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Tory Brexit DOOM™: Tax in a changing world of work

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    Tory Brexit DOOM™: Tax in a changing world of work

    "Second, we should align the treatment of different legal forms by applying the same overall tax rate schedule to income derived from employment, self-employment and companies. Different income sources would still be subject to varying combinations of income tax, NICs, capital gains tax and corporation tax. But alignment would mean that an additional pound of income was taxed at the same rate regardless of how it was earned. Broadly, this could be achieved by: (i) aligning the NICs paid by self-employed individuals and those paid by employers and employees combined (preferably in the course of integrating NICs with personal income tax); and (ii) taxing dividend income and capital gains at the same rate schedule as earned income (including employee and employer NICs), with reduced tax rates for dividends and capital gains on shares to reflect corporation tax already paid. Note that alignment does not necessarily require an increase in the corporation tax rate, which would raise concerns around making the UK less competitive. Instead, overall rate alignment could be achieved at the personal level by adjusting dividend and capital gains tax rates while keeping a relatively low corporation tax rate. Note also that the prescription is for the alignment of tax rates and says nothing about the level. Alignment could be achieved through a combination of raising taxes on self-employment and cutting taxes on employment, if desired.


    One objection to this approach is the claim that it fails to recognise that lower rates should be used to encourage entrepreneurship and risk taking. It is important to recognise that the difficulty and risk associated with entrepreneurship do not in themselves justify favourable tax treatment. If the market does not provide sufficiently high rewards for such activities, they should not be undertaken. Preferential tax treatment may be justified if markets fail to provide the appropriate incentives for entrepreneurship. We may be concerned, for example, that too few new ideas will be tried out because innovators do not reap all of the rewards (some ‘spill over’ to other businesses that can learn from the experiences of the innovator). Or, we may worry that some small and/or new firms find it prohibitively expensive to raise external finance for their new ventures. But blanket reductions in tax rates for all the self-employed and company owner-managers are poorly targeted at alleviating such concerns. Most small businesses are not particularly innovative and do not generate significant spillover benefits to wider society. From newsagents to IT contractors, they consist of people quietly going about the (perfectly honourable) business of making a living by providing valuable goods and services to others – much as most ordinary employees do. Moreover, those individuals who get the lowest rates (for example, owner-managers who can afford to retain income in a company and access entrepreneurs’ relief) aren’t even necessarily those that are the most entrepreneurial. Even if there are some benefits that arise because some genuine entrepreneurs get lower taxes, there is little evidence that those gains are big enough to justify scattering tax benefits so widely and creating all of the problems associated with boundaries in the tax system.


    A similar opportunity may arise after Matthew Taylor publishes his review into employment practices in the modern economy this summer. This won’t cover tax issues, but it will almost certainly call for action in other related areas. If the government decides to extend some benefits to the self-employed (for example, parental benefits) they could team this with tax changes.

    Ultimately, any reform worth doing will create losers. This is inevitable given that there is currently a large group of taxpayers who are receiving substantial benefits at the expense of others (including the 85% of the workforce who are employees). The losers will no doubt be more vociferous than the winners. This should not prevent us from fixing the tax system."

    https://www.taxjournal.com/articles/...-work-20042017

    Vociferous losers - get ready to be bent over by Tory Brexit!

    DOOMED!
    Last edited by AtW; 27 April 2017, 14:14.

    #2
    What is wrong with any of that? Equal treatment for all income makes sense, if a proper overhaul that could figure out NI without an employer could be constructed (bin employers' NI?)

    This sums up my view nicely:
    One objection to this approach is the claim that it fails to recognise that lower rates should be used to encourage entrepreneurship and risk taking. It is important to recognise that the difficulty and risk associated with entrepreneurship do not in themselves justify favourable tax treatment
    The reward from contracting, entrepreneurship in general should be higher rates, more freedom, etc, not a tax-benefit on what you do earn. Supply and demand drives contract rates.
    Originally posted by MaryPoppins
    I'd still not breastfeed a nazi
    Originally posted by vetran
    Urine is quite nourishing

    Comment


      #3
      Originally posted by d000hg View Post
      What is wrong with any of that? Equal treatment for all income makes sense, if a proper overhaul that could figure out NI without an employer could be constructed (bin employers' NI?) ....
      You really are a perseverative imbecile sometimes, well actually usually!

      Didn't you notice that among all that ivory tower drivel there wasn't a hint of consideration for the many benefits employees enjoy compared with contractors, such as training, pensions, holiday pay, maternity rights, extra job security, redundancy pay, etc etc?
      Work in the public sector? Read the IR35 FAQ here

      Comment


        #4
        Originally posted by AtW View Post
        Vociferous losers - get ready to be bent over by Tory Brexit!

        DOOMED!
        Er, minor point 'n all, but this is the IFS. They've been saying this for ages. They were also strongly in favour of the changes to Class 4 NI, which was a tiny, weeny, step along the road. That went well.

        In the long run, I broadly agree with your prescription of doom, but none of this is happening overnight.

        Comment


          #5
          Originally posted by d000hg View Post

          This sums up my view nicely:The reward from contracting, entrepreneurship in general should be higher rates, more freedom, etc, not a tax-benefit on what you do earn. Supply and demand drives contract rates.
          I disagree.

          Giving tax benefits to early stage companies is very important.

          For my own case I managed to get a break. It was a relatively small amount of £12k but I was able to use that to part-fund an extra full time job. A job that did not exist before I created it.

          In my view, the purpose of a "Company" is to allow a group of people to create a product/service that adds value to society. It was never designed to be a mechanism for a single individual to sell his/her skills ( usually to one client at a time ).

          It's not the contractors fault but the fact that "The System" does not recognise Freelancers properly. Freelancers should be given some help ( via a lower tax rate ) to recognise the fact that they have foregone employment protections such as paid holidays and sickness, notice periods and that they are taking a risk ( albeit a lower risk than someone who has re-mortgaged their house to fund an early stage start up ).

          If you want a dynamic, functioning economy that creates well-paid jobs you have to reward risk properly. Otherwise why would any of us bother? Just get a stress-free permie job in a local government and clock-watch for 40 years until you collect your final salary pension.

          Comment


            #6
            Originally posted by jamesbrown View Post
            That went well.
            It was rolled back for only 2 reasons:

            1) Directly breaking manifesto promise
            2) May already planned to call General Election in a month

            Now they don't even want to promise avoiding increase in direct taxation, nevermind shafting people sideways with higher dividend tax.

            Comment


              #7
              Originally posted by d000hg View Post
              What is wrong with any of that?
              You'll understand when you earn your first million...

              Comment


                #8
                Originally posted by d000hg View Post
                This sums up my view nicely:The reward from contracting, entrepreneurship in general should be higher rates, more freedom, etc, not a tax-benefit on what you do earn. Supply and demand drives contract rates.
                1. Pensions get tax breaks because they are advantageous societally or economically, so government encourages pension savings.
                2. Interest savings and ISA investments get tax breaks because they are advantageous societally and economically.
                3. Marriage gets tax breaks (at least on inheritance tax) because it is deemed to be advantageous.
                4. Hybrid cars get tax breaks.
                5. Employing people gets tax breaks (employment allowance).

                And on, and on, and on. If something is advantageous to the economy and/or to society, we have a long tradition of using advantageous taxation handling to encourage it.

                Entrepreneurship is both economically and societally advantageous. It's well within the tradition of British tax law to give it tax breaks. If you want to argue the tax breaks have been too large, that's a conversation we could have. But it would be extremely short-sighted, in my view, to eliminate the tax benefits currently given to entrepreneurship.

                Comment


                  #9
                  Originally posted by OwlHoot View Post
                  You really are a perseverative imbecile sometimes, well actually usually!

                  Didn't you notice that among all that ivory tower drivel there wasn't a hint of consideration for the many benefits employees enjoy compared with contractors, such as training, pensions, holiday pay, maternity rights, extra job security, redundancy pay, etc etc?
                  And you're an entitled unpleasant ignorant arse. Those things you list are all part and parcel of eschewing traditional employment. There's absolutely NO reason you should pay less tax because you don't get sick pay, what a ludicrous idea. Your lack of sick pay, holidays, job security, etc is countered by the higher rate you receive when you are working. And let's not forget all those benefits like being in charge of your own career, freedom from annual reviews, everyone spouts on about.

                  (pensions is perhaps the one point I agree with you on but that's more a salary increase by another name)

                  Contracting offers the ability to get well paid for being good at something, unchained from corporate bureaucracy and politics. The idea you should get a tax break for earning more than your permie colleagues is just laughable. Take a trip to the real world and try convincing someone in the pub how you need a little help on your tax bill because it's so large when you earn £90k.
                  Originally posted by MaryPoppins
                  I'd still not breastfeed a nazi
                  Originally posted by vetran
                  Urine is quite nourishing

                  Comment


                    #10
                    Originally posted by WordIsBond View Post
                    Entrepreneurship is both economically and societally advantageous. It's well within the tradition of British tax law to give it tax breaks. If you want to argue the tax breaks have been too large, that's a conversation we could have. But it would be extremely short-sighted, in my view, to eliminate the tax benefits currently given to entrepreneurship.
                    Tax breaks on foundling companies, maybe yes. Tax loopholes exploited by extremely high earning contractors... no. If you leave your permie job to earn more as a contractor than you did before, you really don't need a helping hand. If you quit your job to work 16 hours a day getting your business off the ground, that is another story and that's one issue... there's not a real delineation between the two. Hence all this PSC bodging.
                    Originally posted by MaryPoppins
                    I'd still not breastfeed a nazi
                    Originally posted by vetran
                    Urine is quite nourishing

                    Comment

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