George Osborne promises tax break for new businesses | Politics | guardian.co.uk .
Any new business set up in the first two years of a Conservative government will pay no tax on the first 10 people it employs, George Osborne announced today in a move aimed at creating 60,000 new jobs across Britain.
Oh joy of joys for the tax abusers: evey one and two person man band in the country will dssolve their business, set up afresh and claim no NIC.
It's another 0% corporation debacle in the making.
Why don't politicians learn to talk to tax fiddlers (like me - though I'm of the benign variety) before making such stupid announcements?
Marks out of ten for competence = minus 3.
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If any one-man band is clever enough to do this then they’re probably already avoiding NIC by going the low salary/high dividend route. So to me, your point is irrelevant.
Also, I can’t think of a worse tax than Employer’s NIC.
I just don’t believe that this will encourage anyone to set up a business. Worse, this measure will be temporary. If the business can’t afford to pay its taxes, it is probably not really sustainable.
Presumably, this will enable the business to pay its staff less.
But I agree with Peter about employers NIC being really bad.
Osborne’s perception is right. NI adds to employment costs and helps to sustain unemployment. But instead of dealing with the issue we get a temporary and arbitrary ad hoc concession with all the associated loopholes, so yes, -3 out of ten for competence. It will also keep a few platoons of bureaucrats occupied dealing with it and combing through the returns to make sure the concession is not being exploited.
This is what happens when there is no understanding of how the system functions. It does not augur well.
Why scrap ‘Ers NIC and put the lost income onto the CT rate? Reward companies that employ rather than those that make large profits of few staff.
I know why – physical staff are easy to tax – profits are much more elusive. An indication that the both the government and the opposition have given up the fight on corporate tax avoidance.
An across-the-board cut in tax and NICs rates for low paid earners – or an increase in tax free allowances – would be much better than this kind of jiggery-pokery. Amusing that the Conservatives criticise New Labour for tinkering around with the tax system at the margins (which they have done a lot of, it has to be said) and then propose to do more of the same themselves.
Of course, tax cuts on the low paid cost money. But that’s what a progressive tax system’s for… claw it back further up.
Tax cuts on the low paid cost very little. Actually the burden of such taxes falls on employers. Cutting them reduces the gross cost of labour. In doing so, people with low level skills can be brought into work. Thereby cutting the government’s benefit bill.
I’m intrigued as to why you say the burden of NICs falls on employers when the standard textbook model of a competitive labour market says it falls on employees (i.e. an increase in employer NICs would reduce wages by the same amount). Now I’m no great fan of the standard textbook model, but it’d be interesting if you could elaborate a bit more on that.
Howard, the easiest way to understand this is consider what happens at the margin. Someone who is not working will be in receipt of between £150 and £200 per week. Which is not going to keep them in luxury, whatever people say. In order for them to receive the same amount in take-home, the employer has to pay between 60% and 80% more than that, taking into consideration employer’s NI (nominally paid by the employer) and employee’s NI and PAYE, nominally paid by the employee and forming part of the “gross pay” figure.
This accounts for the low wage/high labour cost paradox and explains why prawns from Scotland are sent to Thailand for peeling and returned afterwards, despite high unemployment in the fishing towns. The tax system means that labour prices cannot fall to market-clearing levels whilst still leaving with workers with enough to survive on.
Gross pay is a fiction. It would make no difference if employees received net pay and all the other taxes were put together and levied as a payroll tax. This would have the advantage that the burden would fall at the point of incidence, which would improve transparency, promote better understanding of the economic processes involved and substantially reduce the cost of collection.
The standard texbooks are evidently written by people with no experience of the real economy.