Is personal tax optional ?

kabayiri

Another week, another tax story from C4 it seems

This week saw actor Greg Wise invite financial advisors into his home to tell him how paying tax was effectively optional.

Two mechanisms were discussed : the use of Trusts and EIS.

It seemed clear he could kill off his tax bill should he choose. HMRC didn't bother to offer up a spokesperson; the pro-tax argument came from a fairly dispirited Tory MP.

It got me thinking. How about a radical system where people got to choose what tax they paid, and all figures were published, browseable by all?

All these attempts at enforcement have resulted in the most complicated tax code in the world.

HappyMJ

Of course it's optional.

All you've got to do is reduce your taxable income to below £10,600 per year. You can do that by reducing your hours of work.

PasturesNew

HappyMJ wrote: »

Of course it's optional.

All you've got to do is reduce your taxable income to below £10,600 per year. You can do that by reducing your hours of work.

Or earn more than £1million a year and pay somebody to make sure your tax is £0

michaels

HappyMJ wrote: »

Of course it's optional.

All you've got to do is reduce your taxable income to below £10,600 per year. You can do that by reducing your hours of work.

You are forgetting NI 'tax' that kicks in a fair bit lower.

I am paye and aim to pay no personal tax this year or next (subect to changes in the upcoming budget), unfortunately I can't earn less than minimum wage so still have to pay NI.

ViolaLass

I'd rather have 80% of a higher income than 100% of a much lower one.

wotsthat

Just live frugally and maintain a high savings rate using tax efficient savings and a significant chunk of tax is optional. Rinse and repeat and hours can be dropped, less tax paid and even benefits paid. Some people (you know who you are michaels) have turned this into a cross between a sport and an art form.

This is an option most people don't want to choose because they like to spend most of their income. They pay tax on the income, tax on the consumption and don't have spare cash to take advantage of the available tax breaks. They kid themselves they do this because of their morals and desire to fund essential government spending.

princeofpounds

well, I think you make three points there which are worthy of a thread each:


1) Is such aggressive tax avoidance possible?
2) Would a voluntary and transparent tax code work?
3) Should our tax code be this complicated.


My answers....


2) No.
3) No.


1) This area is complicated! The program didn't give sufficient details of the schemes involved to actually know what they are up to.


In my experience (and I only have tangential expertise in this area, so I might well miss something), avoiding paying tax as an employee beyond a few basics is not really possible. Even if you are a really high earner.


Most of the opportunities appear to be easier to access by people who are effectively their own employers, i.e. people who own personal companies, and can arbitrage their status as employees, owners and corporate as best suits their needs.


By the 'basics', I mean pension contributions (which of course get taxed on the way out and might be severely restricted soon anyway), ISAs (saves on capital gains), and salary sacrifice workplace benefits (which sometimes can save on things like national insurance, but is pretty limited)


If you want to be more risky, then you can look into EIS, SEIS, VCTs, BPRAs - all of which are entirely government-designed incentives (to invest in early stage companies and shabby areas of the UK).


Fundamentally there isn't anything aggressive tax-wise about any of these schemes, any more so than an ISA. Where it starts to get aggressive is when these schemes get combined with things like leverage, misdescription of the underlying investment, and weird sector-specific subsidies or reliefs the government invents.


These can save you quite a bit of income tax and/or capital gains, but in my experience they are rarely the sure bet they are presented as.


For example, you have huge counterparty risk - by definition you are handing money over to a company that is trying to be financially slippery. And because they want to stay below the radar, it's not like brand recognition is a good guide to stability.


There is also the risk of the taxman deciding that the scheme doesn't comply with the rules. Which they increasingly do in retrospect, which is expensive.


Then the underlying mechanics of many of these schemes is often not as assured as the impression the sales people give. For example, investing in a BPRA scheme requires you to invest in renovating a business property in a disadvantaged area. Some scheme providers stretch the intention by choosing the lowest-risk investment they can find, such as a car park, but it still has commercial risk. One particular issue for that sort of scheme is if the project doesn't get finished on the back of the capital raised in the scheme, and the scheme provider comes back to ask for more to get it done...


Don't know - does anyone follow this area more carefully and know of other examples?


I don't doubt that a proportion of these schemes do work out, if for no other reason that the taxman doesn't get around to examining them given limited capabilities.


There are also a few tweaks around inheritance, such as buying and holding qualifying AIM shares for qualifying periods. But that's an area I know little about.




PS - things like EIS are probably going to explode if the pensions contributions are capped for higher earners, given that you can stick squillions into these schemes.

kabayiri

It just seems that in the supposed battle between a lumbering HMRC and agile financial specialists who can work every angle of an ever increasing tax code, there will only be one winner.

The more caveats you put into legislation the more opportunities seem to present.

If tax is really a morality play as the Tory MP suggested, then are we not better to emphasise systems which promote this?

(I'm loathe to make this a Left v Right issue ... it isn't really).

Alternatively, should the tax focus shift to consumption taxes? We do have a lower VAT rate than some other Euro countries for example.

kabayiri

michaels wrote: »

You are forgetting NI 'tax' that kicks in a fair bit lower.

I am paye and aim to pay no personal tax this year or next (subect to changes in the upcoming budget), unfortunately I can't earn less than minimum wage so still have to pay NI.

I should have intro'd you to a bunch of Nigerian IT contractors who were pretty happy with 90%+ of gross as take home !

...the problem was that in this case the Revenue took an active interest in the Isle of Man Umbrella companies.

Maybe Nigerian IT contractors don't have enough Emmys or Oscars

kabayiri

princeofpounds wrote: »

...
1) This area is complicated! The program didn't give sufficient details of the schemes involved to actually know what they are up to.
...

What can be done in half an hour?

The program seemed to me to be a morality play as much as anything. Clearly Emma Thompson & hubby are good Guardianistas.

kabayiri

PasturesNew wrote: »

Or earn more than £1million a year and pay somebody to make sure your tax is £0

Are you suggesting there is a gap in the market for lower hanging fruit PN?