The new chancellor Sajid Javid has said that he will simplify the tax system in his first budget. Yes, Minister! We have all heard all this before and there is even an Office of Tax Simplification to prove it.

The paradox for all chancellors in the task of simplifications is that it will result in some losers and not just winners and no chancellor will want to risk unpopularity.

What's broken?

  • Some of our tax system is now so complicated that old people regularly need the assistance of a tax charity to work out their affairs.
  • Some of the recent changes, e.g. to savings and dividends and pensions mean that even HM Revenue & Customs cannot specify what exactly it is that software is meant to calculate.
  • Some measures take so much time to calculate and claim that they are not worth the effort on a cost v benefit basis

This time's list shines a spotlight on income tax and some capital gains reliefs.

 

Abolish all of these reliefs: they are more trouble than they are worth!

1. The Marriage Allowance (previously referred to as the Transferable Allowances for Married Couples and Civil Partners): relief is reduced by £1 for every £2 exceeding the limit

2. Married Couples Allowance: you need to crunch your numbers to work out if its worthwhile, did you really want to have to buy tax software to do that?

3. Savings Rate Band: at least a two step calculation to see whether you claim this.

4. Pensions annual allowance taper: surely people can simply be allowed to save up to their lifetime pensions savings limit? 


Either increase this to make it worth the effort or scrap it!

5. Dividend allowance: so low that its hardly worth having £140 if you are a basic rate taxpayer


Re-think these measures: they are really, really, really badly thought out!

6. Recent changes to taxing Property Income and capital gains tax Private Residence Relief: these are likely confuse 'the hell' out of most property owners and landlords, especially those who have mortgages and are doing airbnb

Taxpayers now have to work out all the different permutations of the rules:

  • What claim is possible: for income tax? We have the property allowance or a trading allowance or rent-a-room relief or maybe just to claim actual expenses?
  • Have remembered the Restriction on Property Finance Costs?
  • Did you check the rules for Replacement of Domestic items or have you disallowed costs as capital?
  • Have you retained all the data you need to declare any gains on disposal? Capital Gains Tax (CGT) Private Residence Relief (PRR) changes next year.
  • How will this affect your CGT lettings relief? How exactly will the new rules to restrict both of these reliefs when you are letting the property? What is any of that time is or is not within any of the permitted absences already allowed within the legislation.
  • Are you ready to file five tax returns a year under Making Tax Digital? Ouch!

7. Trading and property allowance: people are so confused how they claim these, do theses allowance interact with other reliefs? Do they apply to multiple income sources and how and if, they interact with expense claims. Safer not to claim?

8. Disguised remuneration settlements: HMRC is operating multiple variations of the settlement rules, the calculations are particularly troublesome and labour intensive for both HMRC and taxpayers. Why not offer a flat rate settlement deal in order to agree claims and get the cash in quickly? Aargh!


Stop tinkering with Entrepreneurs!

9. Recent changes to CGT Entrepreneurs relief have changed something that was almost as simple as 'boiling an egg' into a set of tasks as complex as creating a seventeen course tasting menu for a four starred Michelin restaurant. Entrepreneurs!  don't try and claim this relief without help. 

10. Scrap Class 2 National Insurance Contributions (NICs) for the self employed: why have two types of NICs when you could have just one?

Notes

Income tax is the biggest tax raiser for the UK: we have looked at the tax queries that come into us from both professional advisers and the public and we know how long all these reliefs take to work out as we regularly work them out. We can see that you can  'easy wins'  for income tax.

Capital gains tax does not draw in as much revenue however we have always had the most queries on Private Residence Relief and Entrepreneurs' Relief and HMRC raises a lot of enquiries into these taxes. That is likely to increase! We wager that few people are aware how complicated the recent and proposed changes are going to make claims for these reliefs in this year's tax return and the next.

Obviously the whole matter of Devolved Taxes for Scotland, Wales and Northern Ireland creates a future of untold complication and costs however we are staying out of politics on that one!

Last time:

Ten surprising effects of Brexit uncertainty

And the time before that:

Tax fit: 7 things you can do to improve your tax health

 

Useful guides

Check out our Virtual Tax Partner Toolkit if you are attempting a claim for Entrepreneurs' Relief 

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Comments (1)

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Whilst I agree with the idea of tax simplification and the 10 'easy wins' look reasonably good, I am minded of the adage that taxation is either simple or fair, it is rarely both!

Taking two of your wins to task, while the Dividend Allowance...

Whilst I agree with the idea of tax simplification and the 10 'easy wins' look reasonably good, I am minded of the adage that taxation is either simple or fair, it is rarely both!

Taking two of your wins to task, while the Dividend Allowance (Win 6) may be of little use or benefit, the complete removal would potentially necessitate 1,000s (possibly millions) more Self-Assessment Tax Returns to collect the tax on small amounts of dividends. Clearly, some sort of de minimus would be needed to avoid this but that may just create a new 'cliff edge' for unwary taxpayers to fall over!

The other one is Class 2 NIC (Win 10). Politically, this could be difficult as Class 2 NIC is the contribution that attracts State Pension and other Benefits for the self-employed and its removal, might encourage taxpayers to realise that Class 4 NIC is really a tax!

A final point on the political angle. Successive politicians have realised that taxation can be a vote winner (or loser, depending on your view) and Chancellors have been encouraged to tinker with the UK's Tax Code at greater and greater speed. Hence, bad legislation and late guidance, followed by further bad legislation, and so on.

As the Two Ronnies might have said, 'Taxation, I wouldn't start from here if I were you!' :D

Have a great weekend
Ken

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