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The cost of unjustified tax breaks to business and wealthy landowners continues to soar, new figures show

31/1/2019

The cost of tax breaks awarded by the government to businesses and the already wealthy continued to soar in 2018, according to new figures released on the same day that millions will file their tax returns.

Figures from the HMRC released today show billions were awarded in tax breaks for ‘entrepreneurs’ and already wealthy landowners, despite public services in the UK continuing to be affected by austerity.
Tax Justice UK Executive Director, Robert Palmer, said: “Many of the reliefs are simply giveaways to companies and the wealthy. HMRC rarely looks at whether they are good value for money and are actually doing what they are meant to.”

Just two tax giveaways that need to be re-examined include:

Entrepreneurs tax relief: some lucky business owners scooped a £2.4 billion gift from the government in 2018. The relief, dubbed the UK’s “worst tax break", has cost more than £24 billion since it was introduced. The relief rarely stimulates new entrepreneurial activity, and the government’s own research has shown little evidence it encourages new investment;
Inheritance tax relief on agricultural land is becoming harder to justify too. At £365 million in 2018 it’s questionable whether the relief is anything more than a bung to already rich families.

Robert Palmer said: “Many of these reliefs are simply giveaways to companies and the wealthy. HMRC rarely looks at whether they are good value for money and are actually doing what they are meant to.”

“As millions of people across the UK file their tax returns, many will be appalled at the levels of tax breaks doled out. While some of these reliefs are sensible, there are still billions of pounds spent on unjustified giveaways to the wealth and big companies, which make little, or no, economic sense.”

ENDS

Notes to editors:
Details of the costs of tax reliefs given out last financial year are available here.

Business owners earning £40k pay £4,500 less tax than employees, figures show.

29/1/2019

With the 31 January self assessment deadline looming, Tax Justice UK highlight statistics showing the ongoing unfair tax advantage available to self-employed business owners

Figures from the Institute for Fiscal Studies (IFS) show that an employee earning £40,000 a year will pay £12,262 in tax. This is £4,556 more than a self-employed person who earns the same but has opted to incorporate as a self-employed company manager/owner. The overall rate of tax paid by self-employed manager/owners can be as low as 19%, far less than the 32% rate likely to be paid by an employee earning the same salary.

Robert Palmer, Executive Director of Tax Justice UK said: “At a time when people will be rushing to file their tax returns ahead of the self-assessment deadline, it seems unfair that a self-employed company owner can pay significantly less overall than someone doing the same job for the same wage, but as an employee of a company.”

In recent years the difference in tax between the employed and self-employed has regularly been highlighted by the Institute for Fiscal Studies (IFS) * and the Office for Budget for Responsibility (OBR) **.

Instead of paying employment income tax and national insurance, people who incorporate can pay income tax on dividends, which are wholly untaxed up to £2,000 and avoid national insurance contributions altogether, whereas a normal employee is liable for income tax and national insurance

Treasury takes a £3.5 billion hit, but the economic benefits are questionable
Despite self-employment being a significant driver of employment since 2008, the OBR predicts tax revenues will be £3.5 billion lower in 2021/22 as the rate of people incorporating grows faster than employment. Research by the IFS has shown that the number of owner managed businesses (one owner and manager) has increased by 600% to 300,000 since 2007/08. People working in ‘business services’ make up by far the biggest proportion (30%) and owner managers earn up to 4.5 times more than others in self-employment. Meanwhile the share of these business owners investing, or employing others has dropped dramatically in recent years, according to the IFS research.

Mr Palmer said: “Self-employment has been a significant driver of overall employment in recent years, but the move from employment to self-employment can come at a cost in terms of overall tax revenue This reduces the money available to fund public services like health, housing and social care.

“The government needs to explain why owner managers are able to pay less tax and consider removing the tax difference between owner managers and those in other forms of employment, altogether.”

* Institute for Fiscal Studies, IFS Autumn Budget, 2018, Helen Miller: ‘Patching up business taxes.’ (from 10 mins 14 secs)
** Office for Budget Responsibility: Fiscal Risks Report, July 2017 (pg 112)
*** Institute for Fiscal Studies: Self employment and entrepreneurship: tax records and challenges for policy 4 Jun 18)
More information is included in the IFS publication: ‘Tax, legal form and the gig economy’ (Section 7)

The cost of unjustified tax breaks to business and wealthy landowners continues to soar, new figures show

Business owners earning £40k pay £4,500 less tax than employees, figures show.

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