Tuesday, August 30, 2011
Talking to Vanessa: Should the rich pay more tax?
There was never going to be time to make all of the following points during my interview with Vanessa Feltz on Radio London this morning. But I think I got through most of them:
Vanessa's intro piece referenced foreign multimillionaires who are volunteering to pay more tax: Warren Buffett, Liliane Bettencourt, France's richest woman and Luca di Montezemolo, the boss of Ferrari.
I was a tax adviser for 25 years before I gave it up as I was uncomfortable helping rich people to pay less tax. Now I run a Network of over 30 independent tax consultants.
With a top rate of 50% the UK already has one of the highest top rates of tax in Europe. A recent report by KPMG reveals that only three countries had higher personal income tax rates than the UK in 2010: Sweden (56.6%), Denmark (55.4%), and the Netherlands (52%). Three others had an equal highest rate of 50%: Austria, Belgium and Japan.
If all of those foreigners 'offering' to pay more tax did so they would still ONLY being paying 50% which is already the tax charged on highest incomes here.
We need a tax system that doesn't incentivise rich people to find ways to pay less tax.
What do we mean when we talk about rich people? Those with annual incomes over £50,000? £100,000, £150,000 or a higher figure? Those who are worth £1m? £10m? £100m? £1bn?
We say we want a fairer tax system but there always has to be a trade off. We also want a simple tax system and we want certainty. In 1999 the ICAEW went further and identified ten principles that provide a framework for evaluating the tax system.
The effective top rate of income tax is actually 60% on incomes over £100,000 due to the rules related to the introduction of the 50% rate. Just goes to show how complicated the tax rules are!
No one yet knows how much tax the 50% rate raises here. We've only had it for one complete tax year fo 50% tax and the self employed will not being paying their 50% tax until 31 January 2012. (I explained this here in April: 50% tax rate announced in Budget 2009 but 2 years on and the self employed haven't paid it yet)
I'm equally concerned about those who take cash in hand, those who fiddle their expenses and those who use abusive tax schemes to reduce their tax bills. (Doesn't everyone try to avoid or evade taxes?)
I also admire all those who donate time and money to charity. Why don't those mentioned above give more of their wealth to charity? I suspect they are calling for higher tax rates in their countries to ensure that all other wealthy people pay more tax too. So that it stops being voluntary.
If anyone wants to pay more tax here they cannot simply send it to the taxman. If HMRC's computer doesn't show the additional tax as being due it will show up as an overpayment. And then it will be refunded. (I addressed this here in the context of Hazel Blears' gesture in 2009).