EMANCIPATION OF TAX
by Malcolm Chambers, CPFA, Chambers Accounting Limited N
ow that 2020 is upon us, changes are being made to the income tax system as announced recently by the Treasury Minister
The biggest reform concerns changes to the legal rights of wives and civil partners in the tax system. Whilst the rhetoric of the report said that wives have been treated as ‘chattels’ under the old law, and change was greatly overdue, it would be a little fairer to say that under the existing law the tax responsibilities fell squarely on the husband’s shoulders.
Following what some consider may have been consultation with a limited number of interested parties, the consensus reached was that the existing tax position of wives and civil partners was old-fashioned, unfair, and needed to be brought into the 21st century; that is the rights and responsibilities of wives and civil partners should be shared with the husband, by what was described as ‘independent taxation’.
Whilst independent taxation has been chosen as the basis for the new tax system, there are some obvious problems in reaching that goal so the Treasury Minister has only announced limited changes to the law which can be implemented immediately. These concern the rights of wives and civil partners who in future will have equal rights to discuss household tax affairs with the tax office. They will also have the right to sign the tax return for the household, and have joint and several liability for the tax due, which is combined with the continuing right to elect for separate assessment.
Whilst this may be an acceptable sharing of rights, it does bring with it a potential future sting in the tail for wives and civil partners that does not exist in the current system. The term ‘several liability for tax due’ is a legal term that
effectively means that all the tax due may be collected from either/or the husband or wife. Many of us are aware of situations where husbands have abandoned their wives, disappeared or run off, or vice versa. But this leaves the abandoned partner with the sole responsibility for paying any tax that remains outstanding, which is not the situation that exists now. To be fair, the solution was highlighted in the report so that an election can be made for separate assessments, but this can only be made in advance of the tax year. That means it could be too late, and therefore, it is very much in the interest of husbands, wives and civil partners to elect for separate assessments to protect their future positions, once the law changes are made.
Independent Taxation
A system of independent taxation effectively means that one taxpayer - the household - is replaced by two, the husband and wife or civil partner. Instead of one tax return being completed, the husband, wife or civil partner would in future be responsible for completing their own tax return and receive a separate tax assessment for which they are personally liable. Thereby equality is achieved.
Whilst this may be a laudable goal, achieving it without seeing changes in the amount of tax charged may not be possible. Independent taxation would give each partner a single tax threshold, currently £15,400, a combined total of £30,800, against the current household total of £30,800 made up of the married person’s allowance plus the second earner’s allowance. Although the total allowances remain in parity, the tax effect does not. The effective reduction of the married person’s allowance and scrapping the second earner’s allowance, will increase or decrease the total tax charge at varying
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20/20 - Finance
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