Remove ads

Introducing the LemonFools Personal Finance Calculators

Office of Tax Simplification

XFool
Lemon Quarter
Posts: 2585
Joined: November 8th, 2016, 7:21 pm
Been thanked: 151 times

Office of Tax Simplification

#141466

Postby XFool » May 26th, 2018, 11:57 am

Ouch!

"Allow savers to have as many Isas as they like and hike dividend tax rates, propose Government tax gurus"

This is Money

Full Report

XFool
Lemon Quarter
Posts: 2585
Joined: November 8th, 2016, 7:21 pm
Been thanked: 151 times

Re: Office of Tax Simplification

#141476

Postby XFool » May 26th, 2018, 12:38 pm

"The previous dividend tax credit system required adding the credit to the value of the dividend and then applying the credit against the income tax payable on the aggregate amount, which was a complexity. The OTS understands that the rationale for the 2016 change included addressing this complexity and the need to reduce tax-motivated incorporation, by increasing the income tax charge on distributions of profit to a similar level to the taxation of profits extracted from unincorporated businesses. The dividend ‘allowance’ was then created to avoid individual investors having to account for relatively small amounts of tax on their dividend income – the OTS understands that the reduction to £2,000 from April 2018 will still leave around two-thirds of individual investors outside any tax charge."

Personally, I much preferred the "complexity"(?) of the dividend tax credit system to the err... 'simplicity'(???) of the current arrangements.

scrumpyjack
Lemon Slice
Posts: 297
Joined: November 4th, 2016, 10:15 am
Has thanked: 12 times
Been thanked: 74 times

Re: Office of Tax Simplification

#141495

Postby scrumpyjack » May 26th, 2018, 2:16 pm

Yes the point of the tax credit was to reduce the double taxation arising from taxing profits and then taxing again distributions of those profits.

Making the tax credits non reclaimable simplified things by eliminate huge numbers of small tax reclaims.

There was some justification for abolishing the credits and having lower rates of tax on dividends (but still higher overall than before) because of the significant reductions in corporation tax.

These latest 'simplifications' are nothing of the sort, they are simply an excuse for tax increases.

Would it not be 'simpler' to abolish MPs defined benefit pension scheme (as most of the private sector have had to do) and save a lot of public money at the same time.

A further simplification would be to cut the number of MPs by 30% (and Lords by at least 50%). Much much simpler and save loads of money?

Lootman
Lemon Quarter
Posts: 4435
Joined: November 4th, 2016, 3:58 pm
Has thanked: 11 times
Been thanked: 699 times

Re: Office of Tax Simplification

#141500

Postby Lootman » May 26th, 2018, 2:28 pm

scrumpyjack wrote:There was some justification for abolishing the credits and having lower rates of tax on dividends (but still higher overall than before) because of the significant reductions in corporation tax. These latest 'simplifications' are nothing of the sort, they are simply an excuse for tax increases.

Indeed. A lot of the complexity of our tax system derives from three factors:

1) A desire to benefit some class of people over some other class of people

2) A desire to encourage some behaviours and discourage other behaviours

3) New rules to close loopholes that were created by other new rules

It would be easy to simplify the tax code. Just have a single flat rate for income tax, capital gains, corporate tax, VAT, IHT etc., with no deductions, allowances and exemptions, set at rates that make the entire change revenue-neutral.

The problem there for the government is that the tax code would no longer favour "the right people" nor manipulate people into behaving this way or that way.

The only case I can recall where a tax was genuinely made simpler was with CGT, when indexation was abolished and a single, lower flat rate was introduced. But of course that has already been partly undone by creating a higher rate. The government just cannot leave things alone.

ISAs are delightfully simple, effective and attractive as they are. No need to mess with them. But of course that is exactly what some would now like to do. It's just too hard to do nothing, apparently.

gryffron
Lemon Quarter
Posts: 1252
Joined: November 4th, 2016, 10:00 am
Has thanked: 65 times
Been thanked: 248 times

Re: Office of Tax Simplification

#141664

Postby gryffron » May 27th, 2018, 12:30 pm

Lootman wrote:Just have a single flat rate for income tax, capital gains, corporate tax, VAT, IHT etc., with no deductions, allowances and exemptions, set at rates that make the entire change revenue-neutral.

...plus lifetime gifts. Or IHT is worthless.

Combine with a basic income replacing state pension, benefits and tax allowances, and you have an ultra simple, completely fair system, where politicians can still fiddle with the numbers to suit their chosen demographic.

Sorted.

Gryff

FredBloggs
Lemon Quarter
Posts: 2270
Joined: November 12th, 2016, 8:42 am
Has thanked: 674 times
Been thanked: 429 times

Re: Office of Tax Simplification

#141665

Postby FredBloggs » May 27th, 2018, 12:39 pm

Have to admit strong agreement with Lootman. Having all income subject to a flat rate of tax with a generous personal zero rate band to protect the less fortunate (but applied universally) makes so much sense, it simply is not going to happen. Furthermore, I would like to see taxes on income reduced and focused much more on consumption since it is far harder to avoid consumption taxes and gives incentives to save and be self reliant.

Myself, I would love the next government to say at the outset - "For the life of this parliament, HM Government intend to do nothing". Then watch the economy take off for five years

Lootman
Lemon Quarter
Posts: 4435
Joined: November 4th, 2016, 3:58 pm
Has thanked: 11 times
Been thanked: 699 times

Re: Office of Tax Simplification

#141692

Postby Lootman » May 27th, 2018, 3:46 pm

FredBloggs wrote:Myself, I would love the next government to say at the outset - "For the life of this parliament, HM Government intend to do nothing". Then watch the economy take off for five years

Agree, but we are a minority. For instance, to me the best US presidents were the ones who did the least e.g. Van Buren, Fillmore, McKinley and Harding. But they are routinely voted the "worst" US presidents, Whilst those voted the "best" are either those who meddled and intervened the most, or got killed, or both. Figure Lincoln, JFK, FDR, Wilson.

Never made any sense to me.

FredBloggs
Lemon Quarter
Posts: 2270
Joined: November 12th, 2016, 8:42 am
Has thanked: 674 times
Been thanked: 429 times

Re: Office of Tax Simplification

#141695

Postby FredBloggs » May 27th, 2018, 3:55 pm

Lootman wrote:
FredBloggs wrote:Myself, I would love the next government to say at the outset - "For the life of this parliament, HM Government intend to do nothing". Then watch the economy take off for five years

Agree, but we are a minority. For instance, to me the best US presidents were the ones who did the least e.g. Van Buren, Fillmore, McKinley and Harding. But they are routinely voted the "worst" US presidents, Whilst those voted the "best" are either those who meddled and intervened the most, or got killed, or both. Figure Lincoln, JFK, FDR, Wilson.

Never made any sense to me.

Yes, I have sympathy with that view. I also feel that Trump could yet be an outstanding (for the US) president in the same way that Reagan, who was mocked and called an idiot, but was very big in dismantling the threat from the then USSR. He achieved WAY more than most other recent incumbents could ever hope for. Trump could too. Maybe.

GeoffF100
Lemon Quarter
Posts: 1297
Joined: November 14th, 2016, 7:33 pm
Has thanked: 30 times
Been thanked: 157 times

Re: Office of Tax Simplification

#141836

Postby GeoffF100 » May 28th, 2018, 10:53 am

Lootman wrote:
scrumpyjack wrote:There was some justification for abolishing the credits and having lower rates of tax on dividends (but still higher overall than before) because of the significant reductions in corporation tax. These latest 'simplifications' are nothing of the sort, they are simply an excuse for tax increases.

Indeed. A lot of the complexity of our tax system derives from three factors:

1) A desire to benefit some class of people over some other class of people

2) A desire to encourage some behaviours and discourage other behaviours

3) New rules to close loopholes that were created by other new rules

It would be easy to simplify the tax code. Just have a single flat rate for income tax, capital gains, corporate tax, VAT, IHT etc., with no deductions, allowances and exemptions, set at rates that make the entire change revenue-neutral.

The problem there for the government is that the tax code would no longer favour "the right people" nor manipulate people into behaving this way or that way.

The only case I can recall where a tax was genuinely made simpler was with CGT, when indexation was abolished and a single, lower flat rate was introduced. But of course that has already been partly undone by creating a higher rate. The government just cannot leave things alone.

ISAs are delightfully simple, effective and attractive as they are. No need to mess with them. But of course that is exactly what some would now like to do. It's just too hard to do nothing, apparently.

A further objective is salami slicing. If the government replaced income tax, VAT and National Insurance ("employers" and "employees") with a single income tax that raised the same revenue, there would be rioting in the streets. It would be all too obvious how much money the government was taking.

Governments also like to milk cash cows, and penalise the unpopular. Buy to let is a recent example. Raising the dividend tax to income tax levels would be much the same. Corporation tax has already been paid on this money.

gryffron
Lemon Quarter
Posts: 1252
Joined: November 4th, 2016, 10:00 am
Has thanked: 65 times
Been thanked: 248 times

Re: Office of Tax Simplification

#141997

Postby gryffron » May 28th, 2018, 11:32 pm

GeoffF100 wrote:Raising the dividend tax to income tax levels would be much the same. Corporation tax has already been paid on this money.

Fair point Geoff, but that's an easy fix. Most countries already charge dividend/withholding tax against dividends paid out of PRE-Corporation Tax profits. UK could easily do the same. The point is to make the overall tax rate the same, regardless of how the money is paid, in order to discourage just the sort of tax-avoidance hoops we currently have.

And getting rid of allowances and applying flat rate taxes mean it can all be collected at source, without any need for the recipient to declare it.

Gryff

GeoffF100
Lemon Quarter
Posts: 1297
Joined: November 14th, 2016, 7:33 pm
Has thanked: 30 times
Been thanked: 157 times

Re: Office of Tax Simplification

#142013

Postby GeoffF100 » May 29th, 2018, 7:39 am

gryffron wrote:Most countries already charge dividend/withholding tax against dividends paid out of PRE-Corporation Tax profits. UK could easily do the same. The point is to make the overall tax rate the same, regardless of how the money is paid, in order to discourage just the sort of tax-avoidance hoops we currently have.

Yes, they could do that. If they did, they would have to introduce a withholding tax to maintain the same tax take, as they do overseas. To maintain the same tax take, they would also have to remove the dividend tax relief from pensions and ISAs.

In the present system, direct investors in overseas equities can offset dividend tax against withholding tax. Investors in funds (who are often the smaller investors) cannot do the same. That does not seem fair to me.

Lootman
Lemon Quarter
Posts: 4435
Joined: November 4th, 2016, 3:58 pm
Has thanked: 11 times
Been thanked: 699 times

Re: Office of Tax Simplification

#142022

Postby Lootman » May 29th, 2018, 8:51 am

GeoffF100 wrote:
gryffron wrote:Most countries already charge dividend/withholding tax against dividends paid out of PRE-Corporation Tax profits. UK could easily do the same. The point is to make the overall tax rate the same, regardless of how the money is paid, in order to discourage just the sort of tax-avoidance hoops we currently have.

Yes, they could do that. If they did, they would have to introduce a withholding tax to maintain the same tax take, as they do overseas. To maintain the same tax take, they would also have to remove the dividend tax relief from pensions and ISAs.

Which would partly take us back to the way things were before Brown introduced his ridiculous tax credits a couple of decades ago.

A simple system of tax withholding that could be reclaimed by non-taxpayers was how things used to be, and still are in other countries. Why make it any more complicated than that?

As much as I liked what Brown did with CGT, his changes to dividend taxation were mendacious.

XFool
Lemon Quarter
Posts: 2585
Joined: November 8th, 2016, 7:21 pm
Been thanked: 151 times

Re: Office of Tax Simplification

#142239

Postby XFool » May 30th, 2018, 9:23 am

Lootman wrote:
GeoffF100 wrote:
gryffron wrote:Most countries already charge dividend/withholding tax against dividends paid out of PRE-Corporation Tax profits. UK could easily do the same. The point is to make the overall tax rate the same, regardless of how the money is paid, in order to discourage just the sort of tax-avoidance hoops we currently have.

Yes, they could do that. If they did, they would have to introduce a withholding tax to maintain the same tax take, as they do overseas. To maintain the same tax take, they would also have to remove the dividend tax relief from pensions and ISAs.

Which would partly take us back to the way things were before Brown introduced his ridiculous tax credits a couple of decades ago.

Are you sure? I confess to be increasingly uncertain about all this now but didn't the 'Tax Credit' system exist many years before Brown's changes?
Wasn't it the Tax Credit that was reclaimed in PEPs?

Lootman wrote:A simple system of tax withholding that could be reclaimed by non-taxpayers was how things used to be, and still are in other countries. Why make it any more complicated than that?

As above? But why is this "simple", as opposed to the Brown Tax Credit arrangements, which I found perfectly "simple" (when I finally understood them*)? Honestly, in practice, that still seemed the simplest system to me. Albeit, for whatever reason, it was MASSIVELY misunderstood. To me, this even seemed to be the case with 'professionals', or at least people who one felt ought to have understood it.

* And the only problem there was that they WERE so widely misunderstood or misrepresented for so long that it inhibited my understanding for several years: "How can I be right? How can so many be wrong? It MUST be me."

GeoffF100
Lemon Quarter
Posts: 1297
Joined: November 14th, 2016, 7:33 pm
Has thanked: 30 times
Been thanked: 157 times

Re: Office of Tax Simplification

#142290

Postby GeoffF100 » May 30th, 2018, 12:32 pm


Lootman
Lemon Quarter
Posts: 4435
Joined: November 4th, 2016, 3:58 pm
Has thanked: 11 times
Been thanked: 699 times

Re: Office of Tax Simplification

#142302

Postby Lootman » May 30th, 2018, 12:59 pm

XFool wrote: I confess to be increasingly uncertain about all this now but didn't the 'Tax Credit' system exist many years before Brown's changes?
Wasn't it the Tax Credit that was reclaimed in PEPs?

As I recall it there was tax withholding rather than tax credits until around 1997 or so, when Brown changed things. Prior to that non-taxpayers could reclaim the withholding. After the change they could not reclaim the "equivalent" tax credit. So whilst the change did not make any/much change to basic and higher rate taxpayers, it was worse for non-taxpeyers, which is why it was dubbed "Brown's Great Pension Raid" or some such.

As a further confusion, PEPs/ISAs got a special 5-year dispensation whereby they could reclaim the tax credit, even though it was a phantom credit!

XFool wrote:But why is this "simple", as opposed to the Brown Tax Credit arrangements, which I found perfectly "simple" (when I finally understood them*)? Honestly, in practice, that still seemed the simplest system to me. Albeit, for whatever reason, it was MASSIVELY misunderstood.

* And the only problem there was that they WERE so widely misunderstood or misrepresented for so long that it inhibited my understanding for several years: "How can I be right? How can so many be wrong? It MUST be me."

In a sense, if so many cannot understand it, then that rather implies it is complicated. Although perhaps it is more a matter of it being non-intuitive. Actual tax taken out that you can maybe reclaim is straightforward. A tax credit that you cannot reclaim, except when you can, and which doesn't really exist but still has to be used in grossing up dividends on your tax return, doesn't seem so clear at first look.

XFool
Lemon Quarter
Posts: 2585
Joined: November 8th, 2016, 7:21 pm
Been thanked: 151 times

Re: Office of Tax Simplification

#142428

Postby XFool » May 30th, 2018, 10:37 pm

Lootman wrote:
XFool wrote:But why is this "simple", as opposed to the Brown Tax Credit arrangements, which I found perfectly "simple" (when I finally understood them*)? Honestly, in practice, that still seemed the simplest system to me. Albeit, for whatever reason, it was MASSIVELY misunderstood.

* And the only problem there was that they WERE so widely misunderstood or misrepresented for so long that it inhibited my understanding for several years: "How can I be right? How can so many be wrong? It MUST be me."

In a sense, if so many cannot understand it, then that rather implies it is complicated. Although perhaps it is more a matter of it being non-intuitive.

True. Indeed, it may well have been the sequence of events that helped to confused people. Over the same period PEPS metamorphosed into ISAs, to add a further level; along with the differing ways that pensions and non taxpayers were treated compared to PEP and ISA holders (and then again, charities)

Lootman wrote:Actual tax taken out that you can maybe reclaim is straightforward. A tax credit that you cannot reclaim, except when you can, and which doesn't really exist but still has to be used in grossing up dividends on your tax return, doesn't seem so clear at first look.

At " first look" it clearly wasn't, for all too many. But if you did have a proper look and TRY, it was actually, in practice, pretty simple.

The only issue I can think of plagued by such a widespread public misunderstanding is the London telephone dialling codes 'issue'! Also likely largely brought about due to a sequence of events problem and a public lack of basic understanding.

But that is something else... don't get me started. :lol:

Wikipedia


Return to “Bank Accounts Savings & ISAs”

Who is online

Users browsing this forum: No registered users and 1 guest