Taxation. Would it make sense to...

JimmyTheWig

I think that most people agree that those who can afford to pay more tax than others should do so.

I think that it is accepted that there is a flaw in income tax in that the wealthy can "massage" their accounts to show small profits, and thus pay low tax.

Would it make sense, then, to have something like an "expenses tax"? E.g. ...
Person 1 earns £30k PAYE.
Person 2 runs a business that brings in £90k and claims £60k of this as business expenses. So Person 2 makes £30k profit and currently pays the same tax as Person 1.
I think that it is probably fair to say that Person 2 actually brings home more money than Person 1, but the difference is accounted for in his books. So what if we taxed the £60k allowable expenses at, say, 2%? So Person 2 would be paying the same tax as Person 3, who earns £36k PAYE.


Does that make sense?
Does it sound fair to people?
Are there businesses / industries that couldn't survive such a change?


Would a similar situation be acheived by preventing businesses from claiming VAT back on their purchases? I sort of think it would but can't quite get my head around it.

ILW

If expenses are legit, why should they be taxed?

There is an argument for looking more closely at what is claimed though.

N1AK

In short Jimmy expenses are already pretty well covered by regulation and you will find outside of 'self employed' contractors (who can abuse the system in a myriad of dubiously legal ways) it isn't expenses that are used by the wealthy to dodge tax.

More regulation on expenses would just create more complexity and make it harder for businesses to do things; it would have almost no influence on abuse.

CLAPTON

well take two different types of business

one a high margin business
makes 90k and has expenses of 60k and so profit of 30k
so pays extra tax of 2% of 60k i.e. 1,200

company two has a low margin business
turnover 500,000 but costs 470,000 so profit 30k
but he would pay 2% of 470,000 i.e. 9,400


fair or what?

somethingcorporate

It's a nice idea in theory but it is suggesting expenses are being massaged unfairly, which calls into question the integrity of the people producing those accounts.

Pennywise

HMRC need to get their finger out and check up on expenses claimed by businesses to ensure that they are legitimate.

There's no need to change the law - existing laws are quite specific as to what can and can't legitimately be claimed.

If some businesses are getting away with claiming more than they are entitled to, then that's the fault of HMRC, not the legislation.

If you take any of the "common" tax dodges said to be enjoyed by some business, i.e. paying the wife for work she doesn't do, claiming holiday costs and putting it down as a conference, claiming expenses for a brand new Jag that's never used for business, etc., then HMRC have more than enough power to clamp down on these, charge the tax underpaid and also hefty penalties.

We should be asking why HMRC are letting some businesses get away with this kind of abuse.

Pennywise

CLAPTON wrote: »

well take two different types of business

one a high margin business
makes 90k and has expenses of 60k and so profit of 30k
so pays extra tax of 2% of 60k i.e. 1,200

company two has a low margin business
turnover 500,000 but costs 470,000 so profit 30k
but he would pay 2% of 470,000 i.e. 9,400


fair or what?

A good illustration as to why the idea is unworkable.

chewmylegoff

also companies which were making losses would have to pay more tax than companies with the same turnover which were making profits...

i don't think it is generally accepted that "the rich" massage their accounts by offsetting genuine expenditure against income. i think it is more generally accepted that "the rich" place income outside of the scope of tax using a variety of methods, including pretending not to live in the country, pretending that their wife owns everything etc.

CLAPTON

JimmyTheWig wrote: »

Would a similar situation be acheived by preventing businesses from claiming VAT back on their purchases? I sort of think it would but can't quite get my head around it.

The whole point of VAT is that it is an Value Added Tax and if you couldn't reclaim 'input' VAT then it would turn into a turnover tax.

Obvious the extra costs will be charged to the consumer (just like increases in VAT) so we could look forward to up to 20% increase in prices.

chewmylegoff

CLAPTON wrote: »

The whole point of VAT is that it is an Value Added Tax and if you couldn't reclaim 'input' VAT then it would turn into a turnover tax.

Obvious the extra costs will be charged to the consumer (just like increases in VAT) so we could look forward to up to 20% increase in prices.

up to 20%? surely every single company in the supply chain would be passing on its prices to the next company up. all of this would get passed on to the end consumer. the impact on the end consumer and/or the economy could be enormous.

pelirocco

JimmyTheWig wrote: »

I think that most people agree that those who can afford to pay more tax than others should do so.

I think that it is accepted that there is a flaw in income tax in that the wealthy can "massage" their accounts to show small profits, and thus pay low tax.

Would it make sense, then, to have something like an "expenses tax"? E.g. ...
Person 1 earns £30k PAYE.
Person 2 runs a business that brings in £90k and claims £60k of this as business expenses. So Person 2 makes £30k profit and currently pays the same tax as Person 1.
I think that it is probably fair to say that Person 2 actually brings home more money than Person 1, but the difference is accounted for in his books. So what if we taxed the £60k allowable expenses at, say, 2%? So Person 2 would be paying the same tax as Person 3, who earns £36k PAYE.


Does that make sense?
Does it sound fair to people?
Are there businesses / industries that couldn't survive such a change?


Would a similar situation be acheived by preventing businesses from claiming VAT back on their purchases? I sort of think it would but can't quite get my head around it.

Its hard enough running a business as it is , i might as well shut up shop.
What exactly do you imagine business expenses to be?