How is your relationship with the UK tax system? Loved up? Acrimonious? Our fiscal rules are infamously complex, and taxation affects every facet of our day-to-day lives. It is also one of the most hotly debated topics in politics, and invariably takes a prominent role in the political discourse. We can only expect this to ramp up as we approach the forthcoming general election. As a professional tax adviser who deals with complex tax issues on a daily basis, I always find the perception of the general public very interesting when it comes to debates about tax matters, and how clearly (or not) our country’s tax rules and complicated system are understood.
The economy is frequently listed in polls as one of the most important issues for voters. Tax policy, and changes to tax rules and reliefs, are inextricably linked to the economy as a means of stimulating economic growth and so are usually prioritised by election candidates and political parties, with great focus on manifesto pledges. However, the main focus of these pledges is usually on fairly simplistic ideas for reform. A cynic might view them as a cheap means of winning over the electorate with headline-grabbing moves which, in reality, are of little benefit to the average voter. All talk and no trousers, as it were. Recent examples of this would include the relatively small reduction in National Insurance. Whilst these can easily be branded as the government putting more money in your pocket by cutting tax rates, in the background they continue with the freezing of the tax-free personal allowance and higher rate income tax threshold, which does far more to increase the tax burden on the population than a National Insurance cut does to help them, as more people than ever have been dragged into the higher tax brackets as wage rises have followed inflation. The taxpaying public could be forgiven for feeling, well, a little unsatisfied.
Politicians will also focus on tax matters which do not affect the vast majority of the population but provoke an emotional response. For instance, Inheritance Tax (IHT) is probably one of the most widely resented of taxes as it is seen as a tax on wealth which has already been taxed, chargeable at what is often a time of mourning. However, the Institute for Fiscal Studies estimates that less than 4% of estates paid IHT in 2020/21, and this will still only be around 7% by 2032/33. So many of those who hate it are likely to never have to worry about it, but still politicians toy with our affections.
There is also much focus on ‘the wealthy paying their fair share’. This is often in relation to a potential increase in Capital Gains Tax (CGT) rates or curtailment of CGT or IHT reliefs available on business assets, but this argument is unsophisticated as it does not acknowledge the contribution business owners make to the economy through employment, trade, and the numerous streams of revenue these activities contribute to the Treasury.
The media must also take their share of the blame for the general lack of appreciation or understanding of how the tax system works. I have seen many articles in recent years which declare with great outrage that a large company has paid a miniscule amount of corporation tax paid despite earning billions in revenue, completely ignoring the fact that corporation tax is charged on profits, not revenue. It is also very unhelpful to see common and accepted tax planning, such as claiming non-domicile status or moving offshore and becoming non-UK tax resident, described as ‘loopholes’ when those in question have not even partaken in tax avoidance, let alone tax evasion. More recently, we have seen tax weaponised against a Shadow Secretary. The average man on the street might be forgiven, at first glance of a newspaper, for thinking she has been involved in unscrupulous tax avoidance, when the reality is far more mundane and she has, at the very worst, made a small and common mistake which is of tiny consequence to HMRC.
A recent study by Tax Policy Associates suggests that around half of the population might not understand simple rules relating to income tax rates, so there should be little surprise if more complicated rules are not fully comprehended or appreciated. However, if tax is to continue to play such a prominent role in election campaigning and is such an important issue for most of the population, the electorate would do well to dig a little deeper into each party’s tax policies to understand the effects they might have on the economy and on society. After all, the best relationships involve effort from both sides, so perhaps there may yet be a happy ever after…
