Let’s instead think of reasons why such a move is really bad for the UK.

First, it increases social tension. Why should big business have a tax rate less than the basic rate of income tax? Where is the logic in that? Of course people will be aggrieved.

Second inequality will rise. Dividends are assumed to have had basic rate tax paid in them at source. That is, in effect, assumed to be settled by corporation tax but this will now be lower than the income tax rate. The effect will be that investment income will be even more lowly taxed, and it already enjoys much lower rates than income from work. And since dividends are very largely enjoyed by the better off (and yes, most pensioners are better off) this will automatically increase inequality.

Third, there will be an increase in tax avoidance. Small business will have every incentive to incorporate to avoid tax. Unless the cuts will not apply to them this will be a straight gift to the tax avoidance industry. It’s hard to think of anything more bizarre.

It’s the combination of para 2 and 3 which just works so well. Because in para 3 he sees that it’s really the individuals who pay the tax – this must be so if different individuals pay different tax rates. But in para 2 he’s wibbling about the incidence being upon the company.

And 4 isn’t bad either. Tax avoidance is only people using the law in a manner that a reasonable legislator could not have foreseen. And if even the Spudmonster can foresee it then it can’t be tax avoidance, can it?

16 thoughts on “Wondrous”

  1. IIRC, the amount of tax credit varies according to the rate of CT, doesn’t it? So if CT is, say 15%, that won’t mean that the tax credit will be equal to 20%, surely?

  2. even more lowly taxed

    He must be getting ready for Christmas for “Once in Royal David’s City” to find its way subconsciously into his writing.

    Or could he be reflecting on his move to a cattle shed in Ely?

  3. > Small business will have every incentive to incorporate to avoid tax.

    A small business is already incorporated, by definition. But let’s give him the benefit of the doubt and assume he meant sole traders.

    > Small business will have every incentive to incorporate

    He’s right that lower corporation tax would incentivise some sole traders to incorporate. But the Treasury seems to be constantly trying to discourage that behaviour, so any cut in corporation tax is likely to be offset by a corresponding hike in the dividend tax or some new version of IR35; even if it hasn’t been announced yet.

  4. “Dividends are assumed to have had basic rate tax paid in them at source”

    Nope. Murphy’s wrong again.

    That used to be the case when we had a full tax credit, and it was still sort of the case under Gordon Brown’s reduced tax credit (a 10% basic rate tax on dividends, offset by a 10% tax credit). The numbers were awkward but it still sort of worked.

    But Osborne changed that when he abolished the tax credit on dividends, with effect from April 2016. Once your dividends are above a threshold, basic rate taxpayers are taxed, despite the fact that the company has already paid tax on its profits; and higher and additional rate taxpayers are taxed at a rate set so that the combination of corporation tax and income tax is more than their normal income tax rates.

    But I suppose we can’t expect Murphy to know about changes to the tax system. It’s only been in place for seven months and announced for a year. After all, he’s not a tax expert, is he?

    Now if he belonged to a professional body, he would have a duty to update his knowledge…

  5. So…. Investment is bad (inequalitah!), except investment by the People’s Green QE Investment Bank of righteousness?

  6. “Dividends are assumed to have had basic rate tax paid in them at source.”

    What Richard said. The ‘tax credit’ was scrapped in April 2016.

    Now the first £5k dividends are tax free, then the tax rate is:

    Basic rate taxpayers – 7.5%
    Higher rate taxpayers – 32.5%
    Additional rate taxpayers – 38.1%

    So those receiving below £5k a year in dividends will pay no tax on them so will NOT be paying at a higher rate than the rate of CT, since 0% is lower than 15% (or whatever rate HMG decide on).

    Those receiving more are likely to be higher or additional rate taxpayers and will be used to paying tx at the pre April 2016 rates of 25% and 30.5% of the net dividends, rates ALREADY above the current CT rate of 20% with no signs of being aggrieved.

    It just shows how limited Murphy’s exposure to this stuff is. He has just never done much tax planning for clients.

    Murphy is just pig-shit ignorant about a topic he claims to be an expert in.

    (@Nautical Nick – No, you’ve got that all wrong)

  7. Andrew C said:
    “It just shows how limited Murphy’s exposure to this stuff is. He has just never done much tax planning for clients.”

    Indeed.

    But not just tax planning; he can’t have even read a tax magazine in the last year. This has been a major reform in Professor Murphy’s area of supposed expertise and it seems to have completely passed him by.

  8. @ Andrew I did write IIRC! I clearly didn’t! I’ve been out of the game a long time! Thanks for the example.

  9. So we can conclusively add Tax to the list of subjects about which Murphy professes to be an expert but in fact about which he knows an embarrassingly small amount, Economics being another glaring example. Feel free to add your own subject here.

  10. Bloke in Costa Rica

    Oh, LY, people have been walloping that poor expired nag for so long the bugger’s ribs are showing.

  11. – “And since dividends are very largely enjoyed by the better off (and yes, most pensioners are better off) this will automatically increase inequality.”

    Surely that’s the stupidest thing of the lot. And he says a lot of stupid things.

    The idea that it’s unfair and unacceptable that someone with a lifetime of work, career growth and saving behind them should have greater wealth than a spotty 16-year old youth.

    More accurately, that it’s unfair and unacceptable that someone with a lifetime of work, career growth and saving behind them should have greater wealth than that same person 50 years earlier when they were a spotty 16-year old youth.

    He’s actually protesting and arguing that the state should forcibly intervene because of the unfairness and ‘inequality’ of a person’s wealth being different at different stages in their life.

    What. A. Fucking. Dick.

  12. BiCR,

    I know that but I find it very amusing that Ritchie wants to reduce inequality by keeping the tax that falls mostly on workers.

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