Insights

Time for a better tax system

Income tax was initially introduced in England by Pitt the Younger in 1798 to help finance the Napoleonic Wars. Since then the British tax system has developed in a largely ad hoc and politically expedient manner. New taxes have been introduced or attached to existing taxes whenever a government needed more money. Little if any strategic or integrated thinking seems to have taken place. According to the Adam Smith Institute, Great Britain has the largest tax code in the world – one that is approximately five times as long as the German tax code.

We have now reached a position whereby the taxation system is too complicated for one person alone to fully understand it. Firms of accountants and solicitors are full of people who specialise in only one kind of tax because of its complexity. How is an average person in the street supposed to cope?

Can it really be right that in a democratic society, citizens need to retain accountants to file even the most basic tax return because it is too complicated to complete without specialist advice? Surely it is fundamental to a democratic society that citizens are able to understand the taxation system that is so integral to their lives.

Taxes are hidden everywhere as are penalties and surcharges for failure to comply. The term ‘stealth tax’ has become part of the language. The system is no longer transparent and fair. Society should be becoming more equitable not less so.

How efficient is it for different departments and organisations to be collecting so many different taxes? Surely if council tax were abolished and replaced with centrally distributed monies, funded via an increase in income tax that would be a far more efficient use of Public Funds? Also why not merge all four classes of National Insurance Contributions (NIC) and income tax to form one tax? Reduce five different types of tax into one. Think of all the savings that could be made there and how much simpler it would be.

The British tax system now puts a great burden on any budding entrepreneurs. Anyone who has tried to establish a business will know the weight of bureaucracy that accompanies any attempt at enterprise. This was not always the case.

If a businessman manages to finish the mountain of yearly paperwork and complete some commercial work he is then hit with a raft of taxes.

A self employed person who buys a pint of beer will have paid business rates, income tax, class 2 NIC, class 4 NIC, VAT and excise duty before he is able to take a drink. And that does not even include standing taxes such as council tax.

In short we have an abstruse taxation system, which is inefficient, inequitable and provides a significant administrative burden to anyone wishing to establish a business. This is not how a tax system should operate in the 21st century.

The time has come to completely rewrite the UK tax system. The existing rules and laws should be removed and a new system introduced using a blank sheet of paper. This exercise should not be carried out by politicians whose main objective is to increase tax yields without losing votes. It should be carried out by experienced tax professionals with a view to simplifying the system so that the number of taxes is reduced, the cost of collection is reduced, and that the burden of taxes is fair yet still incentivises all.

It is also fundamental that any new system of tax needs to be transparent. If the system is to be successful it needs to be respected. For this to occur the UK taxation system needs to be seen to be fair and transparent by all.

Clearly a political consensus needs to be obtained as the headline rate of tax will increase significantly. However we need some clear sighted politicians to have sufficient courage to pass responsibility for restructuring the taxation system to a group of independent experienced tax professionals.

— Geraint Jones, Private Client Partner