As Winston Churchill once said: “There is no such thing as a good tax.” My accountant says I should pay my tax with a smile. I tell him I’d love to, but the Revenue insists on money. It’s so unfair.
In fact, tax is not just unfair (and every single tax we have is unfair to someone, isn’t it?), it’s also increasingly, fiendishly complicated. Tax doesn’t have to be taxing, they say…but they like to make it that way anyway.
You would think that a functioning and mature economy would have a sane, unfussy tax system. Not us (though, to be fair, after three years of the Brexit debacle it is very much under question whether anything about the UK political system could be described as ‘functioning and mature’).
No, every new Chancellor who grabs the red briefcase with trembling excitement has to do a bit of jiggling to our already creakingly top-heavy tax system, for the heck of it.
Admittedly, it’s not just the UK that has over-complicated the way we bestow our hard-earned to our lovely government. The genius Albert Einstein, speaking from the US, said: “The hardest thing in the world to understand is income tax.” And on filing his taxes, he added: “This is too difficult for a mathematician. It takes a philosopher.”
So if the father of the theory of relativity who managed to bend time and give us E=mc2 couldn’t work out what he owed on his payments from his latest lecture tour, what hope is there for us mere mortals?
It doesn’t help that HMRC itself doesn’t seem to have a complete grasp on matters. In my workshops on managing your money I used to tell participants to call HMRC if they were unsure about tax issues. “It’s free,” I’d say, “so make the most of it.” Now I have to add: “But it’s probably worth going for a second opinion as they’re not always right.”
Even their software regularly spits out the wrong conclusions. In 2017, thousands of taxpayers had to file paper returns because of glitches in the system. Given that AI (artificial intelligence) is supposed to be the cure-all for every government admin woe, it doesn’t bode well.
Just a few of the unnecessarily complicated areas of our delightful tax regime include: the messed-up system of marginal rates (including different ones for Scotland and the rest of the country at the top end); different levels of capital gains tax for property and other assets; pension contributions limits; inheritance tax rules (messed up to assuage the angry, property-owning middle classes); different types of stamp duty; and the variety of Isas. These are just a snapshot of the many and growing areas of tax confusion we’re meant to navigate.
It almost makes it worth being poor – at least it would if the tax system didn’t work in favour of the rich who can afford to pay a professional to bring down their tax liabilities for them. As they say, the mark of a good tax accountant is that they have a loophole named after them.
So as we move to that exciting time of year when we fill in self-assessment forms at 10 minutes to midnight the day before the deadline, it’s worth giving a thought to how we could finally stop the madness and make it all a bit simpler.
The Office for Tax Simplification (yes, there is one, but don’t get too excited because it’s government-run) has made quite a few sensible suggestions in a recent report, including simplifying child benefit, improving PAYE, overhauling pensions and improving the way a deceased person’s tax situation is assessed and communicated.
But most tellingly it recommends that “HMRC should collaborate more with relevant external bodies, including schools, to improve thπe public’s understanding of tax and finance”. Yes! Again and again we’re all asking for this – more financial education in schools, including an explanation of taxation to equip future generations with the tools to run their lives and their money properly.
And that’s the key (and it’s why this magazine rewards top financial educators in schools with the annual Moneywise Personal Finance Teacher of the Year Awards). Successive governments get away with complicated, often unfair taxes because the majority of us don’t know it’s happening. We get exercised about ATMs charging us to withdraw cash but we have no idea how many thousands we’re losing because of tax loopholes, complications and mistakes.
Yes, a fool and his money are soon parted, but the rest of us wait until income-tax time. As Mark Twain wrote: “The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.” With greater knowledge, we’ll have more skin in the game.