Reforming UK Tax System

[PurpleTurtle]

Fastchas said:

I would scrap Council Tax and introduce some kind of...I don't know, lets call it a 'Community Charge' where everyone pays the same for the councils services of Fire Service, local police, social care, libraries etc.
Why should Mr & Mrs X next door pay less than me in a 3 bed semi but with 4 kids, using more of the services, whereas I might live in a 4-bed house with the wife but pay a higher band? Will the Fire Service get to my house faster if they are both on fire? Will the police pay more attention to my burglary complaint?
We are both paying for EXACTLY the same service, why would one be charged more?
And when next door's kids reach 18/get jobs they will have to pay as well, which considering most kids stay at home till well in their 20's isn't a bad thing.

Edited by Fastchas on Friday 28th April 15:12

Much as I agree with you, some woman called Thatcher tried that and there were riots in the streets!

Whoosh Parrot me if due!

[markcoznottz]

It's not the tax system that's not fit fir purpose it's the government/civil service. They still think it's 2004-2006. Total addiction to tax and spend.

[Countdown]

sidicks said:

Countdown said:

It means that Uk-resident companies pay the same tax as those domiciled in Luxembourg.

They already do if they have the same costs.

A UK resident company wouldn't be "increasing costs" by paying "license fees" or an overseas parent company, therevy reducing its tax bill.

[sidicks]

Countdown said:

A UK resident company wouldn't be "increasing costs" by paying "license fees" or an overseas parent company, therevy reducing its tax bill.

A UK resident with a parent company from which it is benefitting from brand value would be paying exactly the same fees.

And there's clearly value to a brand.

[Countdown]

sidicks said:

Countdown said:

A UK resident company wouldn't be "increasing costs" by paying "license fees" or an overseas parent company, therevy reducing its tax bill.

A UK resident with a parent company from which it is benefitting from brand value would be paying exactly the same fees.

And there's clearly value to a brand.

You seem to be missing the point.

Putting the "brand" in a tax haven, something that a lot of multi-nationals do minimises their tax liability. This option is anot available to a company which is purely UK resident, even if it has a brand, because any income from licensing the brand would still be taxable in the UK

[Countdown]

Countdown said:

sidicks said:

bearman68 said:

Turnover tax makes massive sense. Transfer pricing to low tax economies is rife, and detrimental to the market country. At least give the HRMC the opportunity to tax turnover not profit, if the company appears to not be playing fair. That will sort out the likes of Starbucks and Facebook.

If there is a tax of x% on turnover then the company will increase prices by x%.

It means that Uk-resident companies pay the same tax as those domiciled in Luxembourg.

To go back to your original question - let's assume that both companies are charged a turnover tax. This tax can be used as a credit against any CT liability.

The UK-based company ends up paying the same overall amount of tax as before.
The one using tax havens etc doesn't get the benefit of the tax credit from HMRC, (although it may get it through a DTT). Either way it ends up paying tax in the UK.

[sidicks]

Countdown said:

You seem to be missing the point.

Putting the "brand" in a tax haven, something that a lot of multi-nationals do minimises their tax liability. This option is anot available to a company which is purely UK resident, even if it has a brand, because any income from licensing the brand would still be taxable in the UK

But they can't get the money out of the tax haven so that's of no use. And the same issue applies (from a UK ta perspective) if the parent is NOT in a tax haven, so that's somewhat of a red herring.

[Countdown]

sidicks said:

But they can't get the money out of the tax haven so that's of no use.

Of course they can. If the Tax Haven has a CT rate of 0.00005% then, once that tax has been paid, there's nothing to stop the company paying out the profits as dividends. Do you think profits just sit in tax havens for ever?

sidicks said:

And the same issue applies (from a UK ta perspective) if the parent is NOT in a tax haven, so that's somewhat of a red herring.

Not sure what you mean. I was comparing UK-resident companies (who pay tax on UK profits) to Companies which trade in the UK but transfer any profits out via transfer pricing. A tax on turnover would stop this particular type of avoidance and the UK-resident company would be no worse off if they could offset the turnover tax against any CT liabilities.

[sidicks]

Countdown said:

sidicks said:

But they can't get the money out of the tax haven so that's of no use.

Of course they can. If the Tax Haven has a CT rate of 0.00005% then, once that tax has been paid, there's nothing to stop the company paying out the profits as dividends. Do you think profits just sit in tax havens for ever?

So there's no tax payable when the money is taken back into a 'non-tax haven' country??!!

Countdown said:

sidicks said:

And the same issue applies (from a UK ta perspective) if the parent is NOT in a tax haven, so that's somewhat of a red herring.

Not sure what you mean. I was comparing UK-resident companies (who pay tax on UK profits) to Companies which trade in the UK but transfer any profits out via transfer pricing. A tax on turnover would stop this particular type of avoidance and the UK-resident company would be no worse off if they could offset the turnover tax against any CT liabilities.

So we are simply going to make trading with non-UK companies more expensive? That doesn't sound attractive.

[Countdown]

sidicks said:

So there's no tax payable when the money is taken back into a 'non-tax haven' country??!!

It depends on how the profits are distributed and what the tax rates are in the recipient country. For example Company A distributes it's profits by issuing additional shares to its shareholders. Shareholders sell shares but proceeds are within the annual CGT allowance, ergo no additional tax payable.

sidicks said:

So we are simply going to make trading with non-UK companies more expensive?.

No. It puts non-UK companies on the same footing as UK-resident companies in terms of how much tax they pay in the UK. All other factors being the same they will make the same profit and pay the same tax in the UK.

[sidicks]

Countdown said:

sidicks said:

So there's no tax payable when the money is taken back into a 'non-tax haven' country??!!

It depends on how the profits are distributed and what the tax rates are in the recipient country. For example Company A distributes it's profits by issuing additional shares to its shareholders. Shareholders sell shares but proceeds are within the annual CGT allowance, ergo no additional tax payable.

In this case, the shareholder of the tax haven company is the parent company - how is that income taxed??

Countdown said:

sidicks said:

So we are simply going to make trading with non-UK companies more expensive?.

No. It puts non-UK companies on the same footing as UK-resident companies in terms of how much tax they pay in the UK. All other factors being the same they will make the same profit and pay the same tax in the UK.

All other things aren't equal, As explained a 'turnover tax' will simply increase the end cost to the customer.

[Countdown]

sidicks said:

In this case, the shareholder of the tax haven company is the parent company - how is that income taxed??

Why can't the parent company itself be registered in a Tax haven? That's why places like Bermuda and the Cayman Islands exist.

sidicks said:

All other things aren't equal, As explained a 'turnover tax' will simply increase the end cost to the customer.

No it won't, It's tax-neutral for UK resident companies because they will be able to offset the turnover tax against their CT liability. Ergo there's no reason for them to increase their prices.

Companies who don't pay enough UK CT can either put up their prices and risk losing sales OR they reduce the amount of profits being transferred abroad.

[Moonhawk]

rxe said:

Turnover tax.

How would that work. Tax can only be paid out of profit. If a company is loss making (which many are at the start) and has to pay tax on their turnover rather than their profit - it would sink many companies before they even got off the ground.

It would also massively favour high profit margin, but low turnover companies whilst harming high turnover low profit margin ones.

[PurpleMoonlight]

Moonhawk said:

How would that work. Tax can only be paid out of profit. If a company is loss making (which many are at the start) and has to pay tax on their turnover rather than their profit - it would sink many companies before they even got off the ground.

It would also massively favour high profit margin, but low turnover companies whilst harming high turnover low profit margin ones.

Tax us currently paid on profit. That would stop and the turnover tax would take over.

Businesses have to pay rates even when making no profit, why not a turnover tax? I would probably abolish rates too though if there were a turnover tax as that can cater for both.

There is no reason why different areas of business cannot have different turnover taxes. There was different levels of fixed rate VAT.

[cymtriks]

How about:

One personal allowance for income tax
One rate of income tax above that
One fixed amount universal benefit from age 18 to the day you die
Make the tax allowance transferable between husband and wife

That's it. Nothing else. No "allowances" or extra bits, that is it.

So:

Work always pays. There is no means testing so going to work, for however many hours a week you want to, will always pay.
If you work the universal benefit is effectively a tax refund.
If you are out of work you don't need to jump through hoops to get help, the universal benefit is always the universal benefit.
No more 80 page forms for senile women to get a bit of cash and a home help for 15mins a week (yes, I helped fill them all in!)
No more complex forms for anything else, if you exist you are in the four point system
No more poverty trap built in to the benefits system, you always get the universal benefit whatever you do
No more employers administering the benefits system by doing the governments job, maternity pay and state pension are the single benefit
No more playing the system to get more benefits, the single rate is the single rate.
No more Stamp duty, VAT, IHT, or NI or any other form of tax, you just pay income tax and there is just one percentage after just one personal allowance

[anonymous-user]

Countdown said:

Of course they can. If the Tax Haven has a CT rate of 0.00005% then, once that tax has been paid, there's nothing to stop the company paying out the profits as dividends. Do you think profits just sit in tax havens for ever?

This is total rubbish. US companies currently have $2500bn 'trapped offshore' that they can not repatriate without paying 35% US CT on. Apple, GE and MS have $300bn alone. Of course the money doesn't 'sit in tax havens'. Just because a vehicle is registered in a low/no tax country doesn't mean it doesn't have bank/broker accounts in New York or London. In fact even if it did have an offshore bank account and kept the money in cash 'offshore' (they don't), that banks balances are all washed to their correspondent banks in NY and London at the end of every day anyway. The parent might own the offshore sub and the funds of the sub might be onshore but it can't transfer the funds to the parent in any way.

http://www.cnbc.com/2016/09/20/us-companies-are-ho...

Countdown said:

Why can't the parent company itself be registered in a Tax haven?

Because they would still be taxed on their domestic business and still have the same issue with their overseas profits as before. It solves nothing. Which is why no one does it.

Countdown said:

That's why places like Bermuda and the Cayman Islands exist.

No it really isn't.

Please stop.

Edited by anonymous-user on Saturday 29th April 20:34

[Moonhawk]

PurpleMoonlight said:

Tax us currently paid on profit. That would stop and the turnover tax would take over.

Well yes - I kinda gathered that.

But if a company is only making a small profit on a huge turnover - a tax on turnover could bankrupt them.

Such a tax system would benefit low turnover high profit companies much more than high turnover low profit ones.

[anonymous-user]

Moonhawk said:

Well yes - I kinda gathered that.

But if a company is only making a small profit on a huge turnover - a tax on turnover could bankrupt them.

Such a tax system would benefit low turnover high profit companies much more than high turnover low profit ones.

Obviously. In their eagerness to tax facebook they just put every volume car manufacturer, steel producer, airline and utility company out of business.

[sidicks]

fblm said:

Countdown said:

Of course they can. If the Tax Haven has a CT rate of 0.00005% then, once that tax has been paid, there's nothing to stop the company paying out the profits as dividends. Do you think profits just sit in tax havens for ever?

This is total rubbish. US companies currently have $2500bn 'trapped offshore' that they can not repatriate without paying 35% US CT on. Apple, GE and MS have $300bn alone. Of course the money doesn't 'sit in tax havens'. Just because a vehicle is registered in a low/no tax country doesn't mean it doesn't have bank/broker accounts in New York or London. In fact even if it did have an offshore bank account and kept the money in cash 'offshore' (they don't), that banks balances are all washed to their correspondent banks in NY and London at the end of every day anyway. The parent might own the offshore sub and the funds of the sub might be onshore but it can't transfer the funds to the parent in any way.

http://www.cnbc.com/2016/09/20/us-companies-are-ho...

Countdown said:

Why can't the parent company itself be registered in a Tax haven?

Because they would still be taxed on their domestic business and still have the same issue with their overseas profits as before. It solves nothing. Which is why no one does it.

Countdown said:

That's why places like Bermuda and the Cayman Islands exist.

No it really isn't.

Please stop.

Edited by fblm on Saturday 29th April 20:34

[98elise]

Countdown said:

Countdown said:

sidicks said:

bearman68 said:

Turnover tax makes massive sense. Transfer pricing to low tax economies is rife, and detrimental to the market country. At least give the HRMC the opportunity to tax turnover not profit, if the company appears to not be playing fair. That will sort out the likes of Starbucks and Facebook.

If there is a tax of x% on turnover then the company will increase prices by x%.

It means that Uk-resident companies pay the same tax as those domiciled in Luxembourg.

To go back to your original question - let's assume that both companies are charged a turnover tax. This tax can be used as a credit against any CT liability.

The UK-based company ends up paying the same overall amount of tax as before.
The one using tax havens etc doesn't get the benefit of the tax credit from HMRC, (although it may get it through a DTT). Either way it ends up paying tax in the UK.

Turnover tax is a terrible idea. You would be taxing every link in the chain regardless of any profit. Let's say a normal chain is

Supplier of raw materials
Manufacturer of product
Wholesaler
Retailer

At each stage a turnover tax is applied. The product has been taxed 4 times if it's sourced and manufactured in the UK and costs would soar. Goods bought in from other countries would be taxed less. Exports would not be competitive.