My accountant was joking when he said if we all paid 60% tax and all other tax was wiped out he would be out of work

[redrubyindigo]

Is this true?

Petrol tax
Road tax
No VAT
Just wipe out tax on everything.
etc etc

If you don't work or are retired then surely the taxpayers will pay for everything?

I mean what would alcohol and cigarettes cost without tax?

Surely the government pays tax for imports?
I am brimming with questions and very ignorant.

It would make a whole load of accountants redundant. This question was made as a joke by my accountant by the way! I spend hours each week updating spreadsheets and calculating vat etc

He's a pretty shit accountant if he can't think if any work he might do if there was only one tax at 60%!

What do you mean pays tax for imports? We pay customs duties on things we buy in but it is most comparable to a consumption tax and isn't paid by the government

Also, tax isn't just about revenue collection - it's also about adjusting behaviour. That's why bad things are taxed at higher rates.

And who would be paying 60%? Corporations? Individuals?

I'm an accountant. I have nothing to do with tax. I imagine we'd be ok.

I think if the tax system was simpler we could all do our own tax returns and he would be out of work. But because there are different leves 15% here and 40% and exemptions we all get very confused and scared and need an accountant.
My lovely sister is a whizz and figurings out various tax things but still doesn't trust herself and hires an lovely accountant that has explained everything to her over the years. She still doesn't trust the tax man to get it right and needs the accountant to back her up. I think that's the right answer isn't it.

Why is tax so confusing? I mean if we all paid a flat 20% surely it would mean the rich would not need to hide their wealth.

Ignorant question I know.

I've long supported a simplified, flat rate income tax because I think the various thresholds provide disincentives to earn more and incentives to play the system. Have a generous tax-free allowance and then pitch everything else at 30% (or wherever it needs to be). Same rate for capital gains and other unearned income. Much fewer exemptions. It wouldn't put accountants out of business at all & think it would work really well.

The reason we don't have flat rate income tax is so that people who earn less, pay less tax. Which is how it should be.

Anybody who thinks that a flat rate of income tax will discourage tax avoidance is deluding themselves, by the way. Very rich people don't just embark on schemes because they don't like paying 45%, rather than 40% or 30% or whatever flat rate people think would be appropriate. Tax avoiders and evaders do what they do because they think they are somehow special (wealth creators etc) and think that as a consequence they should be protected from ALL income tax.

Does anybody think that Jimmy Carr, Take That and the other people who participated in the K2 scheme and other arrangements would not have done so if they were paying a flat rate of 30%, or 20%, on their income? Dream on!

Full disclosure: I'm an accountant who knows a great deal about tax avoidance.

A flat rate wouldn't eliminate tax avoidance - and that includes the 'I'll knock off the VAT for cash' brigade as much as the very rich incidentally. But it would do away with a lot of the low-level messing about that people indulge in to stay out of the 40% bracket for example. Look how financially creative everyone suddenly got when it came to keeping a bit of Child Benefit. :) A flat rate after a decent tax free allowance still means those who earn less, pay less with those at the upper end paying tax on a higher proportion of their income than those on low or average wages.

You do know that VAT and income tax are entirely distinct and work in completely different ways, don't you?

I don't quite understand your correlation between the impact of a flat rate of income tax and people paying cash for VATable supplies.

The problem with your 'decent tax free allowance' is that the bigger it is, the more tax the majority need to pay. People who suggest it generally want to remove a high proportion of earners - especially themselves!

• from the tax net altogether, but at somebody else's expense.

There aren't that many rich people, and they are already paying plenty of tax and shouldering more than their share of tax, and rightly so; however, increasing the burden on them won't raise anywhere near enough, so somebody else would need to stump up instead. Those 'somebodies' are principally the 'squeezed middle' that every political party wants to get on side. Better to have a reasonable annual allowance that removes the very poorest from the scope of income tax, and allow lower earners to start paying tax on a lower rate. Then the highest earners pay more, see? That's why we have the system we have. Try modelling it on a spreadsheet.

(The impact of any 'financial creativity' you may have witnessed around child benefit is negligible in the overall scheme of tax revenue. There wasn't that much scope for creativity anyway; deciding to earn less in order to get child benefit is rather cutting off one's nose to spite one's face.)

Of course I know that VAT is different. But you were implying that it was only wealthy people that are motivated to dodge tax and my point was that tax-dodging is a universal sport.

If the 'decent tax free allowance' was at the current level of £10k or so and then all other income was taxed at 25% - and assuming the political arguments about going easy on the rich and penalising the poor could be swung - why would that not work?

Unless your accountant is serious and is chancellor of the exchequer, does it matter?

From an accountant's point of view, you could have a very simple flat rate of income tax, but there would still be VAT, capital gains tax, inheritance tax, corporation tax, National Insurance, Stamp Duty etc. etc. to advise on.

I think it's very unlikely that tax will ever become less complicated because it is so hard to create a tax that is universally fair in all situations - and that's before you start messing around with taxes that are designed to change behaviour e.g. more tax on cigarettes, less tax on 'green' cars.

A few countries tried the flat rate tax system - Estonia being one
it did not work and they reverted to a conventional case by case system

yes, if taxes were much simpler and a blunter instruments, accountants would be out of work, but so would most entrepeneurs

Ok. I have just read your very kind replies and have had to physically uncross my eyes.

This post was the killer for me;

'From an accountant's point of view, you could have a very simple flat rate of income tax, but there would still be VAT, capital gains tax, inheritance tax, corporation tax, National Insurance, Stamp Duty etc. etc. to advise on.'

What? Where? How?

I am stupid.

If you have a flat rate of tax of 60% then the key role of the accountant would be to minimise the figure on which the 60% was payable. The cash economy wouldn't disappear if VAT did as cash could still be used to prevent having to disclose full income, so reduce the amount that 60% was payable on.

I think that NICs are a bit of a con. Approximately - as an employee you pay 12% NIC for salary that has an income tax rate of 20% and 2% NIC for salary taxed at 40%. So the tax rates are really 32% and 42%. That differential isn't at all transparent.

Eh?

Sorry, I was really replying to 2 questions.

I don't think your accountant is seriously suggesting that a 60% income tax rate could replace all other taxes. In your example there would be no other taxes and one universal income tax rate applied to everyone the minute they earned anything whether that was £1 or £1,000,000.

Even assuming that there were no need for accountants because it could be easily collected at source and there was no need for a trained person to work out what a sole trader was actually earning (e.g. which business costs are tax deductible), as your OP suggests, it would be a ridiculous change to make because you would put all the burden of taxation on people who pay income tax.

My comment about NI, corporation tax etc. was re: a flat rate of income tax not making things simpler - I don't think it would make much of a difference. You don't employ an accountant to do the calculation to work out that your personal allowance is x, you pay tax at the basic rate on y amount and higher rate on z amount - the online self assessment from does all that for you anyway.

You employ an accountant to tell you what your taxable income is in the first place.

And agree with breatheslowly about NI.

Debates about the personal allowance are all over the news, but nobody has mentioned NI at all.

TalkinPeace when did Estonia revert from flat rate of taxation? My mum's an accountant there and I'm sure she would've mentioned it. Or do you mean the availability of personal allowance and other deductions to reduce taxable income?

With apologies to the good people of Estonia, they're hardly the benchmark for financial rectitude are they?

What country is?

Whatever the deal in Estonia, apparently they still need accountants.

Also, you could have a flat 20% rate of tax tomorrow and you'd still have to decide what the maximum earning level is before people lose benefits (There is no reason to link the child benefit cap to the 40% tax rate - it can be set where ever the government wants).

One reason for raising the personal allowance is that when people on low earnings pay more tax they often end up needing more benefits. On the other hand, personal allowances can also be taken advantage of by people on higher incomes, e.g. MP's who put all their family members on the staff.

It's just never that simple.

Estonian tax : en.wikipedia.org/wiki/Taxation_in_Estonia

simplified systems do not work where capital is electronic

BUT
the NI and Tax allowances need to be brought back into line
the mismatch was the result of a cock up by the idiot Broon when he abolished the 10% band

I'm not sure who your comment is directed at but the link you've provided shows a flat income tax rate of 21%, NI of 33%, no corporation tax on profits... Seems fairly flat to me.

Anyway, Estonian tax rates aren't really the point of this thread, like merrymouse said - even a simple tax system needs accountants.