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Friday 21 October 2011

TPA – Another Dodgy Dossier

Another week, another “report” from the dubiously talented array of non-job holders at the so-called Taxpayers’ Alliance (TPA), this time revisiting one of their favourite subjects, National Insurance (NI) contributions. As with the last missive on the subject, which I considered back in March, the latest report is authored by Rory Meakin. And it is not only poorly researched, but contradictory in its logic.

Moreover, there is a significant amount of padding and verbiage in Meakin’s latest offering, which may deter hard pressed hacks from investigating further, but should not prevent those seeking to subject the TPA’s product to serious analysis. Among the assertions made about NI is that it exacerbates unemployment. But rolling NI into Income Tax is a change only in name. So the TPA assertion is just padding.

But it is good to see that the TPA is addressing the concerns raised by this blog about pensioners and freelance workers. I’m sure that Meakin and his pals managed to figure this out without my prompting, but sadly, the analysis is flawed. In order not to increase the Income Tax burden on pensioners, the TPA proposes a lower Income Tax rate for them. Therefore the tax system becomes more complex.

But the main plank supporting this exercise is that it makes the tax system simpler: the reality is that what is given with one hand is taken away with the other. And the approach to freelances betrays the TPA’s lack of knowledge. The assumption is made that the self-employed all contract out of NI. I know that this is not the case as I am self-employed, and still pay ordinary NI, as would an employee.

Moreover, no mention is made of what would happen to those freelances who work on several contracts at once, and at present can take some of their income as bonus payments, reducing their NI burden. As no exception is shown, the assumption has to be made that this group will see their tax bill rise significantly. And the TPA has not mentioned the hated IR35.

The latter, which stopped freelance workers on single full-time contracts taking part of their income as a bonus payment, is widely believed to bring in very little net tax income, while antagonising a flexible and enterprising part of the workforce. One might have thought the TPA would be supportive of an IR35 repeal, but they do not even mention it.

As it took me little more than a read-through to see the gaping holes in the TPA’s case, it would be no surprise whatever to see the Government thank them for their contribution to the tax system debate, before quietly consigning this latest report to the bin. Must try harder, folks.

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