The Chancellor, George Osborne, delivered his surprising Budget speech this afternoon, offering a boost to both pensioners and savers. AAT member, Jenni Bickerdyke, shares her own thoughts on the UK tax system and selects the ones she would change.
Accountants are so close to the tax system that they see every day the anomalies within it. I’m not considering the economy here – just plain fairness. No one in the right mind would design’ a tax system like ours.
1. Raise the inheritance tax (IHT) threshold to £1m
The original point of the law was to tax the rich. With house prices the way they are, so many people on middle incomes are caught out. Just raise the threshold and be done with it. Hard-working people pay tax all their lives. Leave IHT for the truly rich.
2. Change the stamp-duty scale
At the moment, the stamp duty on a house costing £250,000 is £2,500 (1%).
If you’re unfortunate enough to have to pay £260,000 for your house, stamp duty is in the whopping 3% bracket – on the whole lot – at £7,800!
It should be tiered so the next percentage only kicks in for the amount paid over that threshold, much as income tax works. As above, house prices are so high that stamp duty is catching more people than ever before.
3. No income tax on anyone working full-time for minimum wage
The UK minimum wage is £6.31 per hour. On a full-time, 45-hour week, that’s £14,765 a year. The Living Wage Foundation states that the UK living wage (i.e. what people really need, according to the basic cost of living) is £7.65 per hour (£8.80 in London). That’s £17,901 per year (£20,592 in London).
If someone needs nearly £18,000 per year to actually live on, how is it fair that someone on less than £15,000 still has to pay tax? It’s not. Stop it now. Universal Credit, a project which has slid from tragedy to farce, will replace working tax credits and other benefits. It’s a complex way of doing things.
Raising the personal allowance to cover a living or even a minimum wage just makes more sense. I would guess that raising the personal allowance would balance out the tax credits bill – and be simpler and cheaper to administrate.
It may also put a dent in the £2.4bn benefits ‘overpayments due to error’ figure, as estimated by the Department for Work & Pensions (DWP). And it would probably reduce the smaller £1.2bn estimate of benefit fraud, as fewer people would need to claim.
4. End high-level, grand-scale corporate tax avoidance
Starbucks, Vodafone and others have been in the media spotlight in the past few years. In one case, HMRC came under fire for waiving £10m of interest from a disputed Goldman Sachs bill. I can’t think of one client who has been let off tax, or interest, when it was in dispute.
It seems there’s one rule for the man in the street and another for rich corporates. HMRC estimates the annual tax evaded, avoided and uncollected amounts to £30bn. The Tax Justice Network and Public and Commercial Services Union estimate this to be more like £120bn.
Yet compare this with the DWP estimates of benefit fraud and overpayments above – which would you focus on? Unclaimed benefits may add up to £12bn, and old-age pensioners and in-work top-ups account for majority of the welfare bill – not jobseekers or incapacity benefits.
Yet the government is brazenly passing crippling welfare reforms for the vulnerable in society. Yes, this makes me angry. Government, please get your priorities straight.
To read more about the Budget, check out the predictions from AAT’s Tax Policy Adviser Brian Palmer.
Jenni Bickerdyke has an AAT qualification and is the owner of Farrant Frost.