To ask how you would reform the tax system?

[BuffaloCauliflower]

I’ve been thinking about this for a while and of course lots of tax talk for this election, but think more clued up Mumsnetters can probably do better than me. This morning I’ve discovered that in the U.S. they get money off their taxes for mortgage interest and doing home improvements. Mind blown, I’d never have thought of that. I think you can file as a couple instead of two individuals there as well, and tax breaks per child? Of course lots wrong with the U.S. system (everyone having to do their own tax return, and lobbying accounting firms preventing a PAYE scheme that would put them out of business for one) but it got me thinking about possible changes in general. I’m mainly thinking around personal tax rather than business tax, though feel free to think big.

I think putting the personal allowance way up to bring a lot of people out of paying tax would be a start, this would also save some money on UC for the lowest paid. We know most tax is paid by higher earners anyway. Fix the cliff edge that’s earning over £100k too. Maybe be able to opt to pay taxes as a couple if you choose if one member of the couple is a much higher earner, for UC you have to be treated as a couple for your income but not for other households.

Interested to hear thoughts

@RandomButtons any corporations in particular? What are they paying now and what should they pay? More detail needed.

This would lead to the costs of goods and services sky rocketing though. There will be significant costs as well as benefits- all needs to be considered. You would need to do a cost benefit analysis to set the right threshold- I imagine that is exactly why the threshold is set at £80+k … they’ve already done the calculations!

Yes agree on simplifying tax, the tax book is thousands of pages long now (though wouldn't be good for tax advisers). Also like many countries I would make personal allowance transferable so working partner could use if one partner wants to stay at home with children or doesn't use full allowance. Feel tax is set up to discriminate against stable families and very inconsistent, you are treated as individuals where it benefits govt (aforementioned personal allowances) but as a couple in other areas again to benefit govt finances without looking at the overall benefit to the economy of people raising their family as a couple.

Not really. The IFS has done studies showing how many people and businesses takeover is £84,999. They stop earning at that amount. Make the threshold £10k and they are forced to register for VAT and then have no need to restrict their income. This results in more income tax. It also cuts down in evasion as if a takeaway isn’t registered for VAT HMRC would wonder why.

Well the rate of tax is separate in each council area. That’s how it works overseas. So an expensive area = lower % of house value. It all evens itself out. I live in a street with big houses. We don’t pay that much more than people in homes 1/3rd of the value though we could all
afford it more than others.

Well, something needs to be done and it needs to be either a massive increase or a massive decrease. There's a huge ski-ramp distortion in business turnover at the threshold.

I suspect HMRC would favour an increase for reasons of administrative cost. Although as VAT is fully under MTD it would advance that project. And realistically, dropping the VAT threshold to £10k isn't going to change anything for the cash in-hand jobs. Do you want to pay VAT on the whole cost of your haircut rather than just the chair rental element?

Here's a few things I'd do (I've only considered end-state, not transition to that)

VAT Threshold
At present, a small business (under £90k turnover) doesn't have to register for VAT, but if they have higher turnover they have to charge VAT on all the goods/services they sell, not just those in excess of the threshold. This massive change when they cross the £90k line is a big disincentive to them growing.

So instead only charge VAT on turnover in excess of the threshold.

Fund this by decreasing the level at which the threshold is set

National Insurance
At present, earned income is taxed at a higher rate (Income Tax + NI) than unearned income (Income Tax, but no NI).

Level the playing field by reducing employees' NI contributions to £0, and increasing Income tax, so that overall it is revenue-neutral

Marginal tax rates
Make it so there is never a scenario that the marginal rate of tax is higher for a lower level of earnings than it would be for a higher level of earnings.

Stopping "accidental" fiscal drag
Change the way that governments state tax thresholds and bands. So instead of saying "the personal allowance is £x", they'd say "the personal allowance is x% of median earnings", and instead of saying "the higher rate threshold is £x", they'd say "the higher rate threshold is the xth percentile of earnings". That way we don't have stealth tax rises, with more people paying tax due to inflation. Governments can still change the thresholds but have to be explicit about it.

Local taxation
I used to think that replacing council tax with local income tax would be a good idea, but I now don't, partly because tax on income is more easily avoided.

I would keep a tax based on property values, but not base it on what a valuation which is ~30 years out of date, and not have only a limited number of bands. Instead I'd charge a flat percentage of the taxable value of a property, and "the taxable value" would be the current market value minus an allowance which is the value of the 5th percentile of house value in the country..

pers I’d start with Vodaphone http://bradleysaccountants.co.uk/vodafone-tax-avoidance-highlights-need-for-reform/

Is that you Rishi? 🤣

Tax wealth and assets more, tax income less, across the board. Do some bloody thing about council tax because that hammers the poorest workers the most.

These businesses work as follows:

pick a low tax country

put your head office there

start businesses in many other countries
charge these branches large amounts for the use of the company it system, legal services, HR services, the use of the company brand and intellectual property etc,,all of which is owned by the head office.

Profit is made in the overseas location with the low tax rate, not in the UK.

The OECD is working stopping these sorts of activities BUT the only way you can stop it is by working together. The above is all perfectly legal, accepted business practice.

Yes and if I was writing government policy it’s the first thing I’d tackle.

Take money in the U.K. - pay tax in the U.K.

**VAT Threshold
At present, a small business (under £90k turnover) doesn't have to register for VAT, but if they have higher turnover they have to charge VAT on all the goods/services they sell, not just those in excess of the threshold. This massive change when they cross the £90k line is a big disincentive to them growing.

So instead only charge VAT on turnover in excess of the threshold.

Fund this by decreasing the level at which the threshold is set**

But VAT isn't charged on turnover. Turnover is only used as a threshold. To complicate things, the turnover of a VAT registered business can include the sale of zero-rated products for VAT.

So an old person, possibly with dementia or other health problems, has to move out of the home they have worked all their life to pay for and maintain. Which may accelerate their mental and or physical decline, requiring more support from the nhs and/or social services (carers). Not a cost effective option, or a kind one. A society is judged by how it treats the most vunerable, and we are going to put vunerable old people out of their homes?

Moving home is stressful emotionally, challenging physically and costly. Not an easy thing for an elderly person to navigate the legal stuff, house hunt (especially if reduced mobility) pack up their house and all their belongings.

I would like to roll back some of our devolution and bring our middle ('higher') tax band back in line with England & Wales; basically I'm fed up of paying 42% on everything over 43k as frankly it isn't fair that someone on 50k takes home £1500 less than someone in England.

Damn right. And they moan about the threshold being frozen at £50k.

So the money comes out of their assets when they die. Easy.

Agree, council tax is ridiculous, and varies so much by area.
3 bed semi in outer London, we paid about £1,400 a year. 3 bed in Buckinghamshire (so actually a cheaper area) £3500 this year, its a crazy amount of money.
The value of a property doesn't directly relate to the number of people in it, their ability to pay or the amount of services they are using.

How? Because countries have been trying to address this individually for years and failed. This is what happened when the French tried it:

https://www.bbc.co.uk/news/business-50636521.amp

So you are proposing that they can delay paying their council tax until they die, and it accumulates and then comes off the value of their house when sold?

I’d reform council tax- it blows my mind that my distinctly average 3 bed is only two bands lower than a literal mansion a few miles down the road with a tennis court, swimming pool, and acres of land. We need much more nuance in the system and more bands. Then I’d restrict certain pension age benefits to households in the lower three quarters of the bands. So anyone living in anything bigger than a 3 bed wouldn’t be eligible for things like free prescriptions, free TV licences, etc. By introducing more bands you can lean on the side of generosity, but if you’ve got a 6 bed country pile you really don’t need the winter fuel allowance. What’s more you’d also incentivise people to downsize.

They do though - it's called witholding.

Agree that the value of a property doesn’t reflect the number of people living there, but this is the point. Quite a lot of the large house section of the UK housing stock is inhabited by elderly couples or individuals. This is not a good thing and ought to be discouraged when we have a housing crisis. This is a means to discourage that, as much as a sugar tax discourages sugar consumption etc.

Not really. Pay it now, or pay it when you die with punitive interest. You have to encourage people to try to pay where they can.

And then if their whole value is eaten up by care home fees, is the debt written off?