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This week's opinion: 20 June 2024

17 June 2024 / Andrew Hubbard
Issue: 4941 / Categories: Comment & Analysis
Should different income be taxed at different rates?

The Conservatives’ proposal to abolish (over the lifetime of a parliament) the main rate of National Insurance contributions for the self-employed raises interesting issues of principle which extend beyond immediate short-term political considerations. It puts into focus the question of whether different types of income should be taxed at different rates. If we look at earned income, there is a strong argument that £100 of income should be taxed identically, irrespective of how it arises, and the tax system should not go behind the figure. But there is a school of thought which argues the opposite: it is harder for a self-employed person to earn £100 than it is for an employee, so the system should recognise this by taxing the self-employed person more lightly.

Many people would not accept the premise that it is harder for a self-employed person to earn £100 but, even assuming that is the case, is that a matter the tax system should acknowledge? I remember raising this issue years ago at a seminar. My recollection was that the audience was split about 50-50 over whether there should be a differential rate.

If we then extend into the world of unearned income the questions become even more difficult. Older readers will remember that there used to be a 15% surcharge on investment income. Now interest and dividends are, at least for most taxpayers, given a favourable tax treatment. If we add capital gains tax into the mix we have a bewildering variety of different rates.

The hurly burly of an election is not the time (whatever your political allegiances) to address this, but it does need to be thought about when the dust settles. It could form an important plank of any future simplification agenda.

If you do one thing...

If you deal with partnerships, see the latest amendments to the Enquiry Manual dealing with closure notices at EM7565.

Issue: 4941 / Categories: Comment & Analysis
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