The Scoop

Come On Government – Time To Sort Out The Tax Mess!

Tax - Balloons

As dull as people often find taxes, most are aware that there are different tax rates for different types of income; employment income, dividend income, pension income… the list is pretty extensive- we won’t bore you with all the detail here.

This can be confusing, but most agree that paying our fair share of tax is ‘the price for living in a civilised society.’  But according to a report by the Institute of Fiscal Studies (IFS), the current tax system is ‘an unfair and problematic mess.’

The IFS Report’s main focus is on how income is taxed differently for different forms of workers, eg the self-employed and employed, which is ‘not fit for purpose’ which has created a “large, unjustified and problematic bias.”

That means that two people doing the same job for the same level of income pay significantly different levels of tax depending on whether they are employed or self-employed.

IFS goes on to say “the tax treatment of return to investments is a mess; incentives vary depending on the asset type, source of finance and legal structure involves, and range from large subsidies to large penalties.”  It scathingly concludes that “taxing income differently depending on ‘legal form’ – different types of workers – creates a range of problems: unfairness, economic inefficiency, lost revenue and administrative burden.”

It has become such a nonsense that Julie feels compelled to write a book the subject.  So far, she has got to 100 different taxes, all with different rafts of legislation, with so much complexity that even she is having trouble unravelling it all.  If anyone has any ideas for a title for the book, just drop Julie a line.  There’s no way her working title could be used in polite company!

So, what is the suggested solution to sort this tax mess out?

The IFS suggests taxing income from all sources under the same marginal rate could help ensure people are not discouraged from investing.  Similarly, reducing the level of tax allowances and exemptions would lead to a less complex system, from both the collection and payment standpoints.

This strategy promoting simplification could be seen as a fairer solution which would generally be less problematic for all concerned.

Supporting investing in the UK would result in clear economic benefits, would strengthen the finance industry and most importantly provide advantageous tax treatment for the average consumer/investor.  Who wouldn’t want that?