In a thought-provoking presentation at Chartered Accountants’ Hall, renowned tax campaigner Dan Neidle shed light on critical issues within the UK tax system. Titled ‘The Worst Features of the UK Tax System,’ Neidle’s lecture, delivered on 22 November as part of the prestigious Hardman Lecture series hosted by ICAEW’s Tax Faculty, highlighted three significant concerns affecting not only the system’s efficiency but also public perceptions.

Dan Neidle
Tax campaigner Dan Neidle

1. Marginal Tax Rates: A Deterrent to Productivity

Neidle emphasised that well-intentioned adjustments have inadvertently led to hundreds of thousands of UK residents with modest incomes facing marginal tax rates exceeding 71%. For instance, the static threshold of the child benefit taper since 2013 has created a situation where taking on extra work may result in a meagre £9.60 per hour after tax for a parent of three children earning £50,000 annually.

To encourage productivity, Neidle called for a political commitment to cap marginal tax rates at a reasonable level, suggesting a threshold not exceeding 55%. Additionally, he identified the £85,000 VAT threshold as a significant disincentive for businesses, proposing a reduction to around £20,000 or £30,000 to align with global competitors.

2. Complexity: Streamlining Outdated Rules and Legislation

Neidle identified two sources of complexity within the tax system: outdated rules that persist despite their irrelevance and newer laws that have become excessively convoluted. He urged ministers to update the Finance Act to allow the removal of outdated tax rules that consume valuable resources without generating revenue. Neidle cited examples such as transfer pricing, corporate interest restriction, and hybrid mismatch rules, emphasising the need for simplicity, precision, and ease of application in future legislation.

3. Public Misconceptions: Dispelling Myths and Focusing on Reality

Neidle addressed prevailing misconceptions about tax evasion, emphasising the importance of challenging assumptions that it is widespread, that the wealthy escape penalties, and that low-income individuals are unfairly penalised.

To combat these misconceptions, Neidle recommended a focus on prosecuting tax evasion as a primary approach rather than relying on civil processes like HMRC’s Code of Practice 9. He also highlighted the need to address the marketing and mis-selling of tax avoidance products to everyday consumers, proposing rigorous HMRC vetting and statutory risk labels for such offerings.

Neidle’s comprehensive analysis underscores the urgency of addressing these issues collectively to create a more efficient, fair, and humane tax system in the United Kingdom. For more information on tax and financial policies, contact us directly.