What is a fair amount of tax to pay ?

I guess that’s a bit of a leading question, as most of us would say that we don’t want to pay any tax at all. However, we all know that in reality, taxes are a necessary evil. Most of us appreciate that all our public services (eg schools, health etc etc) need to be funded somehow.

Now I’m not going to get all ‘political’ on you, and tell you which party is better. But unfortunately, I do have a very low opinion of all politicians, and I am saddened by the fact that all of them over the years have interfered, messed around and generally over-complicated our tax system. As a result, I feel that I am fully justified in bringing this to your attention. Yes, the tax system does provide me with gainful employment, but I am more than confident that if everything was simplified, accountants like myself would still have plenty of work to do.

My bug-bear is that many individuals are caught up in our bureacratic system, when a couple of simple forms would suffice, and which they could submit themselves. A simpler tax system would be perceived as being fair, and I also believe that this would result in less tax avoidance (which is legal), and less tax evasion (which is illegal !).

Now we all know that the country is in dire straits. In fact the phrase I tend to use at the moment involves a creek and a lack of paddles. In his Autumn Statement, the Chancellor recently announced an increase of 1% in National Insurance. Now contrary to popular opinion, NIC is not used to fund our pensions or the health service. It is simply tax, and the only reason it still exists, is that the headline basic rate of income tax would be considerably more without it. This is trick with ‘smoke and mirrors’, and all of the political parties are too cowardly to abolish NIC.

Because of the existence of NIC, there are anomilies whereby self-employed and employed people often pay more tax overall than director/shareholders of companies who vote themselves dividends. A lot of the tax planning that I carry out on behalf of my clients often involves ‘ducking and diving’ to minimise or avoid paying NIC. I should also add that most of my clients are small or medium-sized owner-managed businesses, and are simply looking to earn an honest living.

But my question to you : shouldn’t everyone be taxed in exactly the same way ? Well, they aren’t, and this is patently unfair. Now I’m also not going to involved in ‘class’ issues either, but as most of us know, wealthier individuals (with the help of accountants) can usually find a way to minimise their taxes. However, I take issue that the majority ie ‘normal’ people like you and I, can’t always indulge in expensive tax planning, and end up footing the bill.

In conclusion, there will always be certain circumstances (most particularly, running a business), where a good accountant is worth his or her weight in gold. This will always be so. However, as we approach a general election here in the UK, I think we should all consider making representations to the authorities for them to simplify the tax system and make it fairer. We all know that we have a few tough years ahead of us here in the UK, and this affects millions of us. It is my honest opinion that millions of ordinary taxpayers are being taken for granted, and the government and HMRC need to be more transparent in how they calculate and collect our taxes.

Stuart Harris FCCA is a director of Stuart Harris Associates Limited (a small business), and like you, he grumbles and groans when he has to pay his taxes !

You can e-mail him on stuart@sha1.co.uk