Tax can be taxing

The Revenue have made clear that if any MP has paid for personal tax advice, they need to pay tax on any claim they made for public reimbursement. The Ministers concerned have to demonstrate that the advice they bought was advice on the tax position of their employees, not for their own affairs.

If there is any uncertainty about the tax position of employees it would be best for that to be sorted out for all Commons staff by the executives in the Department of Resources. Any cost involved could then be controllled, with all MPs and their staff benefitting from the single piece of advice.

The wider issue is the attitudes towards tax and public spending it reveals. Many Labour MPs have made speeches telling us all that it is good to pay more tax for public purposes. They have said that those on higher incomes , like MPs, should pay more. They have told us the tax system is not over complicated, whilst passing Finance Bills with ever more pages of complex drafting. They have never said we should pay more tax so more MPs can have free tax advice for their offices.

I have regularly complained about both the overall level of tax rates, and the growing complexity of tax law. The adverts telling us “Tax need not be taxing” have not gone down well with some of my constituents struggling to keep up with the legislative outpourings and the demands for more tax.

Any suggestion that the architects of all this, the Ministers themselves, have decided it is all so complicated that they need special advice at public expense is not an easy sell for them. They should have found an easier way of designing their tax system, and they should have avoided the need for individual MP tax advice at taxpayers expense.

If any Minister takes tax advice at taxpayers expense to minimise his or her own tax he or she would be in an untenable position.

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27 Comments

  1. Mick Anderson
    Posted May 27, 2009 at 6:39 am | Permalink

    I have been self employed since 1992, and the personal taxation regulation is impossible to work through. I am obliged to go through the process (and that for VAT) because the Govenment made laws saying I would be imprisioned for non-compliance; those laws don’t make compliance something I am automatically good at. As a result, I have to pay an accountant rather a lot of money each year – effectively compounding the tax.

    Unfortunately the rot set seems to have set in when the last Conservative government introduced the raft of legislation that covered the “self-assessment” regime. The Labour government has made the system much more complicated (read as expensive!) with their incessant fiddling.

    The same applies to the legislation that prevented retail Banks from speculating in markets they didn’t understand. The Tories started to relax the shackles, and Labour completed the job with gusto!

    Perhaps if the initial changes done before 1997 were left unamplified, the current situation wouldn’t be so bad. However, consider the possibility that if the initial changes made prior to 1997 were not made, the subsequent changes would not exist either.

    But back to taxation – it’s really another indication of how MPs don’t think that the real world applies to them. Their litmus test should be “Can I personally work within the results of our legislation?”. If the answer is “No” (and their employing accountants to help them demonstrates this to be the case) then it’s too complicated and should be improved. It’s not a difficult test.

    • Lola
      Posted May 28, 2009 at 6:41 am | Permalink

      I agree about the complications and confiscatory nature of taxation. I do not agree about the relaxation of financial regulation.

      Relaxing, or preferably completely removing, financial regulation is a Good Thing. The exception is to keep solvency and capital adequacy rules for banks. But note, this is only necessary when they operate as a cartel supplier of a monopoly product as thye do in the UK.

      The retail banks have been collectively stupid, but remember they are only banks. The reason they went adventuring with our money is because Brown hosed them with poor qulaity cash at too low a price combined with his policies that made debt more attractive than equity risk capital. The banks became Brown’s unwitting (witless?) tools.

      • Mick Anderson
        Posted May 28, 2009 at 8:17 am | Permalink

        All the banking stuff is a little off-topic – apologies.

        The banking legislation I was referring to was the UK equivalent to the US “Glass-Seagal” act. This is what kept retail banking and investment banking seperate since the Great Depression of the 1930s.

        The progressive repeal of this legislation is one of the significant unlocks allowing the UK retail banks that were “too big to fail” to dig themselves into such a hole.

        If this had not been the case, perhaps the High Street brands (HBOS, Northern Rock and to name the most obvious) would not have been able to lose so much money gambling on international markets.

        Keeping investment banking seperate means that they would have been allowed to fail (like Lehman Brothers Bank) rather than the politically motivated requirement to keep them afloat at all costs.

        As I understand it, the Americans started to repeal Glass-Seagal in the early 1990s, and the British Government felt that (to keep London at the financial cutting-edge) they had to follow suit.

        Incidentally, it also seems to be why traditional investment banks (such as Morgan Stanley) started issuing credit cards – the mirror of why the UK banks could make themselves vulnerable. It meant they could claim to be a retail bank and benefit from the corresponding corporate protection.

        However, there is also the insurance problem that seems to have infected the banking industry. The idea that you can take as wild a risk as you want as long as it’s covered by insurance. The link is then broken between the idea that a bank can only lend (or risk) what it can afford to lose – the traditional “boring banking” where you went on bended knee to your local branch manager if you wanted a mortgage or overdraft.

        Associated with this is the idea that you can “sell” packages of loans on, including some of those toxic mortgages from the US. Again, insurance was meant to ensure that nobody could ever lose, but nobody considered the possibility that the situation would grow to such an extent that the insurance companies could not cover all of the possible losses (AIG anyone?!).

        So, yes, the banks have been collectively stupid, especially in forgetting that they used to work in a particular way for a very good reason – it was safe. It required “due diligence” in their operations, for which insurance policies should never have been considered a substitute.

        But, if they are to have the ultimate in taxpayer protection, they should have some limits imposed on them. They can either have no protection but complete freedom (as the old investment banks had), or complete safety backed by the taxpayer, but limited areas of operation (like the old retail banks). For them to be completely protected but able to demand freedom to take the wildest risks is not reasonable.

  2. alan jutson
    Posted May 27, 2009 at 7:05 am | Permalink

    Yes agreed.

    It all rather smacks of the old saying:
    “do as I say, not do as I do”

    You would never think that the system allowed them to put their returns in on time would you. Then the Taxman will calculate the tax for you for FREE of CHARGE.

    Probably did not take the above action because then their tax bill may well have been higher if the Inland Revenue had done the calculation.

    As outlined by yourself and by many bloggers on this site.

    THE SYSTEM IS FAR TOO COMPLICATED.

    If you need to trawl through more than 10,000 pages of explanation it is a bit of a clue.

    I hope all of those MP’s who have over claimed get a thorough TAX INVESTIGATION of their whole affairs.

    MP’s make the rules, they should have to abide by them, perhaps then we may have some more sensible rules.

  3. Mark M
    Posted May 27, 2009 at 7:12 am | Permalink

    Make sure to note down every item of wasted spend. That way, when Gordon Brown accuses you of ‘Tory cuts’ and wanting to sack nurses, you can just reply with the list of wasted spending.

  4. Robert George
    Posted May 27, 2009 at 7:47 am | Permalink

    The issue here is quite simple:-

    When will Gordon Brown think of applying what used to be called Westminster principles to his ministers.

    There are at least half a dozen from whom resignations should be demanded. Ministers are paid a substantial sum for their ministerial duties and should know that if they breach the standards of ordinary probity, they must resign. Just to take one example; it is intolerable that the Chancellor should think he has any right to claim his accounting costs. His job is to collect tax.

    Do you think Brown will sack a single Minister for this – I don’t think so the man hasn’t an ounce of genuine scruple in him.

    Son of the Manse? I think not. This is an administration of unrepentant carpetbaggers.

  5. Brian Tomkinson
    Posted May 27, 2009 at 7:51 am | Permalink

    Several cabinet ministers seem to have “used” the system to maximise their claims and minimise their tax but not one has resigned. How untenable is their position really? Whilst Brown clings on to power he will protect his own position and if that means protecting them he will. The pressure to remove them will come from the media and public opinion.

    • alan jutson
      Posted May 27, 2009 at 9:11 am | Permalink

      Brian

      The pressure to remove them will come from the media and public opinion.

      It may also come from the Tax man.

      If a Member of Parliament is subject to a Tax investigation.

      I would think it impossible for them to retain their position as an MP let alone a Minister.

      This is probably the action the Inland Revenue would take if it was a member of the general public operating in this way.

  6. Acorn
    Posted May 27, 2009 at 7:54 am | Permalink

    There has got to be a great movie in this lot; at least a TV series. I see a remake titled “All the De-Facto President’s Men” or “Once Upon a Time in the Westminster”.

    As we are now at the tax avoidance / evasion episode of this story, can we start talking about Flat Rate Tax systems for income and payroll (NI) taxes?

    How about Land Value Tax (LVT) to replace council tax; business rates;land stamp duty and property capital gains tax?

    Up the revolution, this is no time to waste a good crisis!

    • Robert
      Posted May 27, 2009 at 9:48 am | Permalink

      Council tax should be a consumptive tax as council tax covers services directly related to people – we are already taxed on our incomes for which we pay for property/land or inheritance tax etc so why should we pay again. We have to get people connected to paying directly for services that their local council provides – then people will be faced with the question of do they really need those services and whether the local authority is providing value for money. The problem is with our society, nobody wants to cut anything, because someone else always picks up the tab. House/land does not always equal income, though theoretically wealth! The questions nobody faces up to are whether the services provided really are needed and can we survive without them? I would hazard a guess that at least 50% plus of the cases we could!

      • SJB
        Posted May 27, 2009 at 5:29 pm | Permalink

        Robert: “We have to get people connected to paying directly for services that their local council provides …”

        Didn’t the Conservative Party try about 20 years ago with the Community Charge?

        I was rather intrigued about the proposed new citizen’s initiative mentioned in Mr Cameron’s speech. For instance, if a local referendum votes in favour of free bus travel then who will finance the scheme?

        http://www.conservatives.com/News/Speeches/2009/05/David_Cameron_Fixing_Broken_Politics.aspx

        Incidentally, how much (ball-park figure) will it cost to run a local referendum?

      • Acorn
        Posted May 28, 2009 at 6:23 am | Permalink

        Robert, thanks for reply. Basically I agree with you. My concept of LVT would have it as a local tax yielding a significant proportion of local government net spending and directly under local taxpayer control. LVT would put a cost to holding land out of the market, waiting for local council infrastructure and planning permission to raise its value several fold.

        There would have to be balancing element for low LVT counties, probably from national taxes rather than local taxes. Also, the proportion of national taxes raised and spent within a county would have to be published along with which department or quango was spending it. Locals would then be able to see, or not, the value added to their community of such spending, and challenge it if necessary.

    • alan jutson
      Posted May 27, 2009 at 3:17 pm | Permalink

      Acorn

      “Crisis What crisis”

      Think I have heard that before somewhere.

  7. Obnoxio The Clown
    Posted May 27, 2009 at 8:16 am | Permalink

    “If any Minister takes tax advice at taxpayers expense to minimise his or her own tax he or she would be in an untenable position.”

    Let alone the flipping Chancellor of the Exchequer!

  8. Mike Stallard
    Posted May 27, 2009 at 8:25 am | Permalink

    I want to say how very excited I was yesterday when I listened to David Cameron’s speech, based on Messrs Hannan and Carswell’s thoughts about liberty.
    IF government could really be made more local, as the Labour Party did in the Celtic fringe, then perhaps there might be fewer hangers on and therefore less tax?
    IF people could be trusted more, then the tax system might be simplified so they could fill in their own forms more cheaply and easily?
    The huge question is this (as ever) can we really trust Mr Cameron to put these changes into practice?
    At the moment, I think, the voters still are not sure.
    The Independent, for instance, classes Mr Brown, Mr Cameron and Mr Clegg as people who are really keen on localising and freeing up the British Public (as if!)
    It is crucial that our taxes are simplified and reduced.

    And then there is that debt and the nationalised banks and the pensions of the jobsworths…..

  9. PB
    Posted May 27, 2009 at 8:27 am | Permalink

    Make sure to note down every item of wasted spend. That way, when Gordon Brown accuses you of ‘Tory cuts’ and wanting to sack nurses, you can just reply with the list of wasted spending.

  10. Andy
    Posted May 27, 2009 at 10:14 am | Permalink

    The most galling item of all is that one of the claimants was Alistair Darling.

    Please, someone explain to me how the man in charge of the entire country’s finances can claim that he needs help with his tax return?

    If I were his boss, I would make him go out and find the most tax-complex businesses and individuals he could and do their tax returns for a year. Perhaps then he would have something reasonable to say about taxation.

    • Emil
      Posted May 27, 2009 at 9:24 pm | Permalink

      Indeed, Darling is getting away with murder whilst the media are following the “Respect” led campaign against Julie Kirkbride (who I have little sympathy with BTW, but surely should not be the headline news compared to what leading members of the cabinet are seemingly getting away with)

  11. Richard
    Posted May 27, 2009 at 11:25 am | Permalink

    I find it heartening that even elected socialist politicians – who have an idealogical commitment to high marginal tax rates – will themselves bend over backwards to avoid tax. Just like the rest of us in fact. Perhaps this will give them pause for thought when they think how entrepreneurs and mobile capital will behave in an environment of high and rising taxes.

  12. Andrew Duffin
    Posted May 27, 2009 at 11:26 am | Permalink

    Who said of taxes, “Make them low, make them simple, and make them compulsory”?

    Yes, it was the great Nigel Lawson.

    Perhaps someone should try to re-learn that lesson?

  13. Adrian Peirson
    Posted May 27, 2009 at 1:25 pm | Permalink

    We should just have a Tax on Purchases, that way, most of us do not even need to fill in these silly forms, only Vendors wil have to do it.

  14. Brigham
    Posted May 27, 2009 at 2:50 pm | Permalink

    Ministers being in “an untenable position” regarding taking tax advice, is a real understatement. The endless stream of mistakes and incompetency from all departments of the Government, and Brown the most incompetent of all, means this whole load of fools are indeed in an untenable position that will not be put right without an election.

  15. THE ESSEX BOYS
    Posted May 27, 2009 at 3:51 pm | Permalink

    THROWING AWAY OUR ‘SHOCK-HORROR’ HAT FOR A MINUTE
    WE HAVE TO ADMIT THAT WE BLOGGERS ARE HAVING A FIELD MONTH WITH THE EXPENSES ISSUE! WE ALSO CHORTLED AT BROWN’S REMARKS ON GMTV SO WERE AMUSED TO READ THIS:

    “In an interview on GMTV this morning, Brown said that he was “angry and appalled” by what had been happening at Westminster. “If my father, my parents, thought that these things were going on in the House of Commons, they would be utterly appalled,” he said.”
    Who gives a rag eye boll**k what Brown’s father would of thought?

    REPLY

    He’s still trying to pretend that that moral compass of his is working!

    REPLY

    Hmmm but the magnet fell out, so it’s pointing towards H.M.P. Pentonville.

    IF ONLY…

    • alan jutson
      Posted May 27, 2009 at 4:47 pm | Permalink

      Just shows how out of touch he is with the people of this Country and the way we live.
      Brown has not got a clue what his own Party MP’s are up to, let alone the Cabinet.

      Wonder if he can fill in a Tax Return correctly.

  16. Brian
    Posted May 27, 2009 at 9:58 pm | Permalink

    I am an accountant and have been waiting a long time for this debate.

    One of the jokes about accountants is that an accountant is someone who solves a problem you didn’t know you had in a way you can’t understand.

    This is true their are many traps in the tax system ready to catch the unwary. I have been preparing accounts and tax full time for twenty years and found another one that I wasn’t aware of today so I don’t know how the novice can do it.

    There is also the presumption in the tax system that you are guilty until proven innocent.

    (Allegation against Revenue left out -ed)

    Further there are glaring inequalities to earn £33,000 net a small company would pay £7,000 in tax whilst an employee would pay £20,000 in tax and national insurance.

    The tax system needs to be simplified so that the tail doesn’t wag the dog, their needs to be more fairness and their needs to be stability.

    I would suggest the following proposals:

    The main mechanism for raising tax or fiscal stimulus should be by adjusting the basic rate of income tax. This is easy to implement and hard to avoid.

    Tax on owner managed companies needs revised to stop the abuse of taking a small salary and paying dividends that has taken place over the last ten years.

    Stamp duty should be set at 1% on all transactions over £150,000 – a typical family home in a decent area is over £250,000 and 3% stamp duty is too much.

    Changes to VAT should be kept to a minnimum as it is very hard tax to administer. I would add that the price of an item is based on supply and demand not the cost of bringing it to market.

    Company car tax needs adjusted so that an average car is taxed at an average rate. There is no point in expecting a sales rep who travels a lot of motorway miles to drive a smart car and at present a car such as a Volkwagen Passatt occurs a benefit in kind of 35% of the list price.

    The tax credit system cannot be abolished due to the hardships it would cause, but it should be recognised that it is a silly system when someone can pay tax and get tax back. Over time this system should be phased out.

    • Mick Anderson
      Posted May 28, 2009 at 9:39 am | Permalink

      One of the other jokes about accountants – you can tell an extrovert accountant because when in a meeting, he looks at your shoes instead of his own.

      So, ignoring the question of how an accountant can be so bold as to contribute to a blog….

      Yes, simple is good. In my engineering terms, use Occams Razor, or the acronym KISS (keep it simple, stupid).

      However, I’m not sure I agree with some of the detail. There is no good reason for taxing people on moving house (stamp duty). There is an argument for taxing people if they buy a second home, on the same principle that they are charged CGT on the profit when they sell. But (to quote Eccles) everybody has to be somewhere, and taxing house purchases is a little bit like taxing other vital parts of life such as food. Just because a large chunk of money is changing hands should not automatically mean that the Government has to grab a percentage of it.

      Fairness is a fine principle to base the tax system on, but it also suffers from perspective. For example, all MPs start from the basis that the allowances and expenses priviliges that they enjoy are “fair”, but it’s a minority view….

  17. Duncan
    Posted May 28, 2009 at 2:12 am | Permalink

    They should be in an untenable position but they won’t be. I can’t see Gordon Brown culling half of his ministers even if he knows that a lot of them will lose seats. He must realise it’s over now, the other cabinet members know which is why we have the last desperate throw of the electoral reform dice. I’m up for electoral reform but not out of desperation, it has to be done right. Would getting rid of the Lords in favour of a PR English parliament work? I like directly elected MPs in the commons but noone I know cares or knows anything about this kind of thing. Anyway, all that being said, it’s also clear that Kirkbride’s position is untenable, not because of the overblown family member stuff, but because she must have been in on the double claiming. Cameron seems to making supportive noises, I guess either because he doesn’t want to lose a rare lady MP or because of a deal done on the MacKay resignation. They’re the only theories I can come up with anyway…

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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