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Create a single company tax to simplify everything

Comment 2nd July 2010

My idea is to merge VAT, corporation tax and employer's national insurance into one.  A single company "turnover tax" would replace these which would simplify the onorous reporting needs on many businesses.

I would suggest that every quarter each business would calculate a tax charge (rate dependent on industry type) and report/pay this to HMRC.  A supplement calculation would be done for the amount of payroll costs which would be equivalent to the Employer's national insurance contributions.  I would also add onto this calculation a means of calculating class 1a national insurance for company paid benefits, such as company cars etc.

VAT – is really just a tax on people who are not VAT registered, i.e. us!  The way VAT works for businesses is for them to act as a holder and pass it onto HMRC every quarter, this is a tax on profits which is passed along the business process until we, the end user, pays for it.

Corporation tax – this is a tax on business profits.  The richest companies pay handsomely for tax advice to establish detailed tax saving strategies, these strategies can involve moving monies abroad to offshore companies or to other group companies in different countries where the corporate tax rates are lower.  As corporation tax is a tax on profits it can be open to abuse, by recalculating this as a "turnover tax" the tax planning advice will be extremely limited.

Why does this matter?

By doing the above a business would be able to improve their budgeting ability as they would know how much of their income to set aside.

The trouble with VAT and corporation tax rules are that they are both extremely complicated and difficult to get right without the aid of professionals.  Each business expense can be treated differently for these taxes which means that a company may not get the full tax relief when challenged at a later date by HMRC.

By getting rid of these taxes it would remove a huge amount of taxation laws and remove the need for businesses to establish whether costs are allowable or dissallowable.

HMRC seem to be laying off an awful lot of staff meaning that there are less tax inspectors and HMRC relying on computers spotting any tax underpayment/overpayment.

This idea would eliminate IR35 tax evasion as service companies would pay a tax on turnover and then on all monies drawn from the business, whether by salary or dividend as the small company rates would have been abolished.

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