Tax Loop Holes can easily disappear with a simple tax law change

But the real question is – does anyone have the bottle to make such an unpopular change.

It seems that you cannot pick up a paper, listen to the news or read the news web sites without there being an almost daily occurrence of mudslinging at those that use perfectly legal tax rules to conduct their tax affairs.

Laws that have been around for years and have not been changed at all in the recent past.

So why all of this fuss now?

Well that is a big question isn’t it!

The crux of these so called tax loopholes lies in the fact that a tax savings structure can exist where a person receives their ‘pay’ by way of dividends rather than a salary which would attract PAYE.

So where exactly is the tax saving?

Very simply – you do not pay national insurance on dividends.

How much is national insurance?

National insurance is paid by both the employer and the employee on the gross pay that they receive.

The employee pays 12% of their gross salary and the employer pays 13.8% of the employee’s gross salary.

Bottom Line

The employee gets 12% less in their pocket and the employer has to pay another 13.8% on their wage bill.

The government gets 25.8% more tax.

So by someone arranging their tax affairs in line with current and legal tax laws and so paying a dividend, the employee gets 12% more, the employer decreases their wage bill by 13.8% and the government collects less tax under their currently and legal tax laws.

When does a legal tax law become a loophole?

Is it when someone doesn’t like it? How come all of a sudden tax laws which have been in place for a number of years are now considered loop holes.

Surely there is a duty on every Government (past and present given the number of years that these tax laws have existed) to close obvious loop holes.

Combine income tax and national insurance

This one could be very easily closed by combining income tax and national insurance and having one system of tax.

Let’s face it the days of national insurance going into the pot of paying for the health service and pensions, as was it’s original purpose, have long since gone.

Having different systems and rates of tax introduces complexity.

Complexity allows teams of boffin type advisors to examine the laws and dig out loop holes.

However it has to be said that this ‘so called’ loop hole in question doesn’t take much digging out and thousands are using it.

So how would you feel about a single tax rate of circa 32%?

Is this far too high as a headline income tax figure but …

It’s pretty much what you are paying already.

It’s all down to perception isn’t it.