goodness we don’t or there would be precious little tax collected at all. Why do you think that the local plumber will quote you a lower price for cash than if you are paying by cheque? Why do you think that most top-business people have company credit cards? The answer is simple – so that they can avoid paying tax, even if it is just VAT.
Now take the self-employed high earner who invoices for his salary rather than is paid and taxed through PAYE. What would you do if you suddenly realised that you would have to pay 50%, that is half of your earnings (over 150,000 I hasten to add) but for many on very high earnings that is still a lot of dosh. Then the kindly chancellor tells you that in one year’s time you will only have to pay 45% tax on that money. That is £7500 less. Now if you could decide how and when you paid yourself wouldn’t it make sense to defer you large bonus, or to simply pay yourself drawings or repay a loan rather than treat this as income and have to pay the higher figure. In any case you could always pay yourself a dividend and only pay 22% on that income instead.
The law on taxes is ridiculous. If you are self-employed there are loads of tax ‘dodges’ you can use which the poor salaried employee has no access to. The whole system needs a radical overhaul, not tinkering at the edges, nor layer upon layer of complexity ( and chances for loopholes) as successive chancellors have done.
How about no Allowances at all. And simple 5p progressive rate increases according to income received whether they be as drawings, dividends or salary or bonuses. And while we are at it let’s combine tax and National insurance into one single rate and one deduction, and again no allowances, no special schemes, and base it on a cumulatively increasing figure. Or would that as the Tories are now bleating drive away talent and crash the recovery completely? I doubt it. The truth is that nobody likes paying tax, but most of us have no choice.