It's obviously not true that all tax wisdom is deposited in one political party. The Conservatives are struggling to find any, Labour is doing fairly well, although in need of more precision over last night's tax estimates, and the Lib Dems had a go this morning.
They have said (and I use the Guardian's summary) that they will commit to:
- A new High Value Property Levy: on properties worth in excess of £2m — raising £1bn
- Corporation Tax: limiting of interest deductibility — raising £800m
- Corporation Tax: restriction of loss relief — raising £650m
- Non Domiciled residents: increase in charges — raising £135m
- Universal Credit: Transition measure on capital allowances, protections and 30 hr rule — £420m
The first is not that dissimilar to Labour. Both need to extend Council Tax bands instead for now and commit to Land Value Taxation in the long term.
The second is interesting and overdue, but if a tinkering not what we need. Comprehensive reform of tax reliefs is needed and this is no indication of a commitment to that. But I cautiously welcome it.
Play carefully with loss reliefs I say: restrictions can be valid (I would limit the time for carry forward as is very common elsewhere) but care has to be taken that economic reality is taxed, and losses are part of economic reality. These reliefs can be abused, and that should be covered by a general anti-avoidance principle, but great care is needed here.
The non-dom change is just wrong: Labour have this right and it does the LibDems no good to keep supporting this.
The Universal Credit issue is a really big issue for the low earning self -employed and little commented on as yet. They are to face a nightmare with new rules on supplying data on their earnings that are massively unjust and an enormous admin burden. Tinkering at the edges won't solve a problem of LibDem making.
I am also aware of another LibDem policy announced today - that those with dividend income who pay higher rate tax will have to pay an extra 5% income tax on dividends. This will collect £1.2 billion (although the same people have just been given £400 million of tax relief on interest by the LibDems, so this is bizarre). I welcome increased rates of tax on investment income, which is massively undertaxed in the UK at present. But why only dividends? Why not rents, and interest and other unearned income too?
All this smells of tinkering. It makes into a package that is strategically a long way short of coherence. After five years at the Treasury Danny Alexander should have been able to do something better than this.
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Richard
NI is of course the mechanism by which one qualifies for state pension and other benefits. It is largely NI that creates the difference between the rate at which dividends, rents etc are taxed when compared to employment income. Yes it’s open to abuse as people running their own company can pay just enough salary to create a “qualifying year” for NI and then pay the rest to themselves as dividends but that’s just an abusive minority. For the majority the NI they pay is a contribution towards the benefits they will get later.
Which leads to my question. If dividend/rent etc income is to be taxed at higher rates, should such higher rates count as pension etc qualifying contributions? That is the logical conclusion.
KRs
Tim
If you hadn’t noticed pension credits are means, and not NI, tested
And yes, I’d be happy to pay a pension based on this income if it was properly taxed, just for the record
That’s because I would not wish anyone to lose out in old age
Maybe you would
Richard
Why you would assume I would wish anyone to lose out in old age when my query clearly states I would wish the opposite is strange.
Pension credits are means tested? I suspect we are talking about different things. I quite clearly talked about pension contributions qualifying years. For example Ken Livingstone over a number of years paid himself a salary which was just above the Lower Earnings Limited so he gained a qualifying year for state pension purposes without paying a penny in NI.
It is disingenuous to accuse others of being anti old people when they are actually clearly in favour of the opposite. I have never paid myself dividends to avoid employers’ NI. You cannot say the same.
KRs
Tim
I have not avoided NIC – in years when I paid dividends (and once upon a time I did, I agree – but one lives, and learns, unless from the right wing when such possibility is denied) I also paid maximum NIC contributions on my earnings – when such a thing was possible
And for the rest of your comments, respectfully they make no sense
Is it not the case that you are structured as an LLP and have therefore paid less in NIC than if you had been structured as a Limited company and paid yourself a salary equivalent to your drawings, therefore avoiding employer’s NIC?
Yes, of course
But I have been self employed for 30 years
And I selected an LLP option that allowed me to voluntarily record my accounts on public record and be consistent with the tax status I have had since 1985
It is also an option available to anyone who chooses a limited company and so 100% tax compliant
Your problem with that is?
I have no problem with it whatsoever; I was merely pointing out that your claim that you had not avoided NIC was inaccurate.
There are many times where you highlight other structures that avoid some form of tax that you disagree with, notably companies whose owners pay themselves via dividends rather than salary, when these options are also 100% compliant.
But I have not avoided a penny of NIC
Not one
I paid full NIC to the earnings limit in the years in question
And I also never ask anyone to maximise their tax
So, very politely, you are talking twaddle
But probably no more of twaddle than when you have claimed that company owners who pay themselves dividends rather than salaries are avoiding NIC, which is a claim I have seen you make several times.
I have no critiscism of your current structure but also think that those company owners who pay themselves in that way are also doing so in a 100% compliant manner and am just looking for consistency.
Restating labour income as investment income is not compliant with what the law intended
It’s legal but not compliant
That’s the reality of this. You confuse the issues
I know that I’m very off topic here but I think the root cause of a lot of this issue is caused by the interaction of Er’s NIC and the UEL for Ee’s NIC and class 4 NIC’s upper profits limit bringing it down to 2%. To me, the way in which NIC works encourages employers to employ more lower paid staff and encourages business owners to seek to find structures to avoid it. Surely by significantly reducing Er’s contribution and then placing that burden on the higher earners’ individual NIC burden, this would create a much more equitable position with less incentive to create structures that avoided it?
For those who avoid rate has never been an issue
They avoid whatever the rate
Lib Dem’s? Coherence? Loud cough.
What would one expect of bandwagon jumpers? I find it hard to believe there’s any semblance of principle involved, more ‘monkey see, monkey do’. They seem intent on ruling themselves out of the UK’s political future. On recent performance, I doubt they’ll be missed 🙂
Richard, I have said this before, but you cannot extend Council Tax bands without a full revaluation. There would be no point in going to this expense and then introducing LVT which would involve a completely different valuation exercise, on which to base regular, frequent reassessments (which is essential for the integrity of all annual property taxes).
The Lib who?
It also smells of policy made up by: ‘Sandpits’, ‘Post-it-Notes’, ‘Focus groups’ and ‘Google Analytics’.
I personally think that if you want to tinker with dividend taxation a good starting point would be to make sure that the tax credit that came with the dividend reflected the amount of underlying tax that had been paid by the company.
It is nonsense that you get the same notional 10% tax credit whether the company paid the full 21% (or historically more like 30%) or if the company effectively paid close to 0% corporation tax. Leaving the tax credit as non-refundable, but making sure it reflects the actual corporation tax paid would make a lot of sense. Shareholders that invested in tax avoiding companies would pay more tax on their dividends, investing in companies that pay the official rate should mean your basic rate tax was covered.
I agree on this one, entirely
The best thing the Lib Dems could do would be to reverse the above-inflation increases in the personal allowance – which have cost well over £10bn, depending on what inflation index you use – and use the extra tax revenue to reverse the draconian benefit and tax credit cuts which low income families have been subjected to over this parliament. Low income families have been raided to fund tax cuts for people on middle incomes – a sickening smash-and-grab which destroys the Lib Dems’ claim to be a party of ‘the left’ or even ‘the centre’. They are pretty much the same as the Tories except that they are pro-EU.
Agreed