Thursday, 4 July 2013

Bright Idea Of The Day

From City AM Forum, on the topic of tax avoidance:

HMRC could pay all PAYE state employees on a net basis. There is little point in the state handing out money, only to reclaim it in tax.

State employees with other income could simply have their main salary grossed on their tax return, so the additional income is taxed similarly to private sector workers.

Tom Spencer

It would be a particularly good idea to move public sector workers to a net salary basis before we did our planned massive reductions in the rates of income tax/NIC, so if yer overpaid quangocrat or GP is currently paid £100,000 gross as quasi-self-employed, they would just receive £65,000 net of tax with a £35,000 income tax/NIC credit.

If we then introduced a flat rate of income tax of 20%, they would continue to receive £65,000 net, but instead of their P60 saying £100,000 gross minus tax/NIC of £35,000 = net £65,000, it would say £81,250 gross minus £16,250 income tax = net £65,000. if they don't like it, then they just get a P45 saying that instead.



The Thought Gang said...

Paying public sector workers net is a very stupid idea indeed.

The cost of applying the PAYE/NIC system is small. It works the same for all employers, so all the computer systems can handle it, everyone who works in a payroll/finance/HR department understands it, and everyone at HMRC is entirely familiar with it.

PAYE is actually a really good system for all those with a simple single source of income. It only breaks down when we get into multiple income sources and wotnot.. and this suggestion would make that worse!

The costs of developing a completely new way of doing things for the state sector would vastly outweigh what it currently costs. You cannot just reduce all salaries to their current net and leave it at that. For one thing, you have to review and revise all salaries every time there's a change in the tax system.. which would only work by referencing back to a notional gross salary.. thus meaning that all we're doing is finding a new and more convoluted way to do the calculations we do now. Then there are huge knock-on effects to benefits, pension contributions and god-knows what else.

Remember, please, that 'the public sector' is not one big thing with one bank account and structure. It's many thousands of organisations of varying sizes. Some are unambiguously part of the state, others are not.. as funding streams and lines of control vary.

It's a 'proposal' I hear often... but it's so simplistic and short-sighted that not even today's politicians are dumb enough to give it any thought.