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Our tax system is too complex, and it just punishes honest people

Financial dilemma: 6 Music's Liz Kershaw says she felt coerced into forming a PSC: Chris Lever/Rex Features
Financial dilemma: 6 Music's Liz Kershaw says she felt coerced into forming a PSC: Chris Lever/Rex Features

A three-cornered fight between BBC presenters, the Corporation, and the tax authorities is under way. It is miserable for all concerned. The testimony of presenters who suddenly find themselves with huge, unexpected tax bills has been wrenching — these are not tax dodgers but good, long-hours journalists who’ve had to work through cancer treatment; some driven to the edge of suicide; others who face losing their homes.

For the BBC itself, this is a nightmare: morally there is a strong case for the Corporation stepping in to cover the extra tax costs of employees — among them 6Music DJ Liz Kershaw — who were persuaded by managers to set up personal service companies. But is that a proper use of the licence fee? Managers feel the Inland Revenue has changed its position and left them dangling.

But of course this is bad for the tax system as well: relying on last-minute and punitive-seeming clawbacks is no advertisement for a system that depends on widespread public acceptance and predictability.

Tax is something most of us feel strongly about. We want it to be fair. We deeply resent tax dodgers. We depend upon the services it pays for. Somehow, it binds us together as one society. But what this sad affair really shows is that the British tax system has become much too complex.

Taxes should be three things: unavoidable, fair and dull. An interesting tax system is a complicated, sinuous, intellectually challenging tax system; one that can be wrestled with, talked back to and avoided. Simplicity brings a brutal clarity. Hong Kong, whose tax system is widely admired, has a tax code that runs at fewer than 300 pages. Britain’s is around 17,000 pages long. That so few BBC people were absolutely clear about the use of personal service companies isn’t exactly surprising.

The complexity of the British tax system came about by accident: it was the side effect of decades of well-meaning, clever ideas. The tax system became the alternative to stand-alone, independent legislation.

Andrew Marr
Andrew Marr

Governments wanting to promote something useful — re-foresting, persuading more US companies to make their films in Britain, growing tech companies — found it easy to tilt the tax system with incentives to encourage it. Similarly, ministers wanting to stop things — sugar in children’s drinks, diesel engines, second homes for rent — found the tax system a softer alternative to banning it.

So, launched on a sea of good headlines, the tax system grew into an interesting, complex reef of tempting coves and hidden dangers. Budget by budget, year by year, it grew. Every exemption brought more work for accountants and lawyers. And collectively, they have made fools of many of us.

When I first left newspaper journalism — the result of a very sound sacking — I had a complicated scheme for a tech company of my own. It was back at the time of the first “dot-com boom” when investment money was sloshing around, and I excitedly set up my very own company. It was called Aslan Computing. I can’t remember why.

It proved to be a pointless exercise but I can vividly remember being told by an eager financial advisor that I should employ my wife and children, paying them as “consultants”, thereby saving tax and keeping the firm in the family. Since my youngest child was about seven or eight at the time, and my wife was busy working in a real job, I thought this looked dodgy and declined.

But having rebadged myself as a company drew me deeper and deeper into the thickets of tax law. What are genuinely allowable expenses? Computers, heating and lighting for an office, paper for the fax machine? Yes — but what about a smart suit for meetings, and an impressive-looking car to get there? What about, um, birthday presents for clients?

It’s a mad world. Since I like to spend as much of my life as possible writing things, talking about things and making things, I quickly realised that being a company — with its bureaucracy, its endless paperwork and its annual reports, was a horrible waste of time and human spirit. I avoided being caught up in the BBC personal company row, mainly through laziness.

Companies can be fine and wonderful institutions. Most of us work in, or for, them. But as a way of avoiding paying your fair share of tax, they are a grim and humiliating experience.

Anyway, I believe in paying tax. I can’t say I actively enjoy the process — that would be a little weird — but to almost every complaint about public life, from “not enough police” to “filthy air”, part of the answer is, tax. Follow that logic to its extreme and everybody would be paying 100 per cent in taxes, and dependent on the state for everything. That’s a horrible thought. But fair taxes are unavoidable to civilisation and nobody, but nobody, should duck out.

We need a really radical clearing-out of the whole tax system, a major conflagration of allowances, exemptions, codes and sundry other temptations. That includes the incredibly sophisticated and fast-changing taxation of savings. Future chancellors should pride themselves on shredding more pages of the tax code that they add.

That, however, is just the start of the coming tax revolution we need. The gravest injustice of all is that so many major global companies are able to avoid taxes that locally-based British traders cannot. So, alongside a ruthless haircut for the British tax system, we need Britain to form big alliances to force the new giants of the world economy to become fair taxpayers. There’s not a lot of point in taking back control from Brussels, simply to give it away to California or New York.