Tax  

MPs told review of labour taxation needed

MPs told review of labour taxation needed

Parliament should completely review how labour is taxed, a committee of MPs has been told this morning (5 December).

A panel of tax experts were giving evidence to the Treasury select committee on the government's plans for taxation after the 2017 Autumn Budget.

But the panel said the government should look at root and branch reform of the way work is taxed.

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Ray McCann, deputy president of the Chartered Institute of Taxation, said: "We have reached a point where we need to question how the various differences in the earnings from effort are taxed.

"It is questionable whether or not we need the extent of the divergences we have got at the moment in terms of the taxation between the employed and the self-employed."

As an example he said the government should look at National Insurance, since a lot of work goes into making sure employers and employees do not have to make contributions.

Frank Haskew, head of tax faculty at the Institute of Chartered Accountants in England & Wales, pointed to the differences between tax rules and employment law as an example of the need for reform.

For example, he said tax policy fits people into the categories of employed and self-employed while employment law distinguishes between work and employment.

Andrew Courts, a member of the global forum for taxation at the Association of Chartered Certified Accountants, said: "We need to have a much bigger discussion on the taxation of workers full stop.

"That may even be the removal of National Insurance because that is an area where people are trying to avoid tax."

The panel also expressed scepticism about the Budget's changes to the enterprise investment scheme.

The maximum annual limit was £1m, but this was doubled at last month's Budget for investments in companies the chancellor feels are in sectors that are particularly innovative, in a bid to make the scheme unattractive for those seeking low-risk capital preservation.

But Mr Haskew said the changes introduced a "significant element of uncertainty," which could put off investors.

He said: "Some investment will no longer go into these schemes because of the uncertainty to identify whether you have got a business where the capital is at risk."

Mr McCann pointed to the fact that EIS is already an investment which offers little certainty, which made the need to certainty on its tax treatment more important.

He said: "If you reduce the amount of certainty an investor has going in we will damage the effect of this arrangement. I agree with that.

"If we have a situation where we cannot get absolute certainty that the tax treatment is as they expect it to be, because plainly they are investing in something which is uncertain at the outset, then I think ultimately that must damage the scheme."

damian.fantato@ft.com