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Tax proposals: unfair, unworkable and electoral suicide

The taxman has come under criticism recently for its ‘judge, jury and executioner’ role in relation to tax collection. But new proposals could make things even worse.

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by Bruce Janman on Sep 25, 2010 at 00:01

Tax proposals: unfair, unworkable and electoral suicide

Financial planner Bruce Janman scrutinises the government's efforts to tackle tax evasion and increase tax receipts.

There is a growing perception that the Treasury has become too big for its boots. Perhaps it is unsurprising that a ministry run by Gordon Brown for a decade is used to throwing its weight around, but news that the number of convictions for tax evasion has fallen sharply is accompanied by an announcement that HMRC is to spend £900 million of our money in order to raise the level of prosecutions five-fold over the balance of this parliament.

The right thing to do

There is, of course, nothing wrong with seeking to reduce tax evasion – which is quite different from simply trying to reduce your tax liability with good planning – it is something that we should all applaud as it will put the government’s finances on a sounder footing, if it can collect an additional £7 billion, as planned.

The problem is that HMRC has also come under criticism recently for its ‘judge, jury and executioner’ role in relation to tax collection.

What is going on?

First we had reports that a businessman has suddenly been presented with a tax bill for £108,000 – despite there being no evidence to support HMRC’s contention that he was actually making £38,000 a year more than his declared earnings, as it suspected. (Needless to say, he was eventually vindicated, but only when a new officer looked at the case – until then his pleas of innocence went unheeded.)

Then we had the Permanent Secretary at HMRC saying that he had no need to apologise for the fact that up to 6 million people had been incorrectly taxed and that anyone owing more than £2,000 would have to repay with interest, even though the error was entirely the fault of the taxman, not the individual. (He later admitted that he must apologise and softened his stance, after public condemnation of his high-handedness.)

More recently still, comes news that HMRC is considering deducting tax directly from our pay packets and then pass on what is left to us. It almost beggars belief that a government department that cannot get its own sums right (who can understand income tax rules anyway?) can suggest such a radical change.

The solution

All HMRC needs to do is allow the government to simplify the tax system to make it fairer and less easy to evade.

But that could mean we needed fewer taxmen and that would never do, would it? Instead, the government is being encouraged to introduce a system that would be unfair, unworkable and electoral suicide.

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18 comments so far. Why not have your say?

"HMRC is considering deducting tax directly from our pay packets and then pass on what is left to us."

Isn't that what it has been doing since PAYE was introduced during WW2, because well paid war workers couldn't be trusted to cough up twice yearly as the salaried and professional classes did?

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The tax system was made so complicated and even much more so under Gordon Brown for the simple reason, to get more people working for the state. The more complicated it is, the more people you can employ. Thats why no government will actually make it simple again, too many would lose there jobs.

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People should not pay tax on the first £10,000 pounds of earnings and pensioners should not pay tax on the first 20K and thats for each person i.e 40k married couple.

I believe by doing this firstly people will be encouraged to work and poorly paid should not pay tax any way. Secondly after working all your life i think you deserve a 20k tax relief as PAYE is the biggest "Dick Turpin" tax of all, Legalise thievery. Any one who says this cant be done is delusional. Get rid of Trident we are a third world country now any way so who gives a monkeys about us !!!

Cut out the bureaucracy and wast and hey presto, but a don't think any politician has the Balls for it to be honest, they tinker here and there in the vain hope that it will come good in the end.

I would like the current government to be brave simplify the Tax system and make it fair as much as possible.

Sorry to carp on but these idiots make my blood boil and you dont have to be a genius to make it work.

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Sorry Graham but that's exactly what needs to happen. Take the whole system back to standard allowances for everything. Then you can program it into even their crap computrer system and everything will work as there will be no exceptions. If you under collect a little it will be more than offset in staff and pension costs.

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Several comments really - please don't link to Times or Sunday Times articles. I don't have a subscription and it irritates me.

Given the mistakes they make and the length of time to resolve them I'd be very reluctant to see HMRC getting control of all our pay.

However, and in some ways this goes even further, why should many people need them at all? I've had an idea for a long time that public sector workers should be paid net. Why should people be paid out of general taxation, only for some of it to be deducted and contributed to general taxation? Have people any idea how much of an industry exists around that, from payroll people, IT staff, HMRC, HR staff etc simply to administer a tax system?

Paying all public sector people an agreed net pay for the job would save hundreds of millions, if not billions every year!

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@William Philips

What happens at present is that your employer deducts the tax from your salary, pays that to HMRC and pays you the balance.

What HMRC is proposing is that the employer should send your entire salary to them, and they will deduct the tax from it and pass the balance to you.

There are two problems with that. Firstly, two bank transfers will always take longer than one, and secondly, do you really trust HMRC's computer systems to get this right for every single employee, every single week? Employers know that if their employees don't get paid on time, they won't turn up to work the following day, so the payroll system is regarded as the most critial accounting system in the business.

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Nebulous says "Paying all public sector people an agreed net pay for the job would save hundreds of millions, if not billions every year!"

and how much do you think they would then demand? I bet they would want not far off the current gross pay and costing the taxpayer more.

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They'd want pretty much what they're getting - net!

If an employee is clearing £1500 a month at the moment - and is offered the same under net payment - what difference does it make to him / her?

Yet it could save a huge amount on administration.

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"what difference does it make to him / her?"

Nothing - except when the unions get involved and start comparing salaries with those paid gross.

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If H M R C was given the right to receive our pay and deduct tax before we received it, there would be riots that would dwarf what took place over the poll tax.I do not think any government would take that chance,

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One of the major issues with our tax system is that we take decisions on tax law that cannot be relied on, For example CGT decisions one makes may have completely different tax inplications than you might expect. Not being able to get an answer from HMRC. on how major personal financial decisions will be treated by the revenue, turns what should be a straight forward decision into a lottery depending on the individual tax inspector.

I would like to plead for a change in our relationship with government ( HMRC) so that the population weren't always seen to be treated as totally dishonhest, because this initself engenders an attitude, that the goverment isn't just taxing us fairly, but just extracting the maximum it can without equity.

We so need a staightforward clear tax system, that can be interpreted by human beings.

Gerontius

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I'm self employed and I play things by the book. I very much get the sense that HMRC could come along at any time, slap me with an arbitrary decision that I owe more tax for something or other, back date the decision, and bankrupt me. Clegg's comments recently have exacerbated that sense. As such, and this isn't just talk, I am arranging my affairs to move abroad. I can work over the internet for customers in several countries. I see no reason to stay here and have the Sword of Damocles dangled over my head in the sense of their fluid tax judgements. If they don't want to play fair I'm perfectly happy to flip them the bird as I exit through passport control.

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Paying public employees net would not work, so let us not continue with that thread. There would be no mechanism to adjust for different reliefs and personal allowances, and every time tax rates and bands changed it would be almost impossible to administer. And if tax rates went up, would the unions agree to a pay cut ?? And what about people joining and leaving part way through the tax year?

Effectively the public employee payroll departments would have to do at least as much work as they do now. So we would save nothing.

Let us all think through any ideas before posting !! :-)

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It wouldn't work - why exactly, because you said so?

Public sector employees almost always get a pay adjustment every year anyway, usually in line with the financial year, or in other words timed to coincide with the tax changes. Changes to allowances and reliefs could be factored into the agreements made by the pay review bodies at the same time.

Equally people joining or leaving midway through the year could be dealt with very simply as well. They get 1/12th of the net salary for each month worked. Then if they are coming from or going to a taxable position they get 1/12th of the allowance for each month they work in a taxable position.

There would be some winners and losers, but the amounts would be relatively small, and people couyld make an informed choice as to whether they are or aren't prepared to accept the situation.

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Nebulous - if you worked in the personal tax field, then you would appreciate that different people can pay vastly different amounts of tax.

Just for starters, what about disabled, blind allowances. Or child and working tax credits? What about offsets against allowable losses? And if someone was unemployed most of the year, and then got a public service job, they would be unable to claim their full year's allowance. And what if they have other income such as a second job or a pension? The list goes on and on. So to pay everyone in a certain job the same tax-free salary would create huge anomalies. And if they left public service and got another job, how would their tax to date be worked out?

I suppose your reply might suggest that we move to a monthly tax regime - driven by the looney orbit of the moon !!!!! Plenty more potential earnings for us accountants !

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If private enterprise ran it's business as per HMRC or the BBC, we wouldn't have an economy to tax.

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Ian Grumpy

Sep 27, 2010 at 09:42

@Michael Turner

You want a £10k personal allowance and £20k for pensioners, but how happy would you be to pay more tax as a result? I expect that your answer would be "Tax the rich" , and that "the rich" would not include you. So you want to use other people's money to pursue your own fiscal objectives.

Bloody simpletons.....

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